DUE DILIGENCE IN VAT

We wish to alert you to a document published by the Finance Ministry on 25 April 2018, which sets out guidance on business due diligence in VAT ("Guidelines").

According to the Guidelines, an undertaking must proceed with due diligence and check the other party to the transaction (formal test) as well as the circumstances of the transaction (transaction test).

A formal test should include, among other things, verifying if your counterparty:

  • is registered in the relevant business register (National Court Register for companies/partnerships or CEIDG for sole traders),
  • is registered as a non-exempt taxable person for VAT purposes,
  • is not listed as having been deregistered as a taxable person as at the transaction date.

A transaction test should involve looking for red flags which raise doubts as to the transaction, such as:

  • there is an intermediary in the transaction who:
  • does not employ his own funds,
  • does not incur any business risk, and
  • has no initiative in the transaction;
  • the payment is in cash (if transaction value is above PLN 15,000), there is a price discount in exchange for payment in cash or the transaction is artificially divided into a number of smaller transactions;
  • the price is paid into two separate bank accounts (not applicable in split payment scenarios), a third party account or a foreign account;
  • the price substantially differs from the market price without a commercial rationale;
  • the terms of the transaction substantially differ from what the industry considers safe commercial terms;
  • the transaction is not supported by a written contract, order or any other confirmation.

Importantly, if a taxable person pays a supplier using the split payment mechanism, the person should be considered to have proceeded with due diligence if the supplier has passed the formal test administered by the person and there are no other circumstances which could clearly indicate lack of due diligence.

However, note that the Guidelines are merely an explanation of how tax authorities proceed when assessing if due diligence requirements have been met, and as such are not intended directly for taxable persons.

If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant or our office.

Doradztwo Podatkowe WTS&SAJA Sp. z o.o. 
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tel. (+48) 61 643 45 50
fax. (+48) 61 643 45 51

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