- A light in the tunnel for doubts about the concepts of the VAT Directive
- Brexit: Possible settlement from UK without tax representative – ongoing discussions
- Invoice as a formalized document
- EC doubles aid limits to combat COVID-19 impact and extends aid deadline
- TP marking for intra-Community acquisition also intra capital-group
1. A light in the tunnel for doubts about the concepts of the VAT Directive
In connection with the amendment to the VAT Directive, the European Commission plans to issue clarifications in order to standardize the application of tax law throughout the European Union. This solution gives hope for clarifying at least some doubts regarding tax issues (e.g. the issue of a fixed establishment – recently quite a famous judgment of the Court of Justice regarding a fixed establishment and having a subsidiary company in another Member State – sign. C-547/18).
In view of the modifications being made to the provisions of the VAT Directive, it is necessary to provide a direction sign that will help resolve VAT disputes. It is important that the approach to given tax issues is uniform throughout the European Union. In addition, it is also planned to establish a new VAT Commission, which will include representatives of all member states.
Can the planed publication of explanations have any impact for Poland? According to the LEX Report “Polish tax matters before the CJEU: decisions, powers of attorney and law offices”, since Poland’s accession to the European Union, the CJEU has already issued 63 decisions in “Polish” tax-related cases. This number also shows doubts as to the correct tax rulings by tax authorities. Additionally, it should be noted that as much as 70% of these cases (44 to be precise) are decisions in favor of the taxpayer, and therefore not in line with the position presented by the tax authorities. Therefore, the willingness to publish explanations regarding the concepts of the VAT Directive may be a step towards the standardization of the interpretations the provisions of the tax law throughout the European Union. Additionally, it may make it easier for entrepreneurs to operate in the international market, as they will not be worried about tax issues. What is additionally important is the need to properly change Polish regulations so that you can take advantage of these instruments. Currently, the Polish tax authorities does not feel bound even by the judgments of the CJUE, which it considers unfavorable for itself, not to mention European law. Therefore, only the introductions in the national law of instruments obliging the Polish tax authorities to respect the new interpretative instruments will result in the title “light” not going out before the end of the tunnel, like many other noble Community instruments.
2. Brexit: Possible settlement from UK without tax representative – ongoing discussions
On 2 February 2021, the Ministry of Finance posted on its website an announcement which has attracted considerable media interest. It was reported that, on the one hand, the Ministry reminds that British business entities must appoint a tax representative for VAT purposes in Poland. On the other hand, the Ministry of Finance announced that intensive talks are being held or works are being carried out on the introduction of a solution, which would relieve from such an obligation. The announcement that the December declaration may be submitted without a tax representative was made somewhat earlier.
As of 1 January 2021, the United Kingdom has completed the transition period on exit from the EU and thus left the European Union which automatically puts it in the position of a “third” country in the light of the Value Added Tax Act. This means that, in principle, such entities are obliged to appoint a tax representative, as indicated by Article 18a(1) of the same Act. A taxpayer without a registered office or permanent place of business within the territory of a Member State, subject to the obligation to register as an active VAT taxpayer, is obliged to appoint a tax representative.
As an exception to this rule, Article 204 of Directive 112 can be invoked. It allows for the waiver of the application for a tax representative if the entity is established or has a FE in a country where a legal instrument for mutual assistance exists with that country. This solution has already been used by several countries.
Another way out is the solution provided for in Article 18a(3), where by means of a regulation the Minister of Finance may specify cases in which the obligation to appoint a tax representative shall not arise. It seems that such a solution may be applied in the Polish case.
There is a draft Regulation from the Minister for Finance, Funding and Regional Policy on the lack of an obligation to appoint a tax representative. Currently, the draft is at the consultation stage, but all indications are that the UK will have no such obligation.
It should be remembered that the obligation to appoint a tax representative applies only to those entities which carry out activities subject to taxation in Poland.
3. Invoice as a formalized document
In accordance with the individual tax ruling issued on 14th of January, 2021, reference number: 0113-KDIPT1-2.4012.790.2020.1.KT by the Director of the National Tax Information, the authority stated that in the case of maintenance services, invoices are not required to include the annotation “split payment mechanism”.
The applicant runs a business in the field of vehicle repair services, which includes the materials used and labor, the materials being parts for motor vehicles listed in Annex 15 to the VAT Act. The sale is documented with VAT invoices, in which the costs of labor and materials are listed in separate items.
The applicant indicated that payments for invoices for maintenance services are not subject to the obligatory split payment mechanism, as there is no delivery of goods. The website does not sell vehicle parts, but provides maintenance services that include these parts. This means that these parts are consumed for servicing. Therefore, there is no obligation to include the words “split payment mechanism” in the invoice in this case. If an invoice for the service is issued, where the specified parts used for its execution exceed the value of 15,000.00 PLN gross, without including the words “split payment mechanism” in this invoice and if the buyer fails to pay with the split payment mechanism, it shall not be subject to penalty. The authority considered the applicant’s position correct.
The authority indicated that Annex 15 to the VAT Act contains a closed list of goods and services identified by the Polish Classification of Products and Services (PKWiU), where the invoice documenting their delivery must include the annotation “split payment mechanism”. The obligation to issue invoices with the annotation “split mechanism” payments “will exist if three conditions are met jointly, i.e. the invoice will be issued for the total amount due (gross amount) in excess of 15,000 PLN or its equivalent, the invoice will document the delivery of goods or the provision of services referred to in the added Appendix No. 15 to the VAT Act and activities will be performed for the taxpayer.
