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TAX EXPLANATIONS FROM 23 DECEMBER 2019 1
ON THE SPLIT PAYMENT MECHANISM
What are the explanations?
The clarifications concern the application of a mandatory split payment mechanism.
Tax regulations to which the explanatory notes relate and purpose of the explanatory notes issued
On 1 November 2019, the Act of 9 August 2019 amending the Value Added Tax Act and certain other acts2 (hereinafter: Introductory Act) entered into force. It implements in the VAT Act of 11 March 20043 (hereinafter: VAT Act) the obligation to apply the split payment mechanism when making payments for purchased goods and services.
The envisaged changes also consist in the abandonment of the special VAT settlement, i.e. the reverse charge in domestic trade, the repeal of the regulations on the guarantee deposit and changes in the rules on joint and several liability.
The establishment of a compulsory split payment mechanism is based on Council Implementing Decision (EU) 2019/310 of 18 February 2019 authorising Poland to introduce a special measure derogating from Article 226 of Directive 2006/112/EC on the common system of value added tax4 (hereinafter: Implementing Decision).
The purpose of the explanations is to present the principles of operation of the split payment mechanism in its obligatory form and the changes affecting the optional model.
Indicate here the tax explanations for the split payment mechanism already issued. They describe all the main issues for this institution taking into account the optional nature of the split payment mechanism introduced on 1 July 2018.
The tax explanations of 29 June 2018 relating to the optional split payment mechanism can be found under the link:
1 General explanations of tax law regulations concerning the application of these regulations (tax explanations) issued pursuant to Article 14a § 1 point 2 of the Act of 29 August 1997 Tax Ordinance (Journal of Laws of 2019, item 900, as amended), hereinafter: Tax Ordinance. According to art. 14n § 4 point 1 of the above mentioned act, the taxpayer's compliance with the tax explanations in a given settlement period results in the protection provided for in art. 14k - 14m of this act.
2 Journal of Laws of 2019, item 1751, as amended.
3 Journal of Laws of 2018, item 2174, as amended.
4 OJ EU L 51/19.
These explanations do not replace the Tax Explanations of 29 June 2018, they should be considered as an addition to the new regulations in force from 1 November 2019.
1. SPLIT PAYMENT MECHANISM - SUBSTANCE AND SCOPE
2. NEW MANDATORY MPP FORM 5
2.1. SCOPE OF APPLICATION 5
2.2. INVOICE DESIGNATION 6
2.3. OBLIGATION TO ACCEPT PAYMENTS 7
2.4. CONSEQUENCES OF VAT OBLIGATIONS ON THE PURCHASER 7
2.5. OBLIGATION TO HAVE A SETTLEMENT ACCOUNT 9
The essence of the obligation 9
Compensation mechanism for foreign operators 9
2.6. OBLIGATORY MPP A FACTORING 10
2.7. MPP A POSSIBILITY OF OFFSETTING CLAIMS 11
2.8. PAYMENTS IN FOREIGN CURRENCIES 11
2.9. CHANGES IN CX RELATED TO MANDATORY MPP 12
2.10. MPP'S IMPACT ON TAX DEDUCTIBLE COSTS 12
2.11. CHANGE IN THE SCOPE OF ENTITIES THAT MAY SETTLE QUARTERLY 13
2.12. OBLIGATIONS IN THE MANDATORY MPP TO CORRECT SETTLEMENTS 14
2.13. OBLIGATORY MPP A EXISTING SEALING MECHANISMS 16
Reverse charge in domestic trade 16
Changes in joint and several liability 16
Intertemporal issues 17
3. EXTENDED AVAILABILITY OF FUNDS IN THE VAT ACCOUNT 20
4. CHANGES IN THE VAT.21 ACCOUNT RELEASE PROCEDURE
5. SUMMARY PAYMENTS 21
6. IMP PROGRAMMINGS 22
7. NEW DECLARATION MODELS 22
1. split payment mechanism - nature and scope
The mechanism of split payment (hereinafter also referred to as: IPP) is a solution concerning a specific method of making payments using the VAT account kept for the holders of settlement accounts kept by banks or registered accounts in SKOK opened in connection with the conducted business activity5, on account of receivables documented by an issued invoice with the VAT amount shown. This institution has been operating in the Polish legal system since 1 July 2018.
