On 19 August 2021, the President of Poland signed an act introducing a number of simplifications to VAT settlements. The changes are intended to improve taxpayers’ liquidity in connection to VAT settlements, deformalise certain procedures, and implement decisions of the Court of Justice of the European Union in cases lost by Poland.
In general, the changes will come into effect as of 1 October 2021. However, the amended provisions regarding bad-debt relief will not apply to VAT where the right to deduct the tax arose prior to 1 January 2022.
Modification of bad-debt relief to VAT
The amendment reduces a number of conditions regarding the possibility of applying bad-debt relief to VAT, which constitutes implementation of the judgment of the Court of Justice in C-335/19, E. Sp. z o.o. Sp. k. v Minister Finansów.
The creditor will be able to apply bad-debt relief even if on the date of delivery of goods or performance of services, as well as on the day preceding filing of the correction to the tax return to apply the bad-debt relief, the debtor was not registered as a VAT payer or was undergoing bankruptcy, restructuring or liquidation. However, the amendment maintains the condition that the creditor must still be registered as a VAT payer on the day before filing the adjustment to the tax return.
The deadline for taking advantage of bad-debt relief has been extended from 2 years to 3 years from the end of the tax year in which the invoice documenting the debt was issued.
Also, the amendment introduces the possibility to take advantage of bad-debt relief when the buyer is not registered as an active VAT payer (natural persons not subject to VAT, or VAT payers exempt from VAT due to the value of sales or performing only VAT-exempt activities). In such a case, the creditor can apply for bad-debt relief if:
- The claim has been confirmed by a legally final court ruling and referred for enforcement proceedings
- The claim has been entered in a register of debts kept at the national level, or
- The debtor has been declared a consumer bankrupt pursuant to separate provisions.
Modification of the rules for input tax deduction through adjustment of a return
Currently, in case of exceeding the period for settlement of input tax “on an ongoing basis,” a taxpayer may deduct the input tax by way of correction of the original tax return only by correcting the tax return for the settlement period in which the right to deduct the tax arose.
The amendment will allow taxpayers to correct their tax returns not only for the period in which the right to deduct the tax arose, but also for one of the next three periods falling immediately after the settlement period in which the right to deduct the tax arose. This will allow taxpayers to manage their excess input tax more effectively. The amendment will allow the accumulation of input tax deductions in a single tax return where the right to deduct input tax amounts arose in nearby periods.
Modification of rules for determining “movable supply” in chain transactions
Chain transactions are transactions in which the same goods are subject to successive deliveries and are shipped or transported directly from the first supplier to the last consecutive buyer. In such a case, the dispatch or transport is attributed to a single delivery only: the “movable supply.” Determination of a movable supply is significant, as prior to the movable supply all supplies are subject to VAT in the state from which the goods are dispatched or transported, and all supplies taking place after the movable supply are subject to VAT in the state of destination of the goods. The movable supply itself is classified on the supplier’s side as export or intra-Community supply of goods, and on the buyer’s side as import or intra-Community acquisition of goods.
Currently, in the case of export of goods, if goods are dispatched or transported from the territory of a state to the territory of a third state by a purchaser who also supplies them, the movable supply is the supply made to that purchaser, unless it follows from the terms of the transaction that the supply by that purchaser should be regarded as the movable supply.
In the case of intra-Community supply of goods, if goods are dispatched or transported from the territory of one member state to that of another member state, a supply to an intermediary should be regarded as a movable supply. An intermediary is a supplier, other than the first consecutive supplier of goods, who dispatches or transports the goods himself or through a third party acting on his behalf.
The amendment introduces an unequivocal rule for determining the mobile supply in relation to intra-Community supply of goods and export of goods where the entity dispatching or transporting the goods in a chain transaction is the first consecutive supplier (the first entity in the chain) or the last consecutive buyer (the last entity in the chain), and not the buyer of goods who also supplies the goods or the intermediary. In such a case, the “movable supply” will have to be allocated either to the supply made by the first supplier or to the supply made to the last buyer.
