The next edition of the SLIM VAT package

According to the draft, the SLIM VAT 2 package will bring the following changes:

The SLIM VAT 1 package extended the deadline in which the taxpayers making monthly settlements can deduct input VAT “on a current basis”.

However, according to the current regulations, if the period in which the taxpayer had the right to deduct input VAT from given invoice “on a current basis” is closed, given invoice may be reported in correction of only one period i.e. the one in which the right to deduct input VAT arose (i.e. generally the one in which the invoice was received or the tax liability for the seller arose, depending on which of these events occurred later).

The SLIM VAT 2 package will loosen these rules.

Under the planned amendments, an outstanding purchase invoice may be included in the correction submitted for the period, in which the right for tax deduction arose or, alternatively, one of the subsequent periods in which it was originally possible to deduct the input VAT “on a current basis”.

Thus, when deducting input VAT retrospectively, taxpayers making monthly settlements will be able to correct one out of four months, while the taxpayers who submit quarterly declarations – one out of three quarters.

Under the controversial amendments to the VAT Act, effective as of 1 January 2017, taxpayers were deprived of the right to make neutral settlement of the output and input VAT on:

• intra-Community acquisition of goods (ICA),
• import of services,
• purchase of goods and services settled by the buyer under the VAT reverse charge mechanism

in situations where the output VAT was not declared in the relevant settlement period, within 3 months from the end of the month in which the tax liability arose.

Additionally, in case of ICA, the taxpayers could not report input VAT neutrally also in cases, when the invoice documenting such a transaction was received by them after 3 months from the end of the month in which the tax liability arose.

In the above situations the taxpayers were obliged to settle output VAT in the period in which the tax obligation arose, whereas input VAT could be deducted in the declaration for the period in which they submitted relevant correction of output VAT or obtained the invoice. Due to the fact that output VAT was reported in a period preceding the period in which the input VAT was included, the taxpayers declared tax arrears and had to pay penalty interest.

The Court of Justice of the European Union (CJEU) in its judgment of 18 March 2021 (in case file C-895/19), explicitly stated that the regulations which exclude neutral settlement of ICA due to the lack of reporting of the transaction in the appropriate settlement period within 3 months are not in line with the EU VAT Directive. Consequently, such regulations should not be applied.

The draft of the SLIM VAT 2 act announces the deletion of the provisions which require that output and input VAT must be reported separately in different settlement periods in case output VAT was not reported in correct settlement period within the 3 months.

According to the new wording of these regulations, reporting the output VAT in the correct settlement period (also as a result of a correction submitted after 3 months) will in each case give the taxpayer the right to deduct the input VAT in the same period (unless, of course, the right to deduct input VAT has been time-barred).

In the light of the drafted regulations, lack of receiving of the invoice documenting ICA within 3 months will still mean that the taxpayer has lost the right to deduct input VAT.

However, the consequences of receiving the invoice after this 3-month deadline will change.

According to the drafted regulations, in such a case the taxpayer will be entitled to deduct input VAT in the same settlement period in which he declared the output tax. As a consequence, the receipt of an invoice documenting ICA (even after 3 months from the end of the month in which the tax obligation arose) will ultimately enable the taxpayer to settle VAT on a given ICA transaction in a neutral way.

The so called bad-debt relief is a mechanism allowing taxpayers to recover the output VAT resulting from the invoices, which have not been settled by the purchaser.

The requirement to amend the so called bad-debt related provisions stems from the CJEU’s ruling issued on 15 October 2020 (in case C-335/19), in which it was stated that certain conditions for applying the so called bad-debt relief stipulated in the Polish VAT Act are not compatible with the EU law.

According to the draft, the amended provisions will eliminate the conditions relating to the debtor's status. Consequently, the relief will become available also in situations where the debtor is under liquidation proceedings, ceased to be an active VAT taxpayer or is a consumer or a VAT exempt taxpayer. It should be however kept in mind that in situations where the debtor is not an active VAT taxpayer, the use of the so called bad-debt relief will depend on meeting additional conditions.

Moreover, the deadline for benefiting from the so called bad-debt relief will be extended from 2 to 3 years (starting from the end of the year in which the invoice was issued).

This amendment relates to the rules under which the taxpayers may opt for resignation from VAT exemption on supply of immovable property.

At present, using the option to tax such a transaction with VAT requires submitting a joint statement made by the two parties to the head of the competent tax office before the date of the transaction. If this formality is not fulfilled, taxation of the transaction with VAT as well as application of the exemption from the tax on civil law transaction (PCC) may be challenged.

Under the SLIM VAT 2 package, a joint statement of the parties regarding resignation from the VAT exemption included directly in the notarial deed concerning the sale of the immovable property will be of equal value to a statement submitted to the tax office.

Other amendments brought by the SLIM VAT 2 package will also include i.a.:

• introducing rules on how credit notes related to ICA and imports of services should be recognized - the proposed provisions will essentially legitimize the approach adopted in individual rulings and judgments of administrative courts, according to which the period of recognition of a credit note in ICA and import of services depends on the moment when the reason for the correction arose;
• possibility to transfer the funds between the own VAT accounts opened in different banks;
• extending the deadline for submitting the VAT-26 form for vehicles used for business purposes;
• aligning the definition of the territory of the EU and the Member State with the arrangements made in relation to "Brexit".

Natalia Kłoś, Supervisor, Indirect Tax Services, KPMG in Poland
Patryk Roratowski, Tax Consultant, Indirect Tax Services, KPMG in Poland

In this issue:

• Introduction – Tomasz Bełdyga
• Structured invoice: a new VAT invoicing scheme – Łukasz Daniek
• VAT-slimming in practice – Tomasz Piotrowski
• The next edition of the SLIM VAT package – Natalia Kłoś, Patryk Roratowski
• The VAT E-Commerce Package: VAT Changes for B2C Trade– Izabela Jędra, Kamil Chmielewski
• VAT E-Commerce Package: Marketplaces and the new roles they are about to assume – Izabela Jędra, Kamil Chmielewski
• A draft Decree on amending the extended SAF_T file (JPK_VAT) – Izabela Jędra, Kamil Chmielewski
• Reverse charge on VAT: a landmark ruling of CJEU – Marek Bielawski
• Sugar tax – Zbigniew Sobecki, Rafał Roczniak