The purpose of this article is to analyse the VAT taxation of municipalities in Poland and France. In both Poland and France, the taxation system is subject to harmonisation with European Union regulations. In these countries, there are separate regulations on municipal taxation, which assume taxation of municipalities on general principles, but also provide for the possibility of exempting municipalities from value added tax. The practice in this respect in France has been regulated by law, while in Poland it has been developed through the jurisprudence of the Court of Justice of the European Union and the Supreme Administrative Court. The vague tax regulations in Poland lead to numerous disputes between municipalities and the tax administration. In addition, in the French system, the commune has the right to resign from the VAT exemption and settle under the general rules. In France, municipalities are entitled to receive subsidies from the Value Added Tax Compensation Fund (FCTVA). This gives effect to the principle of value-added tax neutrality and reduces the number of disputes with the tax administration, while at the same time satisfying the interests of local communities much better.