It is 29 November 2021. We invite you to the next episode of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
In today's episode:
- Changes in the format and the way of signing of financial statements
- Request for CJEU’s preliminary ruling: possibility of denying VAT deduction on fictitious transactions
- IP Box and health contributions
- Use of bad-debt relief conditional on the period elapsed since the invoice was issued
- Ministry of Finance to consult the new fuel package with EU experts
- Poland launches TP consultations as part of the EU TSI
Changes in the format and the way of signing of financial statements
On 23 November 2021, the act amending the Accounting Act and certain other acts was published in the Polish Journal of Laws. Apart from amending the accounting provisions, the Act introduces changes, inter alia, to the Act on statutory auditors, audit companies and public supervision. The key modifications include simplifying the method of signing financial statements by introducing the possibility of signing electronic financial statements and activity reports by a single member of a multi-person management board, authorized to do so by other members, and a single electronic format for financial statements and activity reports for issuers (XHTML) and other entities applying International Financial Reporting Standards (XHTML or another searchable format). The purpose thereof is to allow for automated document search, comparison, analysis, and data interpretation. Simplified rules for signing financial statements are to enter into force on 1 January 2022. New rules for submitting financial statements and documents to the National Court Register are to enter into force on 1 June 2022.
Request for CJEU’s preliminary ruling: possibility of denying VAT deduction on fictitious transactions
By way of decision dated 23 November 2021 (case file I FSK 2310/19), the Supreme Administrative Court requested the CJEU to give a preliminary ruling on whether tax authorities may deny a taxable person the right to deduct VAT due to the fictitious character of a transaction, regardless of whether the primary purpose thereof was to obtain an improper tax benefit. The case at hand related to a taxable person denied the right to deduct VAT on invoices documenting the purchase of trademarks. The authority denying the deduction right invoked Article 88(3a)(4)(c) of the VAT Act, pursuant to which invoices indicating performance activities contrary to the law, aimed at circumventing its provisions, or made only in a fictitious manner do not form the grounds for the reduction. According to the authority, the purchase of trademarks constituted a fictitious activity and the parties thereto behaved as the transaction had never taken place.
The Provincial Administrative Court in Warsaw, however, repealed the authority’s decision. According to the Court, given the circumstances, it cannot be substantiated that the transaction was fictitious, especially since fictitious character of a given activity can be confirmed only if the deal has not been actually carried out.
IP Box and health contributions
Pursuant to the amendments brought under the government’s program dubbed “the Polish Deal”, individuals paying PIT according to the tax scale will pay the health insurance contribution in the amount of 9%, while persons using the flat tax scheme - in the amount of 4.9%. As a result, the health insurance premium amount for individuals applying the IP Box incentive, consisting in reducing the tax on the eligible income derived from qualifying intellectual property rights, will depend on the method of taxation they chose. It should be noted, however, that due to increasing the tax-free allowance and the threshold for entering the higher income tax bracket, using the tax scale may still be beneficial for such taxpayers, despite the increased health insurance premiums. Thus, the choice of appropriate form of taxation should rely on a thorough assessment of all possible aspects thereof.
Use of bad-debt relief conditional on the period elapsed since the invoice was issued
In the judgment of 23 November 2021 (case file I FSK 391/17), the Supreme Administrative Court gave its opinion on whether the provisions of the Polish VAT Act making the use of the bad-debt relief conditional on the period that has elapsed since the invoice documenting the unpaid debt was issued is compatible with the EU law. The case at hand related to a Company claiming that the principles of neutrality and proportionality determining the proper functioning of the VAT system ensure the use of the bad-debt relief even in situations where the debtor was removed from the Active VAT Taxpayer Register and after 2 years counted from the end of the calendar year in which the invoice was issued. The SAC ruled that making the use of the bad-debt relief conditional on whether as at the day preceding the day of using the bad-debt relief the debtor was a registered active VAT taxpayer goes against the EU law. According to the SAC, however, making the use of the bad-debt relief conditional on the period elapsed since the invoice documenting the debt was issued remains in conformance with the EU regulations.
Ministry of Finance to consult the new fuel package with EU experts
In September 2021, the Court of Justice of the European Union interpreted the provisions of the Polish VAT Act relating to the “fuel package” as incompatible with the EU law. The regulation in question stipulated that the tax on intra-Community acquisitions of motor fuels must be settled within five days from the introduction of the fuels into the national territory. The CJEU ruled, however, that the tax liability cannot arise before VAT becomes chargeable under the EU VAT Directive. Following the CJEU ruling, the Ministry of Finance has prepared an appropriate amendment to the VAT Act, under which companies importing or delivering (also within the country’s territory) motor fuels to tax warehouses would not have to pay VAT and, under certain circumstances, excise duty. To avoid a possible further dispute as to the compliance of the new solutions with EU law, the Ministry is currently consulting the amendment with the European Commission.
Poland launches TP consultations as part of the EU TSI
On 19 November 2021, the Ministry of Finance officially launched a new project within the EU Technical Support Instrument (TSI). Under the program, European Commission and OECD experts, along with scientists and practitioners from Great Britain, Germany, the Netherlands, Sweden, and the USA as well as employees of the Ministry will work on the reform of Polish regulations on transfer pricing. The goal of the program is to establish common recommendations related to the possible amendments to the Polish tax regulations, in order to increase competitiveness of the regulatory framework in force and boost the effectiveness of electronic transfer pricing reporting (TPR). It will focus on the exchange of good practices in the field of documentation obligations, electronic reporting, and analyses among the participating countries.