Dziennik Gazeta Prawna

This article discusses how to recognise services connected with immovable property based on existing provisions of the VAT Act and VAT Directive. This is extremely relevant because a correct classification of a service as being connected with immovable property determines the place (country) where the service is taxed for VAT purposes. In accordance with these regulations, services are connected with immovable property if they have a sufficiently direct connection with the property, i.e. the property is central to the services or they have as their object the legal or physical alteration of the property. The authors use the example of warehousing services and mixed warehousing and logistics services to show the criteria for analysis and classification of services and to explain the resulting consequences, e.g. the need to obtain VAT registration in Poland if the property is situated in Poland.

Rzeczpospolita

The lease or purchase by an employer of an apartment for his employees is associated with the employer's taxable activities for VAT purposes and the employer should be entitled to deduct the VAT charged to him on such lease or purchase. However, tax authorities disagree and put forth two arguments why the right of deduction does not arise in such cases. First of all, they claim there is no connection between the lease or purchase and the employer's taxable activities because the provision of accommodation to employees for no consideration is not subject to VAT. And, secondly, the lease or purchase is connected with the letting of apartments for residential use, which is an exempt activity. On the other hand, courts take a more business-friendly approach, holding that these cases objectively cannot qualify for the exemption otherwise applicable to the letting  of apartments for residential use because a business such as a company cannot have any living accommodation requirements.

Puls Biznesu

It is a principle of tax law that a tax burden falling on a person liable to tax may only be relieved by the person himself. Except as specifically allowed by law, a person's tax liability may be extinguished only by the action of that person alone. The article discusses two cases where the payment of VAT by somebody else than the taxable person himself will extinguish the liability of that person. One of these cases is where the tax due or in arrears is up to PLN 1000. Subject to the conditions laid down in the Taxes Management Act, this tax may be paid by anyone. In addition, if a taxable person has appointed a fiscal representative, the tax authorities are empowered to look to the representative for the payment of any VAT the taxable person has failed to pay himself.

Puls Biznesu

The VAT Act says that intra-Community supplies of goods are zero-rated. Tax authorities often however deny businesses this right on grounds of trading irregularities. In such cases businesses are left with the only option of having to prove their good faith, i.e. that their transaction did not mean a deliberate involvement in fraud. To do so, they have to comply with the good faith obligation imposed by tax authorities which requires diligent verification of business partners. But no law provides how to examine a taxable person's good faith so that there is plenty of controversy on this. While courts similarly consider that an intra-Community supply of goods may only be zero-rated if there is good faith, they also hold that tax authorities have the burden of proving clear bad faith on the side of taxable persons. Furthermore, tax authorities are not authorised to require unlimited business partner verification efforts. Thus, if tax authorities are unable to prove bad faith, they may not question the right to zero-rate intra-Community supplies of goods.

Rzeczpospolita

Many corporate groups have transfer pricing policies which provide for annual verification of intercompany results to ensure they are at arm's length. This is done though what is called transfer pricing adjustments. Transfer pricing adjustments are particularly popular in limited-risk manufacturer or limited-risk distributor models. In the past, due to lack of dedicated regulations, the recognition of such adjustments for income tax purposes was a difficult topic that attracted a number of controversial tax rulings. However, a new law has been in effect since 1 January 2019 to resolve those concerns.

International Tax Review
 
 
 
 
 
Lidia Adamek-Baczyńska and Olga Palczewska of WTS&SAJA dissect the differences between Polish and EU VAT law, the opportunities and difficulties these differences present, and relevant case law.
 
The VAT acts of member states are subject to harmonisation upon which EU VAT law is being standardized. This, however, is not aimed at eliminating the national law systems.
The VAT directive (2006/112/EC) is binding to each EU country, but leaves the choice of form and methods to the national authorities who transpose it into national legislation. Consequently, member states’ VAT acts of are not fully coherent and unique rules and solutions can be found.
 
There are many VAT rules in Poland which do not stem directly from the EU VAT Directive, and therefore we could ask whether these laws are compliant. Polish VAT law includes, among others, additional requirements which must be fulfilled to reduce the taxable amount in the case of non-payment by the other contracting party (so-called bad debt relief).
 
However, the most frequently discussed VAT issue in Poland is the restriction of the period for input VAT deduction with respect to transactions settled using the reverse charge mechanism (e.g. intra-community acquisitions (ICA) or imports of services).
 