The authority emphasized that since the subject of sale is only a service, only this service should be indicated on the invoice as the subject of sale, while any materials or labor value (i.e. the value of individual components of a given service) may be placed outside the obligatory elements of the invoice, as additional elements, e.g. in the information part of the invoice or in a separate document, e.g. in the cost estimate. The invoice is a formalized document intended to reflect the actual economic event that has occurred and the invoice cannot be misleading. Thus, on the invoice documenting the provision of services, goods consumed during the provision of services should not be included in the sale, if they were not sold separately but only part of a comprehensive service. Due to the fact that the formal elements required by Art. 106e paragraph. 1 of the Act are of evidence. Therefore, placing several different services in separate items on the invoice as the subject of sale may suggest that the subject of sale were several separate services, not one comprehensive one.
Such an interpretation should be assessed as correct and even should bepraised. The authority did not question the comprehensive nature of the service provided, despite its slightly incorrect (and misleading) method of invoicing, but by accepting the taxpayer’s position, it explained what should be improved.
4. EC doubles aid limits to combat COVID-19 impact and extends aid deadline
In accordance with the Communication from the European Commission, the duration of the state aid framework in relation to the effects of COVID-19, which were adopted in March 2020, has been extended until 31 December 2021. Moreover, the changes introduced provide, incl. for an increase in the limits of aid to combat the effects of COVID-19.
The updated ceilings respectively for a company involved in the production of agricultural products is 225 thousand EUR (previously 100 thousand EUR), for the fisheries and aquaculture sector 270 thousand EUR (previously 120 thousand EUR), and in all other sectors the amount is as much as 1.8 million EUR (previously 800 thousand EUR). Such facilitation introduced by the European Commission may again help entrepreneurs to take advantage of subsidies offered by the PFR, as well as the possibility to cancel the loan. From the entrepreneur’s point of view, this is an important change due to the fact that the previous limit could exclude some entities wishing to take advantage of certain aid due to exceeding or completely using up the previously set limits. What is more, some of them were forced to return the aid received with interest due to exceeding the limit.
It is worth mentioning that the existing legal framework was supposed to end on 30 June 2021, but due to the lingering effects of the COVID-19 pandemic, all aid measures that are so far indicated in the legal framework are being extended, including recapitalisation until 31 December 2021.
As Vice-President Margethe Vestager confirms: “As the coronavirus outbreak is taking longer than we all expected, we still need to make sure that Member States can provide businesses with the necessary support to survive. Today we have extended the application of the temporary framework until the end of the year. We have also increased the ceilings on some of the measures set out in the temporary framework and created incentives for the use of repayable instruments, allowing certain loans and other repayable instruments to be converted into direct grants later on. In this way, we are allowing Member States to make full use of the flexibility in state aid rules to support their economies while limiting distortions of competition.”
It is therefore important to analyse the possibilities for benefiting from the available aid and to properly verify whether a given entrepreneur will qualify for the offered measures. An entrepreneur should efficiently verify his current activity so that he can benefit from the available funds in the nearest future. It should be borne in mind that these funds, although doubled, may quickly run out.
5. TP marking for intra-Community acquisition also intra capital-group
The company doubted whether it should use the “TP” indication for intra-Community acquisitions of goods or imports of services. Brief state of facts: the applicant is a Polish tax resident taxed on all its income in Poland and an active, registered taxpayer of tax on goods and services. The company is part of an international capital group. The applicant systematically purchases goods and services from foreign related parties. The applicant’s contracting party is a taxpayer, based in another EU member state, that systematically carries out intra-Community transactions.
The applicant took a position that indicated that he should not use such a designation in the new JPK_V7 declaration. It mainly related to the Regulation on the new SAF-T, which literally does not impose such an obligation in relation to intra community acquisition transactions with a related entity. In the Regulation according new SAF-T dated October 15, 2019, § 10 sec. 4 point 3, the designation “TP” refers us to the VAT Act, Art. 32 sec. 2 points 1, and this article in turn to the CIT and PIT Acts on Income Taxes. This thesis was also based on a brochure of the Ministry of Finance, which indicated this designation only with regard to the tax payable to transactions made by oneself.
The Director of the National Tax Information did not agree with such arguments. He explained that the TP mark refers to the relationship between the purchaser and the supplier of goods or services. He stressed that the TP designation should be used for ever each transaction included in the sales records (containing data allowing for settlement of output tax), if there are connections between entities involved in this transaction. Therefore, this designation should also be used for purchases of goods/services for which the purchaser is obliged to settle the output tax on that account – this standpoint was presented in an individual interpretation by the Director of the National Tax Information dated 2 December 2020, ref. 0112-KDIL1-2.4012.427.2020.1.PM.
More and more frequently, individual interpretations are issued with regard to markings in JPK_V7. Taxpayers want to be sure that they account for transactions correctly in order to avoid fines and enquiries from tax offices. Hence the noticeable and right (for security reasons) trend to request interpretations regarding the use of various codes (not only GTU) in the new JPK. The good news is that the National Tax Information does not put formal obstacles against issuing interpretations in this respect.