Modification of VAT settlement rules for imports under simplified procedure
Under the simplified procedure, taxpayers may account for VAT on the import of goods together with other taxable operations, instead of paying the VAT included in the customs declaration directly. Where that tax is not accounted for in the tax return, the taxpayer loses the right to account for that tax under the simplified procedure and is required to pay it directly, together with interest.
Pursuant to the amended provisions, taxpayers using the simplified procedure will be able to correct the tax return if they did not account for the tax correctly in their original tax return.
The taxpayer will be able to correct the tax return within 4 months after the month following the month in which the tax obligation related to the import of the goods arose.
If a taxpayer fails to account for VAT in the correct amount (in full or in part) and fails to make the appropriate correction to the tax return by the due date, the taxpayer will lose the right to account for this tax in the tax return. The loss of the right to settle VAT in the declaration will concern only the VAT shown in the customs declaration, from which the tax was not settled in full in the tax declaration. In such a situation, the taxpayer will be obliged to pay the VAT directly, with interest.
Modification of rules for VAT settlement on intra-Community acquisitions of goods
According to the rule currently in force, the deduction of input tax in the same accounting period in which the output tax for intra-Community acquisitions of goods is settled is allowed, provided that the taxpayer receives an invoice and shows the output tax within 3 months of the end of the month in which the tax obligation arose. Otherwise, the input tax is deducted “on an ongoing basis,” while the obligation to pay output tax arises earlier. In C-895/19, A. v Dyrektor Krajowej Informacji Skarbowej, the Court of Justice held these conditions to be disproportionate and in breach of the principle of VAT neutrality.
The amendment eliminates the 3-month period for demonstrating VAT. A condition for the settlement of input tax and output tax on intra-Community acquisitions of goods in the same settlement period will be the recognition of output tax in the period in which the tax liability arose. The amendment maintains the condition that the invoice must be received within 3 months of the end of the month in which the tax liability arose. However, if the taxpayer receives the invoice at a later date, the taxpayer will still be entitled to deduct the input tax in the same settlement period in which it settled the output tax.
Modification of the rules for waiver of VAT exemption on supply of buildings or structures referred to in Art. 43(1)(10) of the VAT Act
According to the regulations currently in force, waiving the VAT exemption on delivery of a building, structure or parts thereof, as referred to in Art. 43(1)(10) of the VAT Act, is conditional on submission by the buyer and the seller of a mutual statement on election of VAT taxation to the head of the tax office for the buyer for VAT purposes, before the date of delivery of those items.
The amendment introduces the rule that instead of submitting a statement to the tax office for the buyer, taxpayers will be able to submit a statement on the choice of VAT taxation in a notarial deed drawn up in connection with the supply of these items. The possibility of making a declaration in a notarial deed has already been accepted in decisions of the administrative courts (e.g. judgments of the Supreme Administrative Court of 14 March 2018, case no. I FSK 854/16, and the Province Administrative Court in Kielce of 20 August 2020, case no. I SA/Ke 15/20).
Release of funds from VAT account and technical account
When a settlement account is closed, the funds from the VAT account connected with that account are transferred to a technical account kept by the bank. The amendment introduces provisions allowing the taxpayer to apply to the head of the tax office for permission to withdraw the funds deposited in the technical account.
The amendment also introduces the possibility to issue consent to release funds from the VAT account if the taxpayer benefits from relief in repayment of tax liabilities (tax arrears held by the taxpayer have been deferred or scheduled in instalments).
Changes concerning the split payment mechanism
The amended regulations will allow taxpayers to improve their financial liquidity in connection with use of the split payment method.
Taxpayers will be able to transfer funds in their VAT account to other VAT accounts held in other banks. Currently, it is possible to transfer funds between the VAT accounts only when the VAT accounts are held with the same bank.
The amendment also extends the possibilities for allocating funds in a VAT account. In addition to social insurance contributions (ZUS), taxpayers will also be able to pay agricultural insurance contributions (KRUS) using funds in their VAT account.
Mateusz Rowiński, Tax practice, Wardyński & Partners