Until the end of 2016, Polish taxable persons could report input and output tax resulting from ICAs and the import of services in the same VAT return, irrespective of when the invoice was received and when the output VAT was reported. Such VAT treatment made purchases of goods from the EU and service imports neutral even if they were not reported on time.
 
New regulations have been enforced
 
The situation changed from January 1 2017. Since then, taxpayers have been entitled to deduct input VAT paid on a transaction for which the reverse charge mechanism applies, provided that the output VAT from this transaction is reported in their VAT return within a maximum of three months from the end of the month in which the tax became chargeable. If the output tax is reported later, input VAT can be deducted in the VAT return for which the filing deadline is still pending (current VAT return). Output VAT, however, must still be reported in the VAT return submitted for the month in which the tax became chargeable.
 
Practical aspects of the new regulations
 
The practical impact of this is that where a reverse charge transaction is reported after the three-month time limit, the input and output tax are reported in VAT returns for different periods. This can lead to tax and interest arrears. As invoices documenting ICAs and imports of services are usually received with some delay, reporting output VAT within this time limit is not always possible. So, many taxable persons in Poland face the problem of being obliged to pay interest due to not reporting these transactions on time.
 
Moreover, to meet the (three-month) deadline for reporting input and output VAT from a reverse-charge transaction in the same VAT return, and avoid any negative consequences, taxpayers need to correct their VAT returns by this rather short deadline. A subsequent correction of VAT returns is usually required when additional invoices are received. This causes a lot of administrative work for taxpayers.
 
Divergent judgements
 
In the judgements from September 29, 2017 and May 15, 2018, the Polish provincial administrative courts held that taxable persons shall not be obliged to pay interest due to reporting ICAs after three months (case no. I SA/Kr 709/17 and no. III SA/Wa 2488/17). It was pointed out that, in accordance with the principle of neutrality, taxable persons cannot bear the economic burden of VAT. Moreover, taxable persons cannot report output VAT until the invoice is received, and it is the supplier who must be blamed for the delay in providing it. Therefore, the regulations were considered to be non-compliant with EU law.
 
Despite this tax-friendly approach of the administrative courts in Poland, the regulations not been changed and nobody has yet submitted a preliminary ruling to the European Court of Justice. Moreover, in August 2018 one of the provincial administrative courts presented a negative opinion in this respect (I SA/Op 246/18). Given that the tax authorities and taxable persons are obliged to obey the provisions of the Polish VAT Act, as long as the rules remain unchanged then interest will have to be paid. Will the tax-friendly approach of administrative courts have an influence on the lawmakers? Or will the preliminary ruling to the ECJ be submitted? These are some of the questions raised.
 
This article was prepared for International Tax Review by Lidia Adamek-Baczyńska, tax adviser and partner, and Olga Palczewska, senior consultant, at Doradztwo Podatkowe WTS&Saja. Doradztwo Podatkowe WTS&Saja is the exclusive member firm of WTS Global in Poland.
Puls Biznesu

Many businesses are in doubt whether VAT applies to amounts they receive from their business partners as compensation for breach of contract. According to the taxman, such amounts may constitute taxable consideration for a service. According to Director of National Revenue Information (ruling ref. 0112-KDIL1-2.4012.583.2017.1.JO), where a contract party fails to take an ordered delivery and is thus charged some amount, the other party in fact supplies a taxable service for a consideration. The consideration is the amount received from the first party, on which the other party must pay VAT. However, the Wrocław Provincial Administrative Court thought otherwise (case no. I SA/Wr 265/18). The court held that the amount received from the first party in respect of his failure to take the delivery is compensatory in nature and as such represents damages which are not a VATable consideration.

Dziennik Gazeta Prawna

The VAT Act offers an exemption from the tax for supplies of goods or services made by traders whose sales do not exceed certain thresholds. These exempted persons can now be certain that the sales threshold qualifying them for the exemption does not include intra-Community supplies of goods, as confirmed by the Supreme Administrative Court in case no. I FSK 739/16 (judgment given on 21 February 2018). The authors explain how to calculate the threshold and what compliance duties are incumbent on VAT-exempt persons, illustrating their discussion with the example of an itinerant trader doing business in Poland and Germany. They also discuss the advantages and drawbacks of the exemption.

