It should be now easier for taxpayers to determine properly when VAT becomes chargeable for provided construction services and construction and assembly services. Doubts in this regard have been cleared by the Minister of Finance in his general binding ruling issued on 1 April 2016 (ref. no. PT3.8101.41.2015.AEW.2016.AMT.141).

The provisions of the VAT Act in its wording effective as of 1 January 2014 stipulate that the tax becomes chargeable in principle upon the supply of goods or the performance of a service, with certain reservations. In the case of services accepted partially, a service is also deemed performed if a part of the service for which payment has been specified has been performed. If, however, the parties agree on consecutive dates of payment or settlement for the provided service, the latter should be deemed performed upon expiry of each period to which such payment or settlement relates. If a service is provided on a continuous basis for a period longer than one year and the date of payment or settlement thereof does not expire in the year concerned, the service will be deemed performed with the lapse of each tax year until its provision has been completed.   At the same time, when determining when the tax becomes chargeable, the taxpayer should take into account the provisions regulating the issue of invoices, according to which the moment when the tax becomes chargeable is dependent on the date of invoice issue. And the latter is determined by the moment of service performance.

The regulations, although seemingly clear and simple, could lead to disputes with tax authorities, primarily stemming out of proper determination when a service has been performed. It was not clear what significance, if any at all, has, according to the VAT Act, acceptance of the service confirmed by a transfer and acceptance report.

In its binding ruling the Minister noted that in the case of services provided as a whole or in part, decisive for the moment of services performance is their actual performance – i.e. a day on which the works (or parts thereof) connected with performance of a contractually specified service (or its part) have been actually completed and the contractor notifies the other party that they are ready for acceptance. Thus, the moment of performance should not be linked to the satisfaction of a civil law formal procedure, namely the signing of any report. Furthermore, the Minister explained that if it is possible to distinguish separately individual activities comprised in a construction service where such activities are performed in a given settlement period, such service cannot be treated as provided on a continuous basis (but as a service performed in part).

Taking into account the status of a purchaser of construction services and construction and assembly services, we may distinguish the following situations determining the moment when the tax becomes chargeable:

It should be noted that both in the case of services provided to taxable persons and provided to consumers, if the contractor has received the whole payment or a part of the payment before performing a service or a part thereof, the tax becomes chargeable upon receipt of such payment with respect to the amount so received.

The guidelines included in the general binding ruling under discussion should enable the taxable persons to avoid disputes with tax authorities whether VAT has been accounted for properly for usually very high-value contracts for construction services as well as construction and assembly services. It should be remembered that proper determination when the service was performed, decisive for the tax becoming changeable, should be made on the basis of objective premises (such as the contractor’s finding that the works are ready for acceptance), while contractual provisions (mainly those relating to the necessity of confirming the proper completion of the works with a relevant transfer and acceptance report) are only auxiliary.