- UK-EU transactions – the possibility of avoiding customs duties?
- Retail Sales Tax – doubts regarding equal treatment
- Advance invoice below PLN 15,000 without split payment and new wording 108a (1) VAT Act
- Limited partnership in the CIT Act – additional consequences
- Sales via online platforms (e-commerce package)
- Direct reimbursement of research and development (R&D) relief expenses
1. UK-EU transactions – the possibility of avoiding customs duties?
The concluded EU-UK free trade agreement (FTA) does not always provide for an opportunity to avoid the payment of customs duties.
It should be noted that trade with the UK from 1 January 2021 will be treated similarly for settlement purposes as transactions with third countries. The concluded FTA defines the terms and conditions relevant to entrepreneurs in terms of correct tax and customs settlement, in particular the possibility of benefiting from additional preferences.
The condition for avoiding payment of customs duties when goods are moved between the EU and the United Kingdom is that all formal conditions are met. In doing so, the condition for keeping the relevant documentation is emphasized, which may be, for example, the need to have a document to have a document confirming the analysis of the origin of the product being moved (this will apply in particular to products of animal origin). Moreover, a 0% rate may occur if the declaration of origin of the goods is made by the exporter in respect of goods which are imported into the United Kingdom and the corresponding limit on their value is maintained – EUR 6,000. Otherwise, if this value is exceeded, the declaration must have a reference number, which will be a confirmation in the system of the exporter already registered. The model statement itself is included in the FTA. An additional option is also the possibility for the importer to make a confirmation on the customs declarations regarding the origin of the goods (this is only allowed if the exporter cannot make a declaration). It should be pointed that if the second option, that is to say the proof of the goods by the importer, is exercised, it is possible to expose himself to tax control, because the customs authorities may require proofs of origin of the goods. Therefore, regardless of the situation, it is necessary to have proof of the origin of the good here.
In the event of non-compliance with the changes and obligations made by the entrepreneur, the customs authorities shall have an attitude not to take account of the 0% rate and may therefore take into account the tariff rates.
Please note that the above obligations are not the only additional formalities. We must not forget here both the new issue of EORI (Community Business Registration and Identification System), which can be issued by the tax authority in the United Kingdom, and the customs declaration that can be submitted by the IT system. The need to obtain this number is independent of whether or not the entrepreneur will benefit from the preferences described.
2. Retail Sales Tax – doubts regarding equal treatment
In 2016, the Act on the Tax on Retail Sales was passed, but it was only from 2021 that the tax actually came into force. On February 25, companies will have to submit declarations and pay the first amounts of retail sales tax. The estimated amount of state revenues, in connection with the introduced tax, is about PLN 1.5 billion. Pursuant to the Act, the new tax applies to retailers whose revenues from retail sales in a given month exceeded PLN 17 million. The applicable rates are:
- 0.8% of the tax base – in the part in which the tax base does not exceed the amount of PLN 170 million,
- 1.4% of the excess of the tax base – in the part in which it exceeds the amount of PLN 170 million.
Entrepreneurs who are obliged to pay this tax should submit a tax declaration with the amount of the tax (form PSD-1) and pay the tax by the 25th day of the month following the month to which the tax relates. If an entrepreneur who is a retailer does not exceed PLN 17 million in revenues, the above obligations will not apply to him. In addition, as the tax base for retail sales tax is defined in the above-mentioned Act differently than for CIT or PIT purposes, the provisions in this respect are unclear, and the reference to the value of sales in VAT may lead to errors in determining the tax base.
The introduced tax aroused quite a lot of controversy from the very beginning. As retailers are charged with the new tax, ultimately costs can be passed on to consumers by increasing the price of the products sold. As indicated in the Report of the Union of Entrepreneurs and Employers (Effects of the introduction of the on retail sales from 1st January 2021), it is possible to avoid the tax on retail sales if an entity belonging to the brand (a company operating under one logo, being part of chain of stores) is a separate economic entity – according to the cited report, such a phenomenon can be observed in the electronic industry, where some stores work as separate entities, and the threshold of the PLN 170 million will apply to each entity separately, even if they operate under one brand.
In addition, it should be noted that the doubts regarding the unequal treatment of entrepreneurs in connection with the introduced retail tax have not yet been finally resolved by the CJEU, so – in case negative standpoint is issued – the potentially paid tax can be recovered.
3. Advance invoice below PLN 15,000 without split payment and new wording 108a (1) VAT Act
The SLIM VAT package implemented with the new year contains a significant change in this respect, but also this problem was the subject of an interpretation issued by the Head of Tax Information (KIS) based on the following facts: a company purchased construction services generally covered by the split payment mechanism from Appendix 15 of the VAT Act. The value of such services usually exceeded PLN 15 thousand. However, there was an advance invoice for a lower amount. The company was of the opinion that it does not matter what the invoice value is, what matters is that the whole transaction exceeds PLN 15,000 and requires an MPP marking in the new JPK_V7.
The Head of KIS explained that general rules apply to advance invoices and that what matters is the value of the invoice, not the value of the transaction. Therefore, the split payment mechanism is not applied to this advance invoice, and the entrepreneur will not mark it with SPM in the SAF-T. (Individual interpretation of the director of KIS of December 14, reference number 0114-KDIP1 1.4012.659.2020.1.RR)
The SLIM VAT package also amended Art. 108a section 1a. The original provision referred to Art. 19 point 2 of the Entrepreneurs’ Law, which stipulated the amount of PLN 15,000 for which it was necessary to use a split payment. It was not clear whether it was equal to PLN 15,000 or above this amount.