Puls Biznesu

The article discusses the recognition of correcting invoices for transactions accounted for using the reverse charge mechanism. The general VAT rule about correcting invoices is that, where the adjustment is downward, the supplier must recognise the correcting invoice  in the same month as the customer after confirmation of receipt. In contract, where the adjustment is upward, the correcting invoice must be recognised according to the reason for the adjustment either by reference to the period when the tax became chargeable or by reference to the current period. It seems that the same treatment should apply where the correcting invoice relates to a reverse charge transaction. However, tax authorities think otherwise, claiming that the reason for the adjustment must be taken into account for all correcting invoices, whether the adjustment is downward or upward. This standpoint negatively affects businesses as they incur costs of having to constantly adjust their returns and risk being held to be in arrears of VAT. There is hope however in that courts tend to take a more taxpayer-friendly attitude.

Dziennik Gazeta Prawna

For VAT purposes, a finance lease is a supply of goods and so the lessor must raise an invoice for the leased property already at the inception of the contract. However, sometimes a finance lease will be terminated early (e.g. following a total loss, theft or cessation of lease payments). In such cases, lessors are in doubt if they are entitled to adjust the original invoice. The authors discuss the newest case law on this topic and provide example-based guidance.

Puls Biznesu

In the wake of technological development, businesses and banks make an increasingly frequent use of innovative payment solutions. However, as the VAT Act is silent on these solutions, they generate issues when it comes to VAT treatment.  The article discusses the approach adopted by tax authorities and courts to such issues as the taxation of services that enable payments by mobile phones (BLIK) and the option to deliver an invoice via a mobile app instead of delivering a paper receipt.

Rzeczpospolita

Businesses are often unsure whether they need to prepare transfer pricing documentation when increasing the share capital of their daughter companies. According to the Director of National Revenue Information, they do (see ruling ref. 0111-KDIB1-3.4010.335.2017.1.APO). But the Provincial Administrative Court in Gliwice believes that such an increase does not affect taxpayer's income at the time of transaction, therefore the taxpayer does not need to prepare TP documentation (case no. I SA/Gl 314/18). Seeing this interpretation issue, the Finance Ministry decided to propose a special-purpose amendment to the relevant legislation. According to the amendment (which was transmitted to the Parliament on 21 Sep 2018), the duty to prepare TP documentation for equity transactions will arise directly from the CIT Act. Also, domestic transactions will not be subject to TP reporting duties, subject to conditions. Thus, this future TP reporting duty will only apply to cross-border equity transactions.

Rzeczpospolita

There are plans to amend the Personal Income Tax Act and the Corporate Income Tax Act, effective as of 1 January 2019. Under the new law, the amount deductible on conversion of loan debt to equity will equal the principal amount of the loan. This applies where a loan granted to a company by its shareholder is converted into an equity contribution into the company. The WTS&SAJA expert explains that if this proposal actually becomes the law, capitalised interest can no longer be recognised as deductible for tax purposes. The reason is that, according to the proposal, the loan must be one that "has been transferred by the person making the contribution into the company's paying account". This limits the deductible amount to only the principal amount of the loan while the taxpayer will have to recognise taxable income equal to the amount contributed (principal amount of the loan) plus capitalised interest.

Rzeczpospolita

If you have fallen victim of a fraudster who took your goods without paying for them, you might still be required to report and account for the taxable transaction at the rate applicable to domestic supplies, even where the goods have been moved to another Member State and you have documents in evidence of this. This was implied by a private tax ruling issued by Director of National Revenue Information on 9 March 2018 (ref. 0114-KDIP1-2.4012.684.2017.1.MC).  The authority said the transaction may not be zero rated not only because it did not meet the requirements for being treated as an intra-Community supply but also because the taxable person failed to proceed with due diligence. However, the court hearing this matter (Warsaw Provincial Administrative Court, case no. VIII SA/Wa 351/18, judgment of 29 June 2018, still appealable) held that the tax authority has no right to require businesses to embark on unlimited searches when looking for evidence of their business partners' integrity.

Puls Biznesu

A loan is generally subject to transaction tax. But there are exceptions. Where a transaction is subject to VAT, no charge to transaction tax will arise. The problem is that loans are not always easy to analyse in terms of their VAT implications. Using the recent case law, the authors explain what requirements must be met for a loan to be subject to the VAT Act so that it will escape transaction tax. They also discuss the consequences of applying a wrong treatment.

