Binding VAT Rate Statement

Binding VAT Rate Statement

As of 1 November 2019, taxpayers can apply to the Director of the National Tax Information Service for what is known as a Binding VAT Rate Statement ("BRS").

Binding VAT Rate Statement

A BRS is an official decision classifying a particular product or service in accordance with the Combined Nomenclature (CN), the Polish Classification of Buildings and Other Structures (PKOB) or the Polish Classification of Goods and Services (PKWiU). The purpose of a BRS is to provide protection for taxpayers regarding the classification of their goods and services and, consequently, the correctness of VAT rates. Each BRS will contain:

  1. a description of the good(s) and/or service concerned;
  2. details of the classification of the good(s) or service, specifying the section, item, subsection or CN code, or the section, part, group, class, category, subcategory or item of the PKWiU; and
  3. the correct VAT rate to be applied.

Importantly, a BRS may also classify the good(s) and/or service concerned for the purposes of regulations other than VAT rate regulations, e.g. for the purposes of the split payment mechanism.

Also, a BRS application may cover what is referred to as "combined performance". According to established views based on judicial decisions, "combined performance" is defined as two or more activities performed by a taxable person which are so closely interlinked that they form a single and indivisible business event which, if divided, would be artificial in nature. Taxpayers found it very difficult to determine the correct PKWiU classification code and, as a result, the correct VAT rate. Tax authorities refused to specify classification codes in "individual tax interpretations" and instead told taxpayers to contact the national statistics office. The statistics office determined the classification codes, but on the basis of public statistics standards rather than specific VAT regulations. The new regulations requiring the Director of the National Tax Information Service to issue BRS's (which must include the correct PKWiU or CN classification code and the correct VAT rate) can be regarded as a step in the right direction, also as regards the "combined performance" concept. Each BRS application can be accompanied by supporting documents regarding the good(s) and/or service concerned, such as photographs, instruction manuals, approval certificates etc., which may make it easier for the authority to issue a correct classification. 

Although BRS applications can be made as of 1 November 2019, BRS's will not be binding upon tax authorities before 1 April 2020, with a few exceptions (such as certain books and e-books, magazines, newspapers or dailies). The reason for this deferred binding effect of BRS's is that they are to be issued in connection with the introduction of a new matrix of VAT rates. 

A new matrix of VAT rates

A new matrix of VAT rates will apply as of 1 April 2020. As a result, the rules of classifying goods and services for VAT purposes will be changed. The currently applicable Polish Classification of Goods and Services (PKWiU) of 2008 will be replaced, for services, with a PKWiU version of 2015 and, for goods, with the Combined Nomenclature (CN). The VAT rates for certain goods and services will be raised or reduced.

For example, the VAT rate for homogenised and diet foodstuffs, tropical and citrus fruit, certain processed spices (e.g. pepper, nutmeg or thyme), as well as bread and biscuits of any kind, will be reduced.

The goods for which VAT rates will be raised include, for example, seafood, ice for food-related purposes and other cold storage purposes, as well as unprocessed spices such as caraway, saffron, turmeric or nutmeg.

The main purpose of the changes, as described in the formal reasons for the draft Bill proposing the new matrix of VAT rates, is to simplify the system. "The years of practical application of the PKWiU classification show that the Polish system of VAT rates that is based on this classification is extensive and complicated, leading to substantial challenges faced by businesses. (...) The system as it is today is ineffective and criticised for its complexity and lack of protection for taxpayers as regards their application of the VAT regulations based on the PKWiU classification (this lack of protection results from the fact that the formal classification opinions issued by the Polish national statistics office are not binding)".

The proposed changes are expected to help simplify the system of VAT rates to ensure its simplicity and clarity and, as a result, to improve the conditions for doing business.

Agnieszka Laskowska, Director in the VAT Team at KPMG in Poland 

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