On 15 December 2017, the Polish Parliament passed a new Act which introduced the system of the so-called split VAT payment. The new legislation comes into effect on 1 July 2018. The split payment will only apply to VAT payers. It will not apply to the payments carried out by, and to, natural persons who do not conduct business activity.
According to the planned regulations, the net amount on account of the acquisition of goods or services is to be paid to the seller’s bank account, whereas the amount of VAT will be paid to a VAT account specifically established for this purpose. The new system of settlements will be voluntary. The acquirer of goods or services will decide whether to pay the entire amount to the seller’s account, or whether to split the payment into two amounts. The new regulations stipulate a number of incentives for the purchasers of goods which will prompt them to apply the new system of settlements. The purchaser opting for the split payment will not be subject to any VAT related sanctions, i.e. an obligation to pay an additional amount of 30% or 100% of the underreported amount of tax. However, this exclusion is not absolute and cannot be used by a taxpayer who consciously accepts, among other things, invoices issued by a non-exiting entity, or invoices documenting those activities which have not actually been performed. The purchaser using the split payment mechanism, will not be liable, upon the fulfilment of additional conditions, jointly and severally with the seller, for the unpaid tax. Joint and several liability currently concerns those goods listed in attachment no. 13 to the VAT Act.
Ultimately, as specified in the explanatory statement to the Act, "an effectuating payment with the application of the split payment mechanism, will be one of the strongest elements demonstrating that the purchaser has observed due diligence, while concluding a transaction with a contractor which will be very important for the security of the input VAT on the part of the purchasers.” This means that using the split payment mechanism in the case of a purchase from a dishonest entity, the purchaser will be able to defend their right to deduct the input VAT in respect of this purchase and eliminate the risk of being accused of any complicity in VAT fraud.
The entry into effect of the new regulation will also bring about a number of important effects on the part of the sellers and service-providers. The resources gathered on the VAT account will still belong to the taxpayer. The regulation draft does not allow for any access to the resources gathered on the VAT account by the tax authorities. However, disposing of these resources will be somewhat limited. The VAT account can only be used to pay the VAT to the tax office, or to one’s own suppliers – and only to their VAT accounts. The expenses incurred for the purposes other than the payment of VAT will require a consent from the head of the tax office. The time limit for the issuance of this consent is 60 days from the date of receipt of a relevant application from a given business operator. It will only be possible to credit a VAT account with the resources on account of the VAT payment by the contractors, and any potential tax refunds from the tax office. The seller will be able to decrease the amount of the output VAT payable to the tax office in a situation where the payment will be made from the VAT account, and this payment will be effectuated before the deadline for the payment of the VAT. The amount of any tax benefit will be determined using a special formula.
Another incentive will be the possibility of obtaining a refund for the surplus input VAT over the output VAT by the business operators holding a VAT account, but only to such a dedicated VAT account, in an accelerated time period of 25 days. The banks will be obliged to establish, for each VAT taxpayer, the relevant VAT accounts. These accounts will be maintained free of charge and only in PLN. The amended provisions of the Banking Law specify the principles of making settlements using those accounts in detail. From the point of view of the purchaser, the selection of the split payment will not require making two separate transfers; the purchaser will make a payment by way of one transfer, in which it will have to specify the net amount to be transferred to the settlement account of the seller, and the VAT amount which will be transferred to the VAT account.
The new regulation will undoubtedly affect the financial cash-flows of business operators. The resources accumulated on a VAT account will, in effect, be frozen since their use will actually be limited to only VAT settlements. Currently, the amounts from the invoices issued can be used for the regulation of other obligations, up until the deadline for the payment of the VAT to the account of the tax office. It follows from the information from the Ministry of Finance that it is currently working on mechanisms which will provide greater security to the financial liquidity for business operators. Bridge financing, in cases where problems with liquidity arise from the application of a split payment, would be provided by the BGK.
The new regulations will undoubtedly make business operators change the manner of the administration of their financial resources, and will result in the necessity to adapt the evidence to the requirements connected with the use of a VAT account.