Puls Biznesu

The article discusses the benefits of self-invoicing. For many industries this can be a welcome optimisation of the invoicing process. Self-invoicing can be particularly favourable in transactions where it is the customer that is liable to account for VAT under the reverse charge mechanism. If the customer fails to do so within the statutory  deadline, he will have arrears of tax and will need to incur the cost of additional administration (preparing VAT adjustments). With self-invoicing, this risk may be limited as the customer will have a tool to monitor supply documentation deadlines.

Puls Biznesu

As of 1 January 2019, the minimum income tax on commercial properties will be replaced by what is called tax on income from buildings. The article by WTS&SAJA experts discusses the changes in comparison to the current tax. For example, the new tax will apply in relation to all owned or co-owned buildings situated in Poland which have been let in whole or in part for use by others under leases or similar arrangements, except for buildings whose total usable space under lease is not more than 5% of the total usable space as at the first day of the month. The experts also note the change in how deductions will be calculated and the introduction of the right to reclaim the tax to the extent it has not been deducted from the general income tax.

Puls Biznesu

The article discusses a landmark case decided by the Supreme Administrative Court (SAC) on 10 July 2018 (case no. II FSK 1185/16). SAC ruled that where an employee uses a company car for private purposes, his deemed income includes also fuel. SAC made it clear that fuel is a necessary cost that must be incurred to use the car. This case protects only the particular company for which it was decided. It may not be relied upon to claim personal income tax overpayment in any other situation whereby the employer added fuel value to the amount of employee's deemed income. Finance Minister's public tax ruling on this matter (should he choose to issue one) would set out a general position offering certainty to all taxpayers in such cases.

Rzeczpospolita

The VAT Act lists the requirements for the zero-rating of intra-Community supplies of goods. One of the requirements is that the person concerned must hold evidence that the goods have been moved out of Poland and taken by the customer in the destination country. The law lists principal documents that constitute such evidence and also additional records that may have evidentiary value if the principal documents prove insufficient. Many businesses have problems getting appropriate documentation on time. Therefore they develop specific procedures to speed up document collection using computer software and systems. Such procedures are acceptable for tax authorities if they comply with legal requirements.

Puls Biznesu

The VAT Act is silent on whether or not the customer may recover VAT stated on an invoice issued by an unregistered supplier. Case law of CJEU and Polish courts may be of help. According to the courts, where the customer was not aware of issues on the side of the supplier, mere formal errors cannot deprive the customer of the right of deduction. Due care and good faith on the part of the customer are of key importance.

Puls Biznesu

The article discusses the VAT adjustment mechanism applicable to uncollectable debt. Such a VAT adjustment allows VAT that has already been paid to be recovered by taking action in place of the defaulting customer. A supplier wishing to recover VAT that has not been paid by his customer must ensure that certain conditions listed in the VAT Act are met. One of the most important of these is that uncollectability must be plausible, i.e. that the debt has not been settled or sold within 150 days from the due date. Such a long wait time before an adjustment means that liquidity may be severely impaired if the debt is high. But recovery does not depend merely on this single condition and there are several other documentation requirements that must be met for the taxable person to obtain the refund.

Puls Biznesu

Under VAT law, the way a discount is to be documented depends on when it was granted. When a discount is granted before issuance of the invoice for the supply, it must be taken account of in that invoice. But if a discount is granted after the invoice, then a correcting invoice must be issued to make the adjustment. Early payment discounts are accounted for in a different way. A mere agreement that the purchaser will pay early is not sufficient to recognise the discount already in the original invoice. Such discounts are strictly conditional on the invoices being paid early, therefore they may only be accounted for using correcting invoices.

Rzeczpospolita

This judgment is an important precedent for those who organise and participate in events called "contests". The Supreme Administrative Court held that for the prize to fall within the 10% flat rate of tax, it is not enough to just call the event "contest". Such tax treatment must justified using all the relevant facts and circumstances and their substance. If the purpose of the event is to provide incentives to compete in course of employment, e.g. by linking awards to sales volumes, then the scheme will be in the nature of an incentive scheme and the related income will be taxed at the regular progressive rates (18% and 32%).

