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A Polish VAT revolution in progress: Part 2

04 December 2013

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In the second of a two-part series, Radoslaw Szczech and Dorota Pokrop of EY look at the major VAT changes that will come into effect next year.

In the wave of changes through the Polish VAT system in 2013 and 2014, those which will come into force as of January 1 2014 will likely have the greatest impact. They may imply a necessity to modify tax procedures and adjust ERP systems (at least with respect to the tax point recognition, input VAT deduction, dates of invoicing and invoice contents). Below, we present the key 2014 VAT changes:

Tax point recognition

Tax point changes will be the most revolutionary amendments in the last 20 years (as the rules binding till the end of 2013 originate from the oldest VAT Act implemented in Poland in 1993). The tax point will no longer depend on the invoice date. As a general rule, the tax point will arise when goods are supplied or services are performed. This means that tracking the supply date (and not the date when goods just left the warehouse) will be crucial and will determine if VAT is paid on time. At the same time, ability to postpone settlement of VAT by issuing an invoice in the following month will be eliminated. Thus, especially in the transition period, proper cash flow planning is required.

Moreover, most regulations defining the special tax point will be repealed and replaced with new provisions. The amendments will pertain to supply of electricity and water, sewage treatment and construction, telecommunication and leasing services. Unlike in the current provisions, no specific tax point rules are planned for licenses and transportation services.

Taxable amount

The new definition of the taxable amount will directly translate the definition provided by the VAT Directive. All payments will constitute taxable amounts. The taxable amount will be increased by additional costs (such as fees, packaging, transportation and insurance costs) paid to the supplier by the buyer.

Further, taxable amount shall be reduced by the amount of early payment discounts and any other discounts known at the moment of the supply. It shall not include any amounts being reimbursement of costs, that is amounts paid by the supplier in the name and on behalf of the purchaser and booked in a suspense account.

Input VAT deduction

The right to deduct input VAT will arise in the period when the seller’s tax (for goods supplied or services provided) becomes chargeable, to be recognised not earlier than in the tax return for the period when the invoice or customs document has been provided to the buyer.

Therefore, after January 1 2014, a business deducting VAT from a given invoice should be certain that a tax obligation arose for the seller because of the invoiced sale.
Under the new regulations, the right to deduction because of intra-community acquisition of goods will be conditioned upon receiving the invoice from the seller. If the invoice is not received within three months, the taxable person will be obliged to make appropriate adjustments reducing VAT deductions. Adjusting (getting back) the reduced deduction of the input tax will be possible in the period when the taxable person receives the invoice.

Invoicing date

Currently, in general, invoices may not be issued before a supply is made and should not be issued later than seven days after the supply is made (except for some special cases). After the change, invoicing dates will be much more flexible. Suppliers or service providers will be able to issue invoices by the 15th day following the month when goods were supplied or services provided and no sooner than 30 days before delivering goods/providing services. This means that much more time for invoicing will be given. Still, late invoicing may impact cash collection and early invoicing requires showing the planned date of the transfer on an invoice itself (to determine the tax point but also to provide the purchaser with information when input VAT may be deducted). Thus, proper preparation to the new invoicing dates is required to make sure that flexibility means also certainty for both parties of a given transaction.

Further changes

In this article we have attempted to describe only the major alterations to Polish VAT which have already taken place in 2013 and are scheduled for 2014. There are more that may be of lesser importance but still should not be overlooked (including VAT accounting for advance payments, fiscal representation, partial deduction, VAT documentation – fiscal register receipts). The breadth and depth of the present changes cause them to stand out even against the backdrop of the other amendments of quite some weight that the Polish VAT system has been through in recent years. What makes them exceptional is that they impact established tax controls and procedures deeply as well as necessitate modifications to ERP systems that support businesses in accounting for VAT and paying tax in a correct amount at the right time. As such they require advance preparation not only by training the personnel but also through upgrading systems. Whilst the former can be done relatively quickly, the latter may mean investment in terms of time and money, especially where businesses are part of multinational corporations running on large-scale, centralised IT accounting software.

Part 1 of this article can be found here

Radoslaw Szczech

Email: radoslaw.szczech@pl.ey.com  

Dorota Pokrop

Email: dorota.pokrop@pl.ey.com  






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