Poland allows the creation of VAT groups from 1 January 2023
The new regulation facilitates management and may have a positive impact on financial liquidity in the capital group, whereas administrative activities related to the functioning of the VAT group are limited.
Starting from 1 January 2023, it is possible to set up a VAT group under the Polish legal system. The most important effect of the legislative amendment will be that, once the group has been established and the registration obligations have been complied with, the formalities involved in accounting for the group's VAT will be taken over by the designated representative (leader), which will handle the VAT obligations on behalf of the remaining group members. A group can be set up by affiliated entities.
The requirement whereby the companies forming a VAT group must be affiliated companies will be fulfilled if the following links exist:
- financial – one entity directly holds a share of more than 50% in the share capital, or more than 50% of voting rights in the supervisory or audit bodies or in decision-making or management bodies, or more than 50% of the right to share in the profit of, each of the remaining group members;
- economic – the nature of the core business of the VAT group members is the same, or the types of business conducted by them complement one another and are interdependent, or one VAT group member conducts a business from which, in its entirety or to a large extent, other members benefit;
- organisational – group members are under joint management, whether in legal terms or actually and whether directly or indirectly, or they organise their operations acting in concert, whether entirely or partly. This may also include entities that have their registered office in Poland or foreign entities with branches based and conducting business in Poland.
Effects of establishing a VAT group
A group, acting through its representative, will be able to file a single, joint VAT return and hold a single bank account for handling VAT refunds and for receiving payments. This will make it possible for group members to have fewer formalities relating to individual accounting for the tax on goods and services, which will improve financial liquidity within the group and reduce the tax risk by limiting the scope of tax audits.
Moreover, intragroup transactions will not be taxed or invoiced, and will not be subject to the split payment mechanism. VAT group members will, however, be required to maintain separate electronic records for transactions concluded among themselves. Those records will have to be provided at the request of the tax authority within 7 days of the delivery of the request. The establishment of a VAT group will also reduce the number of JPK_V7 documents filed by the group members. Until now, each of them has been required to provide the document individually, whereas in the case of a VAT group, the JPK_V7 file will be submitted by the group only.
In accordance with the amendment, once the VAT group has been established, the JPK_V7 file submitted by the group for the first accounting period of its operations will have to include any excess input VAT over output VAT, as disclosed by the group members in their individual JPK_V7 files.
Consequently, the services rendered:
- by a VAT group member to another member of the same group will not be subject to VAT;
- by a VAT group member to an entity from outside the group will be regarded as rendered by the group;
- to a VAT group member by an entity from outside the group will be regarded as rendered to the group.
Activities between VAT group members which are not subject to VAT will not be subject to the tax on civil law transactions either, except for:
- sale and exchange agreements the subject matter of which is real estate or a part of real estate, or a perpetual usufruct right, a housing cooperative member's ownership right to premises or to a single-family house, or a right to a parking space in a multi-car garage or a share in these rights;
- agreements for the sale of shares in commercial companies.
Group members will be liable on a joint and several basis for the group's obligations not only during the time when it has the status of a VAT taxable person, but also when it no longer has this status. The amended regulations also set out the requirement to determine the proportion of a VAT deduction for each group member during the time when the group exists. This proportion should be based on the share of each group member in the taxed and untaxed activities. In the first year of operation of the VAT group, the proportion used will be the value determined by the group members as at the time of establishment of the group. If any group member is an entity which, at the time of establishment of the VAT group, was not required to determine the proportion is among the group members, the proportion must be determined separately, by estimation, on the basis of the forecast agreed with the head of the competent tax office.
Additionally, in certain situations, the group may be required to determine a proportion for the entire VAT group. The need to do so may arise from the fact that the group will also have to keep a record of transactions concluded within the group and define their relationship to the business activity conducted.
Formal conditions for establishing a VAT group
In order to establish a VAT group, the members must formalize a written agreement which must stipulate at least the following:
- the name of the VAT group adding the terms “VAT Group” or “VG” (in Polish: “grupa VAT” and “GV”, respectively);
- the identifying details of the taxable persons forming the VAT group, including the details concerning the branch in the case of a group member whose registered office is not in Poland, and the amount of the share capital of each of these taxable persons;
- the identification of the representative of the VAT group designated from among its members;
- the identifying details of the shareholders that own at least 50% of the share capital in the group members and the specification of their shares.
The registration is to be carried out by the VAT group itself by filing the VAT-R document along with the agreement establishing the group. Once the VAT group has been registered, it will be included in the white list of VAT taxable persons. The details of the group members will be disclosed in the list, along with their bank account numbers. This solution enables VAT groups to continue accounting for transactions with external clients through the bank accounts held.
The agreement will be valid for at least three years, with an option to extend it 30 days before the expiration date. No group member may leave the group during the term of the agreement – in such a case, the group will be automatically dissolved.