Dziennik Gazeta Prawna

Offering alcohol as a gift is intended to maintain good relations with your customers or suppliers. However, it is not that the VAT stated on the purchase invoice will always be recoverable. Using a line of tax rulings by tax authorities, the authors explain when VAT charged on alcohol purchases will fall within the right of deduction. They also describe other consequences of offering alcohol as a gift to your customer or supplier.

Puls Biznesu

Businesses find it difficult to properly recognise chain transactions for VAT purposes. But more problems may be ahead after the European Tribunal recently held that even an objectively insufficient knowledge about the supply chain does not offer a shield against the adverse consequences of an inappropriate VAT treatment. The authors discuss practical implications this case may have for businesses.

Rzeczpospolita

Companies increasingly often choose to pay early to take the benefit of discounts. This also happens with intra-Community transactions. However, if a Polish business uses a discount from an EU supplier, the Polish business may be in doubt as to the right VAT treatment that applies. The authors explain how to recognise a discount from a foreign supplier for VAT purposes.

Puls Biznesu

Ignorance of the VAT Act regulations applicable to the returnable packaging business may have adverse consequences. The issue of key importance is to properly determine the taxable amount. VAT compliance can become more complicated due to the duties related to proper invoicing and to ensuring the taxable amount includes the value of returnable packaging. The article deals with primary rules according to which the taxable amount is to be established when charging vs. when not charging a deposit for returnable packaging and how this is affected by a return of such packaging after use.

Puls Biznesu

The article discusses the VAT treatment of provision of advertising gadgets for no consideration. As a rule, such a supply is subject to VAT if the supplier was entitled to deduct the VAT charged on the purchase of the item. However, there is an exception for goods which the VAT Act considers gifts of small value, provided their charge-free supply is for business purposes of the supplier. Another optimum solution is to make such charge-free distribution in collective packaging. This solution is acknowledged by tax authorities in their tax rulings on individual cases.

Rzeczpospolita

The article discusses the right of full VAT deduction with respect to expenses incurred on demonstration cars. The rule says that to be entitled to full VAT deduction on a car, you need to use the car solely for your business purposes and keep a mileage record as proof of such use. One exception is that the full VAT deduction will still be available even without the mileage record if the car is intended exclusively for resale. Businesses claim that use of demo cars for experience drives does not preclude treating them as cars intended exclusively for resale. However, courts tend to decide otherwise, agreeing with tax authorities that if a demo car is used for experience driving and then for resale, the "exclusively for resale" condition is not met. Fortunately, a recent judgment of a Provincial Administrative Court offers some hope for a turnaround in that approach.

Puls Biznesu

Businesses often offer their employees various perks, such as canteens or sports cards, which they partially subsidise upfront or through expense reimbursements. But the VAT Act is silent on how to determine the taxable amount of such supplies: should it be the amount due from the employee or the market value of the benefit? Case law may be of help. A Provincial Administrative Court held on 12 October 2017 (case no. I SA/Łd 643/17) that the taxable amount in such cases equals the market value. The article explains possible consequences of this approach for taxable persons.

Rzeczpospolita

With respect to supplies of goods or services made to you as a taxable person in Poland, your right to deduct VAT stated in the supporting invoice generally arises by reference to the month in which you received the invoice. However, there are situations when you do not for some reason make the deduction by reference to that month, in which case you may make it by reference to one of the two subsequent months. If you delay further, you can still make the deduction by adjusting your VAT return for the month in which you received the invoice. That last possibility is available for five years from the start of the year in which your right arose. However, this right becomes time barred sooner than tax authorities' VAT claims because their period of limitation starts to run at the end of the calendar year in which the tax became due and payable. 

Puls Biznesu

This article is about certificates of residence which are public documents attesting to the tax residence. Specifically, it discusses their electronic versions and how they may be used to apply preferential withholding tax rates or exemptions. According to the current approach of tax authorities, electronic certificates of residence have the same probative force as those issued on paper, even where the jurisdiction of residence issues them both electronically and on paper or equally accepts both these forms. This is a relaxation of the previously rigid treatment on the part of tax authorities. The article also discusses the way tax authorities interpret the term "electronic certificate of residence": a certificate received by email is not necessarily considered an electronic certificate of residence acceptable for the tax administration.

