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Changes in VAT law

Changes in VAT law

In 2019, significant changes in tax regulations (including VAT law) will come into force. Although some of them are expected in mid-2019 or even 2020, it is worth considering and discussing them now, as they might require significant amendments and updates in particular tax systems.

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1. New VAT matrix and binding VAT rate information

The Minister of Finance published, in November 2018, the draft of the amendment of both the VAT as well as the Tax Ordinance Acts (the “Draft”). The Draft implements regulations on so-called new matrix of VAT rates and binding rate information ("BRI").

The provisions relating to the matrix, are to enter into force only in 2020. The legislator, therefore, gives taxpayers time to prepare for those changes, what seems to be important here, taking into account that those changes might require appropriate processes to be carried out and internal accounting systems to be adapted.

The amendment will introduce new lists of goods and services, subject to reduced VAT rates. The new list will no longer be based on the Polish Classification of Goods and Services ("PKWiU") codes of 2008, but on the Combined Nomenclature ("CN") - for goods and the current PKWiU of 2015 - for services.

As indicated in the justification to the Draft, the main purpose of the changes is to simplify the VAT system. "Many years of experience in the application of the PKWiU has shown that the system of VAT rates based on it, is in fact extensive and complicated, which results in significant difficulties in conducting business activity. (...) The current system is ineffective and criticised for the complexity and lack of protection for taxpayers in the application of VAT regulations based on the PKWiU (due to the lack of binding force of classification opinions issued by the Statistical Office)".

In the opinion of the Ministry of Finance, the proposed changes will contribute to the simplification of the VAT rate system and ensure its simplicity and transparency, which is expected to significantly improve the business environment.

It is still too early to discuss for which goods or services the VAT rates would increase or decrease, as works on the final version of the Act is still in progress. As an example, according to the Draft, the VAT rates would decrease for such goods as tropical fruits and citrus fruits, certain nuts (pistachios, almonds, coconuts); bread, including cookies – those would be subject to the 5% VAT rate (and not 8% or even 23% as it is the case now), regardless of their “best-before” date. The increase in VAT rates will concern certain unprocessed spices (e.g. nutmeg, nutmeg flower, cumin, saffron, tumeric), as well as other than the so-called “100%” juices.

With regard to services (since CN codes refer to goods only), the Draft proposes that the PKWiU of 2008 would be replaced by the one of 2015.

As indicated above, the new matrix would apply as of the beginning of 2020. However, as of 1 April 2019, taxpayers will be able to apply to the tax authorities for the BRI.

The BRI is to be a decision issued by the appointed tax authorities, for the purposes of VAT on supplies, imports, intra-Community acquisitions of goods or services. It will contain:

  • a description of the goods or services which it relates to, 
  • classification of the goods according to CN or the services according to PKWiU
  • the VAT rate applicable to the goods or services so classified.

The aim of the BRI is therefore, in principle, to provide protection for taxpayers - it will be binding for the tax authorities in respect of a specific good or service. Moreover, all other taxpayers supplying the goods or services covered by the BRI, will also be able to take advantage of such a protection. The planned legislation obliges the authorities to include BRIs (after deletion of sensitive data) in the Public Information Bulletin.
 

2. JPK_VDEK to replace VAT-7 and VAT-7K declarations

Since 1 July 2016, the first taxpayers keeping tax books with the use of computer software have been obliged to submit sale and purchase registers for VAT purposes electronically in the form of a standard audit file for tax (JPK_VAT structure). As of 1 January 2018, this obligation applies to all taxpayers.

In recent months, the Ministry of Finance has been working on the preparation of a new, extended JPK structure, which would allow for the abolition of the obligation to submit VAT-7 and VAT-7K returns. The JPK_VAT file currently in use does not provide for such possibility as it does not contain all the information required for correct VAT settlements, such as the amount of input tax to be carried forward to the next settlement period, the amount of input tax carried forward from the previous settlement period, the amount of tax to be refunded, or the item concerning relief on acquisition of the cash registers. As a result of these works, a draft of the act amending the Polish VAT Act and the Tax Ordinance Act has been prepared.

The new JPK_VDEK file (working name) is to be an electronic document, the template of which will be published via ePUAP, covering both VAT returns and VAT records. Therefore, in accordance with the published draft of the amendment act, it will consist of a “VAT return” part and a “VAT evidence” part. Thus, the taxpayers will not have to submit two separate documents (VAT return and JPK_VAT file) in order to fulfil their obligations related to VAT settlements. The file in question, apart from the above-mentioned VAT return and VAT evidence data, will provide for an additional data necessary for the analysis of VAT settlements and potential audits.

