Slim VAT 2 enacted. It will be easier to settle chain transactions and adjust tax.
The Sejm (the lower house of the Polish parliament) have unanimously passed several amendments simplifying Value Added Tax procedures, commonly referred to as ‘Slim VAT 2’ package. The previous bundle caused some confusion, mostly in how corrective invoices should be recognised. However, it seems that the Ministry of Finance have learnt their lesson and the next in the series of announced amendments will be warmly welcomed by taxpayers.
Structured chain supply
The first amendment of an ordering nature is the implementation of a regulation which clearly defines the so-called ‘mobile supply’ in the case of export and intra-Community supply of goods, where the entity which organizes the dispatch or transport of goods in a chain transaction is the first supplier or the last purchaser. At this point, the amendment indicates that the preferential VAT rate should be assigned respectively to the supply made by such first supplier and last purchaser.
Although this solution should not affect the current practice, it should be assessed positively due to an apparent desire to comprehensively regulate the situation of taxpayers participating in chain transactions.
Confirmed practice of adjusting EU purchases
Another novelty is the introduction of regulations indicating the period in which taxpayers should file a corrective return reducing the taxable base on import of services, intra-Community acquisition of goods and supply of goods in respect of which the purchaser is a taxpayer. Currently, it is generally accepted that the moment of making the adjustment in these cases depends on its cause. Slim VAT 2 in a way confirms this practice. Therefore, the adjustment should be made in the settlement for the settlement period in which the reason for the reduction occurred. In the same period, the taxpayer is obliged to adjust the input VAT on these acquisitions.
More time for import under simplified procedure
The changes will also benefit importers. The amendment will again allow taxpayers settling VAT on imports of goods under the simplified procedure to make corrections to their returns, in a situation where the tax was not correctly accounted for in the primary return. This right will be available for 4 months, counting from the month following the month in which the import tax obligation arose. Let us recall that a similar solution operated until October 1, 2020. At that time taxpayers had 4 months to present to the tax authority the documents confirming the settlement of VAT on imports in a tax return. In practice, the regulations allowed for a possible correction of an erroneous settlement. These regulations were repealed, but the Slim VAT 2 package seems to follow them.
Easier choice of VAT on the supply of real estate
The choice of VAT taxation of supply of a building, structure or their parts will also be easier. Currently – where such a transaction is covered by an exemption – most taxpayers decide to submit to the head of the tax office competent for the purchaser an agreed statement on the choice of taxation with VAT of such a supply. Such an action makes it possible to recover the tax paid already after the transaction and excludes the obligation to pay 2% tax on civil law transactions. However, filing a separate statement seems to be an unnecessary formality. The Slim VAT 2 package therefore provides that it can also be made in the notarial deed concluded in connection with the supply of these properties
Tax deduction without interest
One of the most important amendments is the enforcement of the CJEU judgement from March 18, 2021 in the case C-895/19 A by removing from the Polish provisions the condition subordinating the exercise by the taxpayers of the right to deduct input VAT on import of services and ICA to the disclosure of output VAT within three months of the end of the month in which the tax obligation arose with respect to the acquired goods or services. The Court stated that the provisions of the Value Added Tax which prevent indicating output and input tax in the same settlement period are in this respect contradictory to the EU Directive.
100% VAT on a car in no rush
The extended deadline will be also beneficial for taxpayers for submitting the VAT-26 form, which allows to deduct 100% tax on the expenses related with a passenger car used solely for business purposes. Currently, the deadline is only 7 days from the date of incurring the first expense in connection with the vehicle. Submission of this return after the deadline allows one to only deduct 50% VAT on the expenses on the car incurred prior to its submission. Considering the fact that the first expense on a car is usually also the highest, the loss of half the deduction was often very painful for absent-minded taxpayers. The amendment provides for an extension of the deadline for submission of VAT-26 to the 25th day of the month following the month in which the first expense was incurred, but no later than on the day of sending JPK-V7 for the month.
Bad debt relief also when a contractor flees into bankruptcy
The amendment package also implements the CJEU judgment in case C-335/19, in which the EU court stated that the Polish legislator must not make the right to reduce the tax payable by the seller conditional on whether the buyer, as at the date of the transaction and as at the date preceding the filing of a correction to the declaration, is an active VAT taxpayer that is not undergoing restructuring proceedings, bankruptcy or liquidation. These restrictions have therefore been repealed. The time limit for taking advantage of the relief has also been extended from two to three years, counting from the end of the year in which the invoice documenting the receivable was issued.
Another novelty is the introduction of the right to take advantage of the relief for bad debts in the case of sales to consumers and taxpayers exempt from VAT. This will be possible in a situation where the debt has been confirmed by a final court ruling and submitted for enforcement. It will also be possible when a debt has been entered in the register of debts kept at a national level or where a debtor has been declared bankrupt.
The amendment also introduces also minor changes relating to Brexit and the status of Northern Ireland, as well as clarifying certain issues connected with decontrolling funds from a VAT account. A majority of the changes provided in for the Slim VAT 2 package will come into force on October 1, 2021. In the meantime, the Ministry of Finance have already boasted of their advanced works on Slim VAT 3.
Wojciech Jasiński, Tax Consultant, ATA Tax Sp. z o.o.
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