This mechanism can only be applied to transactions to other VAT taxable persons, that is to say B2B transactions, and only in relation to the payment of an invoice showing the VAT amount.
The basic assumption of the split payment mechanism is to separate the payment of receivables by transfer into two streams, i.e:
· an amount corresponding to all or part of the amount of VAT shown on the invoice which is credited to a special account of the supplier, called a VAT account, and
· an amount corresponding to all or part of the amount corresponding to the net sales value shown on the invoice, which is transferred on a general basis or is settled in another way.
It should be noted that IPP cannot currently be used for non-cash settlements other than transfers, e.g. payments by payment cards, transfers, bills of exchange. This means that paying e.g. by card in a situation where there is an obligation to pay in an MPP will mean not fulfilling the obligation to pay in an MPP.
The essence of the new solution introduced as of 1 November 2019 is that payment for the purchase of goods or services listed in Annex No. 15 to the VAT Act (hereinafter: Annex No. 15), documented by an invoice of a gross amount higher than PLN 15,000, will have to be made by the purchaser by means of a transfer message6 , in order to be able to talk about the application of the split payment mechanism and avoid tax sanctions associated with its non-application. Payment in the IPP will ensure that the supplier/service provider receives an amount corresponding to the VAT amount shown on the invoice to the special VAT account held for his billing account.
In parallel, the voluntary mechanism of split payment, introduced by the Act of 15 December 2017 amending the Value Added Tax Act and certain other acts7 , is still in operation, covering other goods and services, as well as goods and services listed in Annex No. 15, if the invoice documenting their acquisition is for an amount not exceeding PLN 15 000.
5 Article 2 point 37 of the VAT Act.
6 Article 108a section 3 of the VAT Act
7 Journal of Laws of 2018, item 62, with later amendments.
2. a new mandatory form of IPP
2.1. Scope of application
A split payment will have to be applied by the purchaser when settling the claim if all the following conditions are met:
1. the object of the transaction are the goods or services listed in Annex 15, and
2. the amount of gross receivables shown on the invoice documenting the supply of goods or services from Annex 15 exceeds PLN 15 000,
3. the action is carried out for the taxpayer.
The obligatory form of MPP is used for supplies of goods and services which, in principle, have so far been covered by the reverse charge regime and to a large extent by the scope of joint and several liability (i.e. it will cover the goods and services listed in Annexes 11, 13 and 14 to the VAT Act repealed by the Introductory Act).
In addition, the mandatory split payment mechanism also covers transactions involving parts and accessories for motor vehicles, coal and coal products and electrical machinery and equipment, their parts and accessories. A detailed list of goods and services covered by a mandatory IPP is contained in Annex 15.
It should be noted that the obligation to settle the amount due under the split payment mechanism applies only to the amount corresponding to the VAT amount resulting from the acquisition of goods or services listed in Annex 15.
If an invoice with a gross value of more than PLN 15 000 includes at least one item (for example, for the amount of PLN 3000 net + PLN 690 VAT) covered by Annex 15, then the obligation to apply the split payment mechanism will relate to
an amount equal to the amount of tax from this particular item, i.e. an amount equal to PLN 690. This does not, of course, preclude the possibility of settling a part of the debt over and above that covered by the obligation or the entire debt on such an invoice in a split payment mechanism.
If a taxpayer purchases goods or services in the territory of the country from a taxpayer not having a seat of business activity or a permanent place of business activity in the territory of the Republic of Poland, registered for VAT purposes in Poland, this transaction is also subject to a mandatory split payment mechanism if
the above mentioned conditions are fulfilled.
In order to illustrate the mandatory IPP, it should be clarified that in the case of e.g. construction services in a situation where a contract for construction services from Annex 15 is concluded, with a gross value of PLN 30 000, and in accordance with the provisions of the contract,
The contractor settles the three stages of the works separately with separate invoices with a gross value of PLN 10,000 each, the obligatory split payment mechanism will not apply. In such a situation, the value of the transaction exceeds PLN 15,000 in total, however, for the obligation to apply the split payment mechanism it is necessary to exceed the gross value of PLN 15,000 by the to