Poland implements new rules for making payments to VAT taxpayers
Poland Tax Alert
Starting from November 1st 2019, Poland has implemented new rules for making payments to VAT taxpayers under which in particular cases the amount of VAT must be paid to the separate bank account of the supplier (so called split-payment). The implementation came as a continuation of the sealing process of VAT system in Poland and replaced reverse charge method of settling VAT in the domestic transactions.
Introduction of split payment to the Polish tax system resulted from the Implementing decision of the Council 2019/310 dated February 18th 2019 which authorized Polish legislators to implement the new method till at February 28th 2022. The Polish authorities plan to extend the deadline resulting from the decision.
The new legislation came into force starting November 1st 2019 and requires obligatory application of split payment to sale of selected sorts of goods or services exceeding PLN 15 thousand, included in the new Appendix 15 to the VAT Act. The list of goods and services subject to obligatory split payment mechanism is available in English on the European Union law website (translation arranged by the EU).
Split payment may be applied voluntarily also to other types transactions. It is the buyer who decides whether to use split-payment in each particular payment.
If the split payment is applied for a given transaction, the buyer will divide the payment into two. The net amount will be transferred to the seller’s currently existing account, and the VAT will go to a specially designated VAT account. The VAT accounts are opened automatically and attributed to currently existing account by Polish banks.
The amount gathered on the VAT account is under supervision of the tax authorities i.e. it should be used to transfer funds from the VAT account to another VAT account, settle public liabilities such as VAT, social security, income tax, customs etc. Should a surplus exist, an application to the tax authorities for return of the surplus amount is possible (generally the funds should be returned in term of 60 days).
The amount of VAT paid under the split payment mechanism can be accepted only in PLN. In case of transactions in foreign currency, the split payment should be arranged to include conversion into PLN and paid through split payment mechanism.
Offsetting of mutual liabilities will not be subject to the new regime.
Collective payments will be possible (for several invoices as part of one transfer).
Failure to comply will be sanctioned. For example:
failure to include the indications that a given transaction is subject to a split payment regime, the invoice issuer may receive a penalty equal to 30% of the VAT value resulting from such invoice;
failure to pay in the split payment regime, the buyer may receive a penalty equal to 30% of the value of VAT resulting from such an invoice, he will also loose the right to include the expenditure amount as tax deductible (in both CIT and PIT). The sanctions apply regardless whether the provider put a proper description on the invoice (in other words mistake on the contractor’s side does not reduce any liability in this areas)
if blame for failure to comply can be assigned to a particular person, the person responsible for such a situation could be subject to sanctions under the Fiscal Penal Code (substantial penal fees are possible).
According to the transitional provisions, the supply of goods or services should be done according to the previous provisions (settled with reverse charge method) if they had been listed in Annex 11 or 14 of the VAT Act (goods and services settled in reverse charge method) and if it had been:
completed prior to November 1st 2019, for which the tax obligation arose or the invoice was issued after October 31st 2019,
completed after October 31st, for which the invoice was issued prior to November 1st 2019.
The new regulations not only impose new obligations on the taxpayers, but also – due to expected practice of extending application of the split-payment to transactions in which it is not obligatory, may limit financial liquidity of many entities. Further, they require reviewing of the transactions and deciding whether the payments are made in consistency with new regulations.