The amendment of the Polish VAT Act, in force since January 1 2021, introduced some changes aimed at simplifying VAT settlements, as indicated by its informal name given by the Ministry of Finance: ‘SLIM VAT’ – abbreviated from ‘Simple, Local and Modern VAT’. However, some changes cannot be considered as an obvious simplification and may lead to numerous practical problems for taxpayers.
One of the most important amendments is related to the correcting invoices. The issuer of the correcting invoice ‘in minus’ is no longer obliged to have confirmation of its receipt by the buyer in order to reduce the tax base and output VAT. According to the new wording of the VAT provisions, a decrease of the tax base and output VAT shall be made in the tax period in which the taxpayer issued a correcting invoice. This is provided that the taxpayer possesses a documentation which shows that the taxpayer agreed with the purchaser on the conditions for decreasing the tax base specified in the correcting invoice, and that the conditions have been met, as well as the correcting invoice is consistent with the documentation. A failure to show the above documentation results in reporting the correcting invoice in the period in which the taxpayer obtains this documentation. This means that instead of confirming receipt of the correcting invoice by the purchaser, the supplier is obliged to possess some business documentation which confirms the arrangements made with the buyer related to conditions of correction and their fulfillment (e.g. bonuses, goods returned, prepayments returned etc.).
The situation is more difficult on the purchaser’s side, since receiving a correcting invoice is irrelevant. The purchaser is obliged to reduce the amount of input VAT in the tax settlement period in which the conditions of reducing the tax base were agreed with the supplier, if these conditions have been met before the end of the given tax period. Otherwise, the correcting invoice should be declared in the tax period in which the conditions are met.
The new provisions concerning correcting invoices ‘in minus’ are not consistent for both parts of the transaction and violate the VAT neutrality principle. The supplier is entitled to reduce output VAT only when they issue the correcting invoice (under the additional condition of possessing the required documentation), while the purchaser is obliged to reduce input VAT when the conditions for correction are agreed and fulfilled. As a result, the input VAT correction may be required even before the correcting invoice is issued. Additionally, the financial staff have to analyse and possess the business documentation regarding the correction.
The transitional provisions regarding the correcting invoices ‘in minus’ allow by the end of 2021, the application of the old regulations binding before January 1 2021, if it will be agreed in writing between the supplier and the buyer before issuing the first correcting invoice in 2021.
The new regulations on declaring by the supplier correcting invoice ‘in plus’ have also been introduced to the VAT Act. If the tax base is increased, the correction shall be made in the VAT settlement for the period in which the reason of the correction occurred. This means that in the case of mistakes, the correcting invoice should be declared retroactively in the period in which the tax obligation related to the original invoice arose. If the ‘in plus’ correction is caused by new circumstances, unknown at the time of issuing the original invoice, the correction should be declared in the current tax period. The above regulations are consistent with the tax practice developed on the basis of the jurisprudence.
Another problematic change is the repeal of Article 7.8 of the VAT Act related to chain transactions. According to the Ministry of Finance, this change results from the fact that the regulation has no basis in the VAT Directive and each transaction should be analysed in accordance with the general rules for the supply of goods, defined as the transfer of the right to dispose of the goods as owner. However, the repeal of this provision could potentially result in a change of tax classification of certain transactions, previously considered as chain transactions, e.g. in relation to activities performed by fuel card operators, who have been treated as buyers and sellers of goods within the transaction made with fuel cards. Justifying this change, the Ministry of Finance referred to the judgment of the CJEU regarding the taxation of fuel cards (the judgment of May 15 2019 in the case C-235/18 Vega International Car Transport and Logistic). The court stated that the issuer of the fuel card does not deliver fuel, but provides a financial service exempt from VAT. Such an approach may result in the lack of the right to deduct input VAT both by the fuel cards operator as well as by the buyer of goods who uses fuel cards.
Some other VAT changes introduced by the SLIM VAT package are in fact, favourable for taxpayers. They cover the following issues:
- The extension of the time limit for input VAT deduction from three to four months;
- Increasing the threshold for gifts of small value which are not subject to VAT taxation when delivered free of charge from PLN 10 to PLN 20 (approximately $2.7 to $5.4);
- The right to deduct input VAT on the cost of accommodation services if they are subsequently recharged;
- The exclusion from obligatory split payment mechanism of all types of set-off claims (including multilateral set-off claims);
- The extension of the deadline for export of goods after the advance payment is made from two to six months; and
- The option to choose by a taxpayer the same rules of converting tax base expressed in a foreign currency into PLN for VAT and corporate income tax (CIT) purposes.
Since there are many doubts regarding the new regulations covered by the SLIM VAT package, mainly related to settlements of correcting invoices, the Ministry of Finance is working on special explanations in this respect, which are planned to be issued soon.
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