Puls Biznesu

This article by WTS&SAJA experts discusses the application of the new minimum CIT on commercial properties to buildings with mixed uses, such as a building with shops, offices, warehouses, a fitness centre, a cinema and even residential apartments. According to the authors, whether the new tax will be payable in such situations and how much will be determined by the principal use in the building. The reason is that the tax is charged on real properties which are classified in the Classification of Tangibles (Klasyfikacja Środków Trwałych) as retail buildings or office buildings. To properly classify a building with mixed uses, you need to determine its principal intended use by finding the percentage of total usable space that each use occupies. That which occupies the largest space will be the principal use of the building.

Puls Biznesu

The article discusses the implementation into Polish legislation of the split payment mechanism, due to enter into force on 1 Jul 2018. The mechanism splits the payment of an invoice into the payment of VAT amount into a special VAT account and the payment of net amount. According to law, this method is voluntary but it turns out the choice will not be made by the supplier but by the customer. Once customer chooses to split pay the invoice, the supplier will in a way be forced to apply this method in relations with his own suppliers. The law offers a number of incentives to encourage businesses to use the split payment mechanism but where the choice does not belong to the supplier, they can only be seen as a sort of compensation for ostensible optionality.

International Tax Review

The European Union (EU) countries are losing billions of euros in value added tax (VAT) every year because of VAT fraud and inadequate tax collection systems. The issue of how to improve the VAT collection process has been hotly debated. As a result, EU countries have been introducing several measures to increase VAT compliance and make their VAT systems more fraud-proof.

To reach this goal Poland has introduced a split payment mechanism. The provisions introducing a split payment for VAT transactions will become effective on July 1 2018.

How does it work?

On a practical level, the split payment mechanism changes the regular VAT collection regime by introducing a split between the net amount and the VAT. The main idea behind this mechanism is that an invoice is paid by the customer into two separate bank accounts:

 - The net amount is paid to the supplier’s business account; and
 - The VAT amount is paid directly to a dedicated account of the supplier, called a VAT account.

In practice, a single payment will be made and it will be divided by the bank. VAT accounts will, however, be opened only for accounts operated by Polish banks. Therefore, in order to participate in this mechanism the purchaser and the supplier will each have to hold an account in a bank that is subject to the Polish banking regulations.

Moreover, a split payment will be applicable only to payments made in PLN (at least with regard to VAT). Therefore, if the invoice is issued and paid in a foreign currency, the conditions to apply a split payment mechanism will not be met. However, if contractors stipulate that the net amount is to be paid in a foreign currency and the VAT amount is to be paid in PLN, a split payment may be applicable.

No need to open separate bank accounts

Taxable persons will not be obliged to open separate bank accounts for the purpose of collecting and paying VAT. The bank will automatically open a VAT account for each taxable person in Poland as a subaccount under the person's existing account(s). This applies also to foreign entities registered for VAT in Poland and having Polish bank accounts.

Scope of the Polish split payment mechanism

The Polish split payment mechanism differs from the ones that have been implemented in Italy and Romania where split payment was introduced under a limited regime.

First of all, the scope of the Polish split payment mechanism is much wider than in Italy: it will be applicable to all VAT registered businesses in Poland. However, unlike the Romanian split payment mechanism, the Polish one will be optional. The choice whether or not to apply it will generally be at the discretion of the customer.

How will the bank know that the split payment should be applied?

Polish banks are obliged to adjust their systems to enable payments under the split payment mechanism. In practice, it will probably be an additional option to be chosen when making a payment via a bank account. Thus, if so instructed by the recipient of an invoice, the bank will split the payment amount so that VAT will be transferred by the bank directly to the supplier's VAT account while the net amount will be transferred to its business account. While making a bank transfer under the split payment mechanism, the purchaser will need to provide the invoice number, supplier’s VAT number, and the net and VAT amounts. It will not be necessary to indicate the supplier’s VAT account number.

What does it mean to business?

Under this new mechanism, suppliers may suffer negative cash flow consequences arising from being in a VAT credit position. Although funds on the VAT account will belong to the supplier, the supplier will not be able to use them freely. Such funds may be spent only in specific ways mentioned in Polish regulations, including:

 - To pay invoiced VAT to the VAT account of the invoice issuer; and/or
 - To pay VAT to the tax authorities.

Transfers from a supplier’s VAT account to its business account will be possible, but specific approval from the Polish tax authorities will be required.

