VAT: Split Payment
On 1 July 2018, amendments to the VAT Act entered into force which introduced the socalled split payment mechanism. This mechanism is only used between VAT taxpayers, and therefore cannot be applied to sales made directly to consumers. The split payment mechanism can only be applied to settlements effectuated in the Polish currency and only to those made by way of a transfer to a bank account. Consequently, it is not possible to apply this solution to payments made by cards, or cash.
On 1 July 2018, the banks maintaining VAT payers’ company accounts opened new VAT accounts for each taxpayer which was necessary for the application of the split payment mechanism. The mechanism is that the payment of the amount reflecting the whole, or part, of the VAT arising from an invoice received by a taxpayer, is made to a VAT account, whereas the net amount is transferred to the taxpayer’s normal account (supplier, service provider) maintained by the same bank, or by a savings and credit union [SKOK].
The application of the mechanism of split payment is voluntary and the decision in this respect lies with the purchaser of goods or services. If the mechanism is applied, the purchaser orders one transfer using a transfer communication modality, made available by a bank, or a SKOK, in which its specifies, among other things, the amount of VAT paid using the split payment mechanism. If the mechanism has not been selected, the purchaser, as before, makes the entire payment to the principal bank account of the supplier.
The main benefit of using the split payment system is the presumption of due care on the part of the purchaser. After meeting specific additional formal conditions (e.g. a contractor’s verification in the relevant register), the taxman will not be able to challenge the right to deduct the purchaser’s input VAT in respect of any acquired goods or services. Taxpayers who plan to use the split payment mechanism will not be jointly or severally liable with the seller for any unpaid VAT (this liability exists in the case of trading in certain goods). In certain situations, a taxpayer using the split payment system will not be obliged to pay any VAT-related sanctions, or any increased interest should there exist any VAT arrears on the part of the taxpayer. Another benefit is that the taxpayer will also be able to receive their VAT refund within 25 days, and not within the standard period of 60 days.
The new system will also have negative effects, mostly for the suppliers of goods and services which invoices are regulated with the application of the split payment mechanism. Due to the fact that the tax amount is paid into the VAT account, these entities can face decreased financial liquidity. Access to the funds which are in the VAT account will be limited because, as a rule, these funds can be used for the payment of the output VAT by the taxpayer, or for the payment to the VAT account belonging to a contractor. The direct disbursement of the funds to the taxpayer will only be possible with the consent of the head of the relevant tax office. This consent will be granted upon the request of the taxpayer, and the time limit for the examination of the application by the relevant tax office will be 60 days.
MLI Tax Convention
On 1 July 2018, the Multilateral Instrument to Modify Bilateral Tax Treaties (MLI) entered into force. The provisions of this convention must be taken into account during any analyses of transactions carried out between entities from those countries which have ratified it.
The main objective of the MLI convention is counteracting aggressive tax optimization through the use of the provisions of double taxation treaties (DTT) or consisting in transferring profits to more advantageous tax jurisdictions. A special clause aimed at avoiding double taxation, the so-called principal purpose test (PPT), was introduced for this specific purpose. According to this principle, it will be necessary to examine the objective of a given transaction before granting any benefit arising from the DTT. On the basis of this clause, both Polish and foreign tax authorities will be able to challenge the tax effects arising from transactions conducted if they find that one or more of the objectives of these transactions was to obtain a tax advantage. The PPT clause can be considered as the equivalent of the General Anti-Abuse Regulation (GAAR) contained within the General Tax Regulations Act; the PPT clause will be used for crossborder transactions in which tax advantages are obtained based on the relevant DTT.
As of the present, the MLI convention has been ratified by five countries or territories, namely: Austria, Poland, Slovenia, Jersey, and the Isle of Man. The provisions of the MLI convention will apply as of 1 January 2019 between the abovementioned countries and territories. This means, in practice, that until the tax effects of transactions conducted between Polish entities and those from the abovementioned territories have been determined, an analysis of the relevant DTT will not suffice. It will also be necessary to analyse the MLI convention which can contain provisions modifying the principles of a given DTT. The MLI convention will also be applied to other countries which eventually ratify the convention.
Changes in the area of income taxes – tax on commercial properties
On 4 July 2018, an amendment to the Income Tax Act entered into force (CIT Act, PIT Act, and the Act on Flat-Rate Income Tax). The amendment introduces, among other things, a change in the construction of the tax on commercial properties which was introduced at the beginning of this year. The amendment, in this respect, to a significant extent, will enter into force at the beginning of 2019. The amendment contains several regulations, beneficial for taxpayers, which will be binding, retroactively, as of 1 January 2018.
According to the new changes, the tax in question will be collected in respect of each building which is a fixed asset, and not, as previously, only in respect of office buildings, commercial centres, department stores, shops, or other retail or service buildings. This means that the tax in question will also be collected in respect of, for example, warehouses, or production halls.
The tax will only be collected in relation to those buildings which have been fully, or partially given over for use on the basis of a lease agreement, tenancy agreement, or any other similar agreement (e.g. a leasing contract). Buildings used for the entrepreneur's own commercial or service activity will not be taxed with the new duty. The new tax will also not be payable if the total share of the usable area given over for its use does not exceed 5% of the total usable area of the given building.
An important change concerns the tax-free value of buildings with a worth up to ten million zlotys. This amount refers to the sum of the values of all the buildings belonging to a given taxpayer, and not to the value of any individual buildings. The taxpayer will, therefore, be entitled to one limit in the amount of ten million zlotys, irrespective of the number of buildings held.
The new regulation does not introduce any changes in relation to the rate of the new duty. This rate will remain at the existing level of 0.035% per month. The tax in question is calculated on the taxable base which constitutes the sum of the revenues from each individual building (i.e. the initial value of the buildings determined as of the first day of each month), decreased by the tax-free amount of ten million zlotys. The taxpayer’s right to deduct the tax paid on the revenues from the buildings from the PIT, or CIT standard advance payments, or in the annual tax return, remains unchanged.
A novelty introduced by the amendment is the taxpayer’s right to recover the tax paid on the revenues from the buildings if this taxpayer is unable to make a relevant deduction from the standard CIT or PIT (i.e. in the case of the lack of a taxable amount, or a low taxable amount). The tax office will refund the tax paid upon the taxpayer’s request if no irregularities in respect of their tax obligation, or a loss, have been found, as specified in the tax return filed, as well as in the tax on the revenues from the buildings, especially if the debtor’s costs of financing incurred in connection with the acquisition or construction of a building, or any other revenues or costs have been found as determined on market terms.
The possibility of obtaining a tax refund on the above terms will apply to the tax already paid as of 1 January 2018. Another principle will also be binding retroactively, i.e. as of 1 January 2018, namely, that only the revenues from the buildings given for use for a fee will be taxed (this regulation previously applied only to the office buildings used for the taxpayer’s own needs).
The remaining changes to the tax on the revenue from buildings will come into effect as of 1 January 2019.