Current wording of the provision leaves no doubts in this respect – the mentioned amount or above shall be considered as triggering an obligation to apply split payment mechanism. However, what is more important in connection with this change is broadening the scope of the obligatory split payment. Previously, reference to the provisions of the Polish Business Law meant that foreign taxpayers of Polish VAT, which were not entrepreneurs within the meaning of this law, were not subject to this obligation (the definition of an entrepreneur differs in scope from Article 15(2) of the VAT Act).
4. Limited partnership in the CIT Act – additional consequences
Taxation of limited partnerships with CIT tax has not been favorably received by entrepreneurs, because due to the introduced change they are obliged to pay higher income tax. Looking at broader context, it is possible that the inclusion of limited partnerships in the CIT Act may also affect other tax issues – e.g. exit tax.
Exit tax is a tax on unrealized profits at the time of transfer of an asset outside the territory of Poland or in the event of a change of tax residence by a taxpayer subject to tax liability in Poland on all his income. The tax rate is 19%. Despite the fact that this provision has been in force since January 1st, 2019, it did not have much impact on limited partnerships. Only now, i.e. from January 1st, 2021, when the CIT Act was amended by including limited partnerships in it, there is risk that the owners of these companies will also be obliged to regulate the exit tax when changing their tax residence. Until now, according to tax rulings issued in the field of PIT regarding taxation with exit tax, the change of residence of a partner in a limited partnership did not result in an obligation to pay exit tax (according to tax rulings, the limited partnership was a tax transparent entity and constitutes establishment within the meaning of the double taxation treaties, and Poland is still entitled – even in the event of a change in tax residence – to tax the profits from the sale of shares in such entity – tax ruling of November 26th, 2020, No. 0115-KDIT1.4011.630.2020.3.MT). In connection with the amendment to the CIT Act, limited partnerships will no longer be tax transparent, and therefore will not always constitute a permanent establishment within the meaning of the DTT, which may mean that in the event of change of tax residence by the owner of the limited partnership, an obligation to pay the exit tax may arise. However, it should be borne in mind that the exit tax applies only after meeting the conditions set out in the Act, e.g. the owner of the company has resided in Poland for a total of at least 5 years during the 10 years preceding the date of change of tax residence or the market value of the transferred asset does not exceed in total, PLN 4 million. Therefore, it is worth being vigilant in relation to changes in regulations, because when making business decisions, it may turn out that there is a tax obligation to pay the tax.
5. Sales via online platforms (e-commerce package)
The deadline for implementing the new EU regulations called the e-commerce package resulting from the need to implement the EU Council Directive 2018/1910 amending Council Directive 2006/112/WE has been postponed to July 1, 2021.The purpose of their introduction is to more effectively control and improve the collection of VAT due on transactions made on the Internet (also in the case of sales platforms), fighting against VAT fraud and reducing the administrative cost for companies selling goods online.
The new regulations are to help fighting the practice of bypassing tax regulations related to the import of goods into the European Union from third countries. This is especially important in the case of customs duties which, due to their value (up to EUR 22), were added very rarely.
Under the new regulations, a new procedure for intra-Community distance sales of goods will also be introduced, which will uniformly replace the definitions of distance sales from the territory of the country and within the territory of the country for intra-Community distance sales of goods.
In light of the changes, the legal fiction of recognizing the sales platform as a taxpayer is also adopted. It is the sales platforms that will be obliged to properly settle VAT on sales made by users in cross-border B2B transactions. To facilitate the implementation of these obligations, a procedure called IOSS – Import One Stop Shop has been introduced. In its case, the operator will charge and collect VAT when the goods are sold, while making a global payment via the IOSS system. This will allow for an exemption from VAT when importing goods at the time of inspection at the customs office. At the same time, using the IOSS system, it will be possible to submit appropriate declarations, which will allow you to benefit from the exemption from taxes on goods and services for imported goods with a value not exceeding 150 euros.
In contrast, the exemption from VAT was eliminated for imported goods whose value does not exceed EUR 22. Undoubtedly, this change is aimed mainly at the mass import of goods imported from countries outside the EU, especially from China.
6. Direct reimbursement of research and development (R&D) relief expenses
The Ministry of Finance presented the rules of settling the R&D relief for the year 2020. Entrepreneurs have the option of using the relief in the annual settlement, when submitting their tax return for 2020. However, in the past year, the possibility of deducting the relief in monthly or quarterly advances was introduced. The introduced option concerns expenditure on R&D activities, the purpose of which is to develop products necessary to counteract COVID-19, including all activities related to fighting infection and prevention.
What is more, entrepreneurs have a chance to get back a part of their R&D expenses, if they have no income to deduct from. This kind of reimbursement is granted to entrepreneurs who start their business activity in the year of its commencement. In the case of micro, small and medium-sized enterprises, they can also take advantage of the relief in the year following the year of commencement of operations.
Entrepreneurs may receive 17% of the uncovered amount, if they are taxed on general terms, or 19%, when they pay a flat tax. However, the amount returned in accordance with the above rules should be returned if the taxpayer, before expiry of following three tax years, counting from the end of the year for which the tax return was submitted, liquidates the business activity or becomes bankrupt. A taxpayer who has started business won’t receive a refund if he or she conducted other activities independently or in the form of a company in a given year and in the previous two years.
An alternative solution to direct reimbursement in the event of loss or low income is to deduct R&D expenses incurred in 2020 in returns for six consecutive tax years. Beneficiaries of the tax relief are required to identify the costs of R&D in the ledger of revenues and expenditures or in the books of account.