On July 1 2018, the Polish VAT Act of 11/03 2004 is to be amended by a new regulation introducing a voluntary split payment as a method of payment of purchase invoices – from the perspective of taxpayers – and as a new tool to combat VAT fraud – from the perspective of tax authorities. However, from the perspective of VAT taxpayers the new mechanism may bring more radical changes than expected in some areas.
The new regulations may not only not only influence mutual relations between business partners and how companies manage VAT cash flow, but the changes might also be felt in the sphere of the financial day-to-day liquidity of the company, especially in a need for funds on the bank account and in liason with tax authorities. In practice, it may also turn out that the use of a split payment will not be completely voluntary, as using this mechanism may be the only way to use swiftly and effectively funds accumulated in the VAT account.
From a technical point of view, a voluntary split payment means that the purchaser of goods or services may pay for them in a split payment when they receive an invoice that includes local VAT. Hence, so far, split payments cannot not be applied in Poland to international transactions or to transfers in foreign currencies. The decision to apply a split payment will be at the discretion of the purchaser. If the purchaser opts in, he/she will use a special transfer order which will include details of the invoice being paid and the seller. The bank will then automatically split the amount of the wire transfer, sending the net amount due to the business bank account of the seller and the relevant amount of VAT to a special bank account called a VAT account.
A VAT account will be automatically opened free of charge for every VAT taxpayer as a subaccount, but amounts deposited there will have limited accessibility. The funds can be used for paying input VAT or paying VAT to the tax authorities. Other transfers from the VAT account will require the authorisation of the tax authorities, which can be granted within 60 days from filing a motion.
There will be some incentives to encourage the use of the split payment. The most important of these will be that VAT paid via the split payment method will avoid the usual 30% VAT sanction or the imposition of joint and several responsibility. Also if VAT is paid to the tax authorities from the VAT account, there will be a possibility to obtain a small reduction on the VAT payable. Another incentive is the possibility of obtaining a VAT refund within 25 days into a VAT account.
The introduction of the split payment means that VAT payers in Poland will have to decide whether to opt in for the mechanism and how to use amounts on their VAT accounts. Although the mechanism itself is voluntary, many VAT payers will have to prepare their bookkeeping systems to be able to include transactions on VAT accounts, which in itself will entail additional time and cost.
What is more, the Polish government has filed an application with the European Commission to be authorised to introduce an obligatory split payment system for transactions involving sensitive goods that might be vulnerable to fraud, which are now subject to a local reverse charge mechanism and to joint and several responsibility of the purchaser. The government has declared that these changes could be introduced in 2019 if split payment analysis determines that the system would be effective.
Hence, despite changes planned by the EU, it may actually be local regulation that changes the way that taxpayers settle and manage VAT cash flow in Poland.