As indicated in the justification to the amendment act in question, the additional benefit of the discussed changes would be the elimination of a number of attachments submitted together with the current version of a VAT return, i.e. VAT-ZZ, VAT-ZD and VAT-ZT, as well as the applications appearing in standard VAT returns. Attachments will be replaced by checkboxes included in the structure of the new JPK_VDEK file.

Despite the abolition of the obligation to submit VAT-7 and VAT-7K returns, taxpayers will still be obliged to submit a shortened VAT return with respect to passenger taxi services taxed with a lump-sum tax rate (VAT-12), as well as other VAT returns to which the existing legislation will apply (VAT-8, VAT-9M, VAT-10, VAT-11, VAT-13, VAT-21, VAT-23, VAT-26, VAT-UE, VAT-UEK, VAT-R, VAT-Z and VIN-R and VIU-R, as well as VIN-D and VIU-D). On the other hand, the data previously submitted via VAT-27 return (i.e. the domestic sale listing) will be shared via the new JPK_VDEK file.

According to the discussed draft, the act is to enter into force as of 1 July 2019. However, the new structure of the JPK_VDEK file has not yet been published – as envisaged in the amendment, such a structure will be provided by the Minister competent for public finance by way of a regulation. Therefore, the existing regulations on filing VAT returns will be applicable at least until the settlement for June 2019 (and, respectively, until the second quarter of 2019).
 

3. Change in definition of first occupation of immovable properties

The Ministry of Finance plans to modify the rules of VAT exemption for the supply of immovable properties . The change is connected with the verdict issued by the Court of Justice of the European Union on 16 November 2017 in the case C-308/16 Kozuba Premium Selection Sp. z o.o.,

In the said judgment, the Court stated that the Polish regulations are not in line with the EU law, due to the fact that the exemption from VAT of the supply of real properties is subject to the condition that the first occupation of buildings or structures occurs exclusively as a result of a transaction subject to VAT.

According to the Court, the 'first occupation' of immovable property also takes place where a building or structure is used for the purposes of own business activity.

After the amendment to the Polish VAT Act, , the first occupation shall be understood as handing over for use to the first purchaser or user, or the commencement of use for own purposes, of buildings, structures or parts thereof after they have been constructed or improved.

This amendment should significantly increase the number of transactions to which the possibility VAT exemption could apply. It is also worth to note that according to the recently published remarks to the planned regulations, the Ministry also plans to modify the definition of 'improvement' of immovable property (which also will involve a change in the scope of immovable properties covered by VAT exemption).
 

4. Other changes

Mandatory VAT number (NIP) on receipts

In the case of a sale registered with a cash register, the Ministry of Finance plans that an invoice may be issued to the buyer (VAT payer) provided that his VAT number (NIP) is included on the receipt documenting a given transaction. If this condition is not met, both the seller and the purchaser will bear the negative consequences i.e. imposing an additional tax liability equal to 100% of the amount of tax indicated in the invoice.

It is doubtful whether the purchaser should be penalised for noncompliance by the seller. Therefore, in order to avoid sanctions, the entrepreneur, when purchasing goods or services, should make sure that the seller has included his NIP number on the receipt.
 

Bad debts relief

The period after which the creditor will be able to benefit from the "bad debt relief" and correct the tax base and output tax (and the debtor will be obliged to correct the input tax) will be shortened to 90 days.

The amended regulations will also apply to receivables arising before 1 January 2019, for which the new 90-day deadline expires after 31 December 2018.

This change, through its mobilising effect on debtors and the release of funds of creditors, should result in an improvement of entrepreneurs cash flow.
 

White list

The plans of the Ministry of Finance also include the creation of the so-called "white list", i.e. a list that would contain information about each active VAT payer, including: NIP number, full name, address of the place of business activity, address of the registered office, date of VAT registration, date and reason for deregistration and subsequent re-registration as well as the bank account number indicated in the taxpayer's registration form.

A taxpayer who would pay the amount due to an account other than the one indicated in the said list would be jointly and severally liable with his contractor for its arrears in respect of a given transaction, and moreover, the amount of the receivables would constitute a tax non-deductible cost for this taxpayer. 

Thus, on the one hand, taxpayers would be provided with a tool allowing them to verify the data of the contractor, but with a large number of transactions, this would result in an additional administrative burden.

Agnieszka Laskowska, Director in the Tax Advisory Department in the VAT team at KPMG in Poland

Urszula Olczak, Manager in the Tax Advisory Department in the VAT team at KPMG in Poland

Paweł Przydatek, Manager in the Tax Advisory Department in the VAT team at KPMG in Poland

Rafał Roczniak, Manager in the Tax Advisory Department in the VAT team at KPMG in Poland

 

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