At the beginning of this year, a suite of amendments to the Polish value-added tax, dubbed the “SLIM VAT” package, came into force. The idea behind the package was to simplify VAT settlements for taxpayers. Almost six months into application of the new rules, practice shows that the simplification process did not go entirely as planned.
For the most part, the modifications brought about by the package can be assessed positively.
The most beneficial amendments include:
- Extending the deadline for the export of goods to apply the zero percent rate on the advance payment from 2 to 6 months.
- Extending the deadline for making input VAT deductions on an ongoing basis up to a total of 4 months (without having to correct previous VAT returns).
- Increasing the allowed amounts for one-off gifts of a small value from PLN 10 to PLN 20.
- Excluding the obligation to apply the split payment mechanism to all types of set-off claims, also in the case of making other deductions than those defined by the Article 498 of the Civil Code (including multi-lateral setoffs).
- Providing VAT payers with the option to choose the same rules of converting tax base expressed in a foreign currency into PLN for VAT and corporate income tax (CIT) purposes.
(Un)simplified invoice corrections
Nevertheless, the new rules for settling credit notes introduced under the SLIM VAT package have met with a storm form criticism from the business and advisory community.
Previously, the rule was that the seller's right to reduce the output VAT on the credit note issued was dependent on the purchaser’s confirmation that the credit note has been received, while the purchaser’s obligation to reduce the input VAT arose upon receiving the credit note. Thus, although imposing the need of supervision over the document circulation, the previous rules were relatively easy to follow. Additionally, the practice has developed many different forms of confirming the receipt of a credit note.
The amendment removed the obligation to obtain the confirmation of credit note reception, yet it introduced new requirements, pursuant to which, the seller can only reduce the output VAT if the documentation in their possession indicates that the conditions for the correction has been agreed with the purchaser and subsequently met, and that the corrective invoice is consistent with the documentation held. The purchaser's obligation to reduce input VAT was now made dependent on the same circumstances. Importantly, the purchaser’s obligation to reduce input VAT arises not upon receiving the credit note, but in the very moment the agreed conditions of making the correction are met. This, in turn, may lead to a situation where input VAT reduction becomes due even if a correcting invoice is not received.
Company A sells steel to Company B. On 1 January 2021, the parties entered into agreement under which, once a specified purchase threshold is surpassed, the purchaser is to be granted a 5% discount on the total sales made before the threshold has been exceeded. On 5 April 2021, Company B made a purchase with which it exceeded the discount threshold. A correcting invoice issued by Company A on 4 May 2021 was received by Company B on 5 May 2021.
In this case, the conditions of making a correction are settled when the agreement specifying the rules for granting a discount is entered into. In turn, the conditions for making correction are met once the sales threshold is exceeded, i.e. on 5 April 2021.
In the light of the recent regulations, the buyer is required to reduce the input VAT on purchases made in the return filed for April 2021, because it was during this period that the agreed correction conditions were met, regardless of the fact that the correcting invoice was issued and delivered to the purchaser in May.
This means that that the accounting departments are now required to closely monitor the entities’ commercial relations in order to determine whether and when the conditions of the correction have been agreed upon and met (e.g. granting a discount, accepting a complaint/return or admitting price error).
Threat to chain transactions
The SLIM VAT package brought revocation of the Article 7(8) of the VAT Act, pursuant to which whenever several entities supply the same goods in a manner such that the first of them releases the goods directly to the last customer in line, it is deemed that the supply of goods was performed by each of the entities participating in said activity. This regulation related directly to chain supplies, encompassing a single transport of goods but also a set of separate sales transactions within the meaning of VAT regulations. This scheme was frequently applied, inter alia, to transactions made with the use of fuel cards.
In the explanatory memorandum to the draft bill, however, it was explained that the provision was repealed as redundant. Shortly after the entry into force of the amendment, when issuing a general ruling regarding settling VAT on fuel card transactions, the Ministry indicated that individual rulings issued under the above-mentioned provision (and therefore also those regarding fuel cards) lose their protective power starting from the settlement period in which the provision ceased to apply. Consequently, it seems that the legislator either did not foresee or did not consider it appropriate to mention this effect of repealing the "redundant" provision when justifying the said amendment. Therefore, the amendments brought by the package may have serious tax consequences for chain transactions, also in cases where the taxpayers obtained individual rulings.
Tomasz Piotrowski, Assistant Manager, Indirect Tax Services, KPMG in Poland
Frontiers in tax. Polish edition | June 2021
This issue of the Magazine explores the key VAT-related changes, including introduction of a new type of e-invoice, commonly referred to as structured invoice, the SLIM VAT package, the VAT e-Commerce package, along with the latest developments related to the sugar tax.
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
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