Additionally, as application of the split payment mechanism requires providing the details of each invoice to be paid (e.g. VAT amount paid using the split payment, invoice no., tax ID of invoice’s issuer), bulk payments may prove impossible or will require adjustments to IT systems.

In this situation, businesses are advised to consider if and how the split payment mechanism may affect:

 - Their cash flow;
 - Their procurement and payment procedures; and
 - The operation of their IT/accounting environment.

Also, suppliers who do not wish their customers to make split payments would have to consider how to achieve their goal.

This article was prepared for International Tax Review by Lidia Adamek-Baczyńska, tax adviser and partner, and Olga Palczewska, senior consultant, at Doradztwo Podatkowe WTS&Saja. Doradztwo Podatkowe WTS&Saja is the exclusive member firm of WTS Global in Poland.

Rzeczpospolita

VAT taxable persons are entitled to deduct input tax charged to them on invoices for supplies to them of goods or services, if the goods or services are used for their taxable transactions. However, firms often purchase goods or services even before they formally start their business and get registered for VAT purposes. The VAT Act is silent on whether such businesses may deduct their input tax. But the answer comes from CJEU case law where it has been held that the right of deduction does not depend on whether or not a person's status as a taxable person is recognised by tax authorities (formal registration) but on whether or not the person has that status, which starts to exist when the person physically makes the first transactions relating to their future business. The view that VAT may be deducted in relation to purchases from before VAT registration is shared also by Polish tax authorities, as can be seen in their private rulings.

Rzeczpospolita

The article discusses the issue of reverse charge in construction industry as introduced via the VAT Act amending legislation effective as of 1 January 2017. The article begins with describing the requirements for application of the new regulations. It then cites various tax rulings given over the last year to list the issues of major concern among businesses. One of the most important of these is how to properly identify a subcontractor because the presence of a subcontractor in the chain of supply is crucial for implementation of the new law. The article also discusses the classification of construction services as composite supplies and the accounting for VAT in projects carried out by several entities as a consortium or in warranty repair transactions.

Puls Biznesu

Generally, an intra-Community supply of goods is zero-rated for VAT purposes on condition the taxable person has evidence clearly showing that the goods left Poland and were received by the customer in another Member State. Businesses often find it very difficult to collect the required documents on time when so requested by tax authorities. Electronic documents, e.g. sent by email, may be a solution which is acceptable for tax authorities, as confirmed in private tax rulings. The authorities make a point of noting that the right of applying the zero rate is not conditional on the form of document or on how it was received or is stored, providing its authenticity is preserved

Puls Biznesu

Generally, after a service has been performed and accounted for, no subsequent events should change its VAT treatment. However, the article refers to a private tax ruling (reg. 0114-KDIP1-2.4012.276.2017.1.PC) according to which the VAT treatment may be changed even several years after the service is performed. The particular matter involved a foreign taxable person who performed certain services related to real estate in 2013 for a Polish taxable person (which the latter accounted for under the reverse charge mechanism). Years passed and it turned out the foreign person should have been registered for Polish VAT since 2010 in connection with some other services. In effect, the foreign person registered for VAT with retroactive effect as of 2010. This in turn meant that the reverse charge treatment was not appropriate for the 2013 service transaction and the foreign person had to correct the related invoices, account for VAT and pay the arrears of VAT with interest. This case confirms that it is essential to examine each transaction for VAT impact.

Rzeczpospolita

The article discusses the issue of VAT exemption on supplies of bare land with the help of practical examples supported by tax rulings. The authors write that a sale of undeveloped land should be preceded by a research into the land's use designation in the local master/zoning plan or development approval. If no such plan or approval exists or if they do not designate the land for development, the sale of the land will be exempt. If there are built features on the land, the biggest challenge in such situations is to determine whether they are buildings or structures, and thus whether the land is developed or not. This calls for a comprehensive and customised analysis of various laws and regulations, including tax law and construction law.

Puls Biznesu

The concept of due care often comes into play when tax authorities question the right of deduction with respect to VAT on invoices issued as part of a tax fraud. In accordance with ECJ case law, the right of deduction is in such cases retained if the customer became involved in the fraud unwittingly or acted in good faith. Polish courts and tax authorities add that the customer should exercise due care and reasonably verify the transaction and the supplier. While they are silent on what specific actions should be taken to that effect, a list of such actions was suggested in an answer to a parliamentary question of 1 August 2017 (DPP1.054.11.2017).

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