Part 2 Adjustments and deduction

In-minus adjustments to the taxable amount for reverse charge

Another change included in the draft SLIM VAT 2 concerns in-minus adjustments in case of import of services, supply from a non-resident and intra-Community acquisition of goods (ICA). That is, activities subject to reverse charge and settled by purchasers. Generally, the SLIM VAT 1 package provided for essential changes in the scope of tax base correction, but, as it usually happens, certain issues were omitted. The proposed provisions are intended to supplement this.

The new Article 29a Section 15a of the VAT Act will stipulate that in the case of import of services and supply of goods for which, pursuant to Article 17(1)(5) the taxpayer is the purchaser, if the taxable base has been reduced, the correction of such base shall be made in the settlement for the settlement period in which the reason for reducing the taxable base arose.

Similarly, these issues will be regulated by the new Article 30(1a) for intra-Community acquisition of goods, according to which, if the taxable base has been reduced, the correction of this base shall be made in the settlement for the settlement period in which the reason for reducing the taxable base arose.

It is worth noting that the method of reducing the taxable base provided for here is analogous to that used in the case of in plus adjustment of domestic sales (occurrence of the reason), and not to that used in the case of in plus adjustment (reconciliation, fulfilment of its conditions and documentary confirmation).

Of course, the realignment of a reduction in the value of sales can also be a reason for reducing the taxable amount for VAT, but generally these can also be objective factors.

Tax deduction in connection with adjustments

In connection with the changes described above, relevant provisions relating to the issue of deduction in the case of import of services, supply from a non-resident and ICA, related to these provisions and resulting from the EU CJ case-law which was negative for Poland, have also been implemented.

Adjustments to the tax base in minus for the above-mentioned activities will be regulated by the new Article 86(19c): in cases of reduction of the tax base, referred to in Article 29a(15a) and Article 30a(1a), the buyer of goods or services is obliged to reduce the amount of input tax in the settlement for the settlement period in which he adjusted the tax base.

In other words, the correction of the deduction is made at the moment of the correction of output VAT, which is easy to identify because it is made by the same entity.

Tax deduction – changes connected with an EU CJ ruling

On 18 March 2021 in case C-895/19 the CJEU issued a judgment in a Polish case in which it found that Polish regulations making the right to deduct input VAT on ICA conditional on the output VAT being shown in the correct tax return submitted within three consecutive months of the end of the month in which the tax liability arose in relation to the acquired goods, are incompatible with the VAT Directive.

Although this ruling explicitly concerns only ICA, it follows from its justification that an analogous rule applies to imports of services and supplies from a non-resident. Therefore, the rule in question deletes this condition from provisions concerning both forms of ICA as well as activities indicated in the previous sentence (i.e. Article 86(10b)(2)(b) and (3)). Consequently, Article 86(10i) regulating the mechanism of deducting input VAT on account of WNT after the 3-month period should also be repealed.

At the same time, however, Article 86(10h) is to be amended. Currently, this provision makes deduction of input tax conditional on receipt of an invoice documenting a supply of goods, which for the taxpayer is an intra-Community acquisition of goods, later than three months. According to the draft, the deduction after 3 months from the end of the month in which the tax obligation for ICA with regard to the purchased goods arose, is to take place for the period in which the taxpayer included the amount of tax due for this purchase.

Such a change, although probably not fully compliant with the above-mentioned