Most of the changes envisaged in the second part of the VAT simplification package, so called SLIM VAT ( S- simple, L-local, M-modern) will come into force on 1st October this year. The President has already signed the bill. In this blog post I analyze the 6 most important changes that will soon come into effect, regarding chain transactions, intra-community acquisitions of goods and import of services, bad debt relief, input tax deduction, voluntary real estate sales tax, extension of time to correct imports in simplified procedure and split payment mechanism.
Chain transactions – Assignment of the mobile delivery
The legislator has introduced new regulations that clarify the rules for allocating a moving supply in a chain transaction when transport is organized by the first or last entity in the sequence.
Until now, the regulations laid down rules for the allocation of a mobile transaction when the dispatch or transport was organised by the purchaser who also supplied it (the middle operator). When the transport was organised by the first or last entity, the delivery terms had to be analysed each time.
The new regulations clearly define the principles of assignment. It is worth emphasizing that the new regulations do not change the existing rules, but confirm what has already been established in practice and in case law:
- where transport is organised by the first mover in the chain, the mobile supply is the supply made by him to the second mover in the chain;
- if the transport is carried out by the last mover, the movable supply is the supply to the last buyer in order of priority.
Removal of the three-month limit for the settlement of output tax on intra-Community acquisitions of goods and importation of services
The provision which made the deduction of input VAT in the same period in which the output VAT was reported dependent on the reporting of output VAT within three months following the month in which the tax obligation arose, has been deleted from the Act.
The amendment restores VAT neutrality in intra-community transactions and import of services. It is the result of CJEU judgment which questioned Polish regulations in this scope. I would like to remind that the taxpayers who have paid interest for untimely intra-community acquisitions of goods in previous years, still have a chance to recover it, as Aleksandra Philips wrote in the article „You can still recover interest paid for late declaration of IC-acquisition“ also available on our blog.
Broader scope of relief for bad debts
There have been significant changes in the procedure for correcting VAT on unpaid invoices, the so-called bad debt relief, which will be applicable to a wider scope. The time limit to take advantage of this relief has been extended to 3 years following the year in which the invoice was issued.
Just taking advantage of the procedure will also be simpler because:
- The condition that the debtor must be an active VAT payer and not be in the course of restructuring proceedings, bankruptcy or liquidation has been removed;
- Entrepreneurs will not have to check the status of their debtors before making a deduction and will not have to worry that they will not be able to correct the tax before the counterparty declares bankruptcy.
Importantly, the creditor (the entity that wants to take advantage of the relief) still has to have the status of an active VAT taxpayer. Although the removal of this condition was postulated by the business community, no decision was made to introduce such a facility.
In addition, the conditions have been set out, when the relief for bad debts may be used in the case when the debtor is a consumer or a person who is not a VAT payer.
Entrepreneurs will have to present evidence that they have pursued claims, e.g. a final court ruling or an entry in the register of debtors, which in practice may prove very troublesome for creditors. I would like to add that I am planning to write a separate entry with a summary and tips on how to properly apply the bad debt relief after the changes in the law.
Greater flexibility in input tax deduction
Previously, if a taxpayer did not deduct input tax “on a current basis”, i.e. by the time the right to deduction arose or in one of the three months following its expiry, he could only deduct this tax by adjusting the month in which the tax obligation arose.
In October, a taxpayer will be able to elect to adjust the month in which the right to deduct arose or one of the following two periods.
Less paperwork when voluntarily taxing property sales
Entities wishing to waive the VAT exemption on real estate sale transactions may do so by making a consensual statement in the notarial deed. Previously such declaration had to be submitted to the tax office before the sale.
Extension of time for correction of imports under simplified procedure
In the current meaning of the legislation, a taxable person who settled output tax on the import of goods in a tax return, but failed to account for all or part of that tax in the return, lost the right to use the simplified procedure in respect of that amount. The tax had to be paid together with interest to the relevant office.
After the changes, the taxpayer will have 4 months from the date when his tax obligation arose, to settle due tax on the import of goods without any consequences.
Changes in the split payment mechanism
The Act also provides for changes in the disposal of funds accumulated on the so-called VAT account, including:
- the possibility of their release if the taxpayer’s tax arrears have been deferred or paid in instalments;
- Enabling the transfer of funds between VAT accounts in different banks of a taxpayer;
- Additionally, on 1 January, it will be possible to pay KRUS contributions from the VAT account.
At the same time, the scope of goods to which the split payment mechanism will apply has been modified. So far, the obligation to apply the split payment mechanism applied exclusively to computers and other automatic data processing equipment. On 1 October this scope is being extended to include also parts and accessories thereof.
Evaluation of changes and… further planned changes
lthough the SLIM VAT 2 package does not avoid certain inaccuracies, in my opinion, it clarifies and “cleans up” the provisions of the VAT Act, and, importantly, gives taxpayers a moment’s breathing space by extending some of the deadlines.
I am concerned about the construction of the conditions for obtaining relief for bad debts in the case of debtors who are not VAT payers. There is also an open question as to why a creditor who is no longer an active VAT payer cannot adjust input VAT in this regard.
Most importantly, this is not all about tax changes – Deputy Minister Jan Sarnowski is following up on the announcement of the SLIM VAT 3 package, the details of which are to be announced soon. Additionally, at the turn of the year, taxpayers will face extensive tax changes under the so-called Polish Order (Polski Lad).
In a nutshell, the autumn in Poland will be marked by changes in the tax system which are followed and analysed by a team of tax advisors and our firm – I encourage you to follow our blog where we will present summaries and consequences of tax changes.
Dominika Zbonik, LL.B., attorney at law (PL)/tax advisor (PL)