The importance of recent amendments to the Polish VAT Act
Tomasz Michalik and Marek Przybylski of MDDP review important changes to the Polish VAT Act and preview upcoming revolutionary e-invoicing implementation.
It is the third time an amendment to the VAT Act in Poland is referred to by the Ministry of Finance as ‘SLIM VAT’.
There are many changes introduced by this act, but most of them are rather minor. What is important is the changed rules for the application of VAT sanctions.
This amendment was prompted by the CJEU and its verdict in case C-935/19 Grupa Warzywna. Polish VAT sanctions were designed in a simple way – if a taxable person declared lower VAT liability than he/she was supposed to, or declared too high a surplus of input VAT and this was detected by the authorities – the tax authorities were obliged to apply sanctions. The standard amount was 30% of the underestimated liability or overestimated surplus of input VAT. In some circumstances, the amount could be lowered to 20% or even 15%, while in some specific cases it could even reach 100%.
The most important feature of this sanction, which was not accepted by the CJEU, was the automatic application in the case of errors, with no possibility of the authorities lowering the amount in specific cases. In other words, regardless of whether the VAT was declared incorrectly because of a simple mistake or some intentional action, the tax authorities were obliged to apply the same sanction.
It took some time to prepare a proper amendment to the VAT Act, but it has finally been accepted.
According to the amended VAT Act, additional tax liability should be, depending on the situation, still levied as an amount up to 15%/20%/30% of VAT arrears. However, now, while determining an additional tax liability, tax authorities are obliged to consider:
The circumstances under which the irregularity arose;
The type and degree of violation of the taxpayer's obligation that resulted in VAT arrears;
The type, degree and frequency of irregularities claimed in the taxpayer’s reporting;
The amount of irregularities found by the tax authorities; and
The actions taken by the taxpayer after the irregularities were detected to remove the consequences of the irregularities.
Thus, the new regulations require that not only the sole fact of VAT arrears (wrongful input VAT, output VAT or VAT refund) be claimed, but also the circumstances in which they are reported, and what steps the taxpayer made to mitigate or eliminate the VAT arrears. It should mean that a rate of an additional tax liability should be decided case by case and reflect a situation of the taxpayer and a significance of VAT arrears. Time will tell how deep the practice in Poland has changed in this regard. It will take several months to see how the rules are used in practice by the authorities – but the new rules give a taxable person the possibility to challenge the tax authorities’ decision on applied sanctions.
Other changes introduced by the SLIM VAT 3 Act include:
An invoice is no longer required to report the intra-EU acquisition in the reverse charge regime with a VAT deduction for the same month;
When a correcting invoice is issued in foreign currency, a historic FX rate should be applied;
There is no annual adjustment of an input VAT when a difference between an initial and final pro-rata is less than 2% and an amount of non-deductible input VAT is less than PLN 10,000;
The pro-rata may be rounded up from 98% to 100% if an amount of non-deductible input VAT is less than PLN 10,000; and
Receipts from cash registers may be delivered by electronic means, without printing.
Further revolutionary changes will enter into force in July 2024. They relate to obligatory e-invoicing via the IT systems of the Ministry of Finance (National e-Invoicing System, KSeF) for B2B transactions (this system is currently in place – but its use is optional; not many businesses are using KSeF e-invoicing at present. It will likely be changing in late 2023 and especially early 2024). This obligation will be imposed on all taxpayers with a seat in Poland (exempted taxpayers in 2025) and, controversially, on foreign entities having a fixed establishment in Poland.
Introducing KSeF means that tax authorities will have an instant and 24/7 access to invoices issued by VAT taxpayers in Poland (KseF is a clearing system: an invoice issued must be cleared by KSeF before it is delivered – by KSeF to a customer). It should give them a new grasp on data to plan tax audits and to cross-check transactions by pairing data with SAF-T. On the other hand, taxpayers should start implementing access to KSeF (e.g., via API) and verifying their invoicing procedures to ensure that they are compliant with the new standards and requirements from day one.