Split payment is a payment mechanism under which payment for goods or service is made by the purchaser to the supplier’s bank account and:

• the net sale amount is credited to the supplier’s basic settlement account;
• the VAT amount is paid to a dedicated VAT account that it automatically created by the bank as an additional account to every business/trading settlement account.

The money accumulated in the VAT account remains the property of the taxpayer, but the latter cannot manage it at his/her liberty. Such money can only be used to pay VAT for goods or services and to pay tax liabilities to the Tax Office. The taxpayer can also apply for a release of funds, i.e. for a transfer of the cash from the VAT account to the settlement account. The Head of the Tax Office has sixty (60) days to consider the application and resolve whether or not to release the VAT-account cash.

In its obligatory form, SPP is inherently a VAT fraud fighting tool, intended for counteracting situations where an unfair taxpayer, having collected VAT from the purchaser/buyer, has failed to pay the due tax amount to the Tax Office. However, the statutory sanctions provided for the failure in applying the SPP—particularly, the income tax sanction—are also harmful to honest taxpayers (also when a transaction has been properly settled and due VAT paid by a supplier).

Obligatory split payment extends to payments for supplies of goods and services enumerated in Annex no. 15 to the VAT Act. This includes goods and services which until 1 November 2019 were covered by the reverse charge mechanism (for instance, supplies of steel rods, mobile phones, waste, recyclable materials) and purchaser’s joint-and-several liability (such as supplies of fuels, steel pipes). Obligatory SPP also extends to construction services and new commodity groups, incl. motor-vehicle parts/accessories, coal and coal products, TV sets, and other.

In line with the VAT Act, obligatory SPP is applicable to invoices whose total gross amount exceeds PLN 15,000 (or its foreign-currency equivalent). The calculation of the 15,000 threshold in a situation where the invoice encompasses goods and services to which SPP applies along with non-SPP ones triggers doubts. As explained by the Ministry of Finance, the determinant for the use of SPP is the total gross amount as invoiced, rather than only the value of goods/services whereto SPP is applicable. For example, when the invoice pertains to SPP goods worth PLN 1.00 and non-SPP goods amounting to PLN 15,000, the invoice will fall under split payment mechanism, however the obligatory application of SPP will only apply to SPP-covered goods (in the given example the taxpayer will be obliged to make a payment under SPP only in respect of goods with the value of PLN 1). In business trading practice, situations are frequent where the supplier adjusts previously issued invoices. In the SPP context, in-plus correction invoices may appear problematic. In practice, it may very often happen that the gross amount based on the original invoice is not in excess of PLN 15,000, whereas the in-plus adjustment will cause an excess of the threshold. In such a case, it cannot be excluded that payment of the original invoice outside SPP will imply a sanction.

Considerable controversy has aroused with the issue of SPP applied in setting-off debts. As per the amended wording of Article 108a, clause 1(d) of the VAT Act, split payment is not applicable with the set-off referred to in Art. 498 of the Polish Civil Code [PCC], to the extent that the amounts due/receivable are set off. This refers to set-offs between two entities; the debts being offset have to be due.

As the aforementioned provision refers to ‘setoff’ (or ‘offset’) within the meaning of Art. 498 of PCC, its extension to other setoff institutions is problematic. One example is payments settled by means of multilateral netting, which is a popular form of settlement between entities being members of foreign capital groups. As the name suggests, such settlements are based on mutual receivables and payables being set off between a number of entities. The debts being set off are often not-yet-due. Does it mean that such setoffs would not be possible in case of payments for goods and services falling under split payment mechanism?

It is hard to find a reasonable explanation of why such a form of settlement should be treated by the legislator any differently than the setoff regulated by Art. 498 of PCC. However, taking into account the literal phrasing of the regulations in question, a restrictive approach of tax authorities in this respect should be taken into account.

Another controversy related to obligatory SPP concerns the possibility of using a payment card when paying invoices in excess of PLN 15,000, for goods or services whereto SPP applies.

Presently, there is no technical possibility to apply SPP when paying with a card. Therefore, the question arises whether the taxpayers purchasing sensitive SPP-covered goods have been deprived of this payment option.

Unfortunately, the explanation published on the Ministry of Finance’s official website leaves no doubt in this respect: “… purchase of goods to which the obligatory SPP applies in excess of PLN 15,000 gross shall not be payable with a payment card. The entrepreneur will have to pay via transfer since the transaction will be covered by SPP”.

The quoted position should be regarded completely negatively. Depriving entrepreneurs/businesses of the option to pay with cards and making them switch to transfer payments will deteriorate the financial liquidity of businesses trading in sensitive goods. What is more, the Ministry’s position is doubtlessly contrary to the derogatory decision obtained by Poland, whereby Poland has been authorised to apply the obligatory SPP only with respect to payments made by means of electronic bank transfer.

Numerous practical doubts have aroused regarding the regulations allowing for collective bank transfers under SPP. The VAT act says that the purchaser may make a collective payment with the use of SPP for invoices issued by one supplier within a period of not less than one day and not more than one month. Importantly, should the buyer resolve to make a collective payment, she/he will be obligated to pay all the invoices issued by a given supplier within a given period—regardless of whether such invoices evidence SPP-covered transactions or not.

The regulation does not specify, though, whether in the case of such collective payments corrective invoices issued by the supplier within the given settlement period should be taken into account, and the amount of transfer can be reduced by the amounts based on the corrective invoices.

Some of the above questions still remain unanswered: there are no answers to be found in the imprecise regulations, while the explanations published on the Ministry of Finance’s website remain unsatisfactory. The coming days will show the practical approach adopted by tax authorities with respect to the use of SPP. The sanctions provided for the failure to apply SPP are doubtlessly severe. Therefore, applying for individual interpretation is a step worth considering as a means of protecting oneself against the adverse consequences of erroneous use of SPP.

Małgorzata Chociaj-Årøen, Manager, VAT Team, KPMG (Poland)