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12.09.2019

Mandatory split payment regime in Poland to be introduced from November 2019

To avoid penalties, every taxable person who sells or purchases goods/services subject to mandatory split payment should be well prepared

Key Facts
  • Amendments to the VAT Act was a follow-up to the derogation decision of the EU Council authorizing Poland to introduce a mandatory split payment system for certain goods and services.
  • The mandatory split payment system is designed to replace the current reverse charge mechanism in relation to selected goods and services.
  • The layout of the invoice will change since the phrase “mechanizm podzielonej pałatności/split payment mechanism” will have to be added.
  • Penalties might be imposed on purchasers who despite the obligation of paying using split payment will pay using another method
  • The proposed law introduces the option of using the funds collected on the VAT account to also pay liabilities other than VAT tax (e.g. CIT, PIT).
Author
Lidia Adamek-Baczyńska
Partner
Poland
> View Profile

In May 2019 the Polish legislator published a draft of amendments to the VAT Act aimed at introducing a mandatory split payment mechanism for selected goods and services. This was a follow-up to the derogation decision of the EU Council authorizing Poland to introduce a mandatory split payment system for certain goods and services.

The mandatory split payment system is designed to replace the current reverse charge mechanism in relation to selected goods and services. According to the draft law, the scope of goods subject to mandatory split payment will include:

  • goods and services covered by the current attachment nos. 11, 13 and 14 of the VAT Act (including copper wire, glass waste, paper and paperboard waste, secondary raw material of plastic, vast range of construction works)
  • some additional goods, such as parts and equipment for cars

which will collectively be covered by a new attachment no. 15. This mechanism is, however, planned to apply only to transactions whose value exceeds PLN 15,000 (ca. EUR 3,500).

Introducing a mandatory split payment will also have an impact on practical aspects of complying with the tax obligations. First of all, the layout of the invoice issued by a taxable person who provides goods/services subject to split payment will change since the phrase “mechanizm podzielonej pałatności/split payment mechanism” will have to be added. It is very important to discharge this obligation as failure to include this phrase on the invoice may result in imposition of a fine in the amount of 100% of the VAT resulting from such invoice.

Moreover, penalties might be imposed on purchasers who despite the obligation of paying using split payment will pay using another method. In such a case the penalty will also amount to 100% of the VAT indicated on the invoice. Moreover:

  • such cost will not be classified as a tax-deductible cost for PIT/CIT purposes.
  • penalties resulting from the Criminal Tax Code might be imposed (up to 720 daily rates).

Bearing in mind the risk of the imposition of significant penalties, it will be crucial to identify the transactions subject to the mandatory split payment mechanism and comply with the obligations properly.

The good news is that the proposed law introduces the option of using the funds collected on the VAT account to also pay liabilities other than VAT tax (e.g. CIT, PIT). Taxable persons will also be able to make collective payments as it will be possible to cover multiple invoices with a single split payment operation.

After being postponed earlier this year from July to September, the Polish Parliament (Sejm) has voted in favor and passed the measure. The rules on the obligatory split payment will become effective from November 1, 2019. Some provisions (for example PIT/CIT penalties) will take effect from January 1, 2020.

Taking into account the additional obligations and the penalties, every taxable person who sells or purchases goods/services subject to mandatory split payment should be well prepared for this regime when it comes into force.

Article published in WTS Global VAT Newsletter Q3/2019
Recent or expected changes in VAT and GST regulations and compliance duties in various EU and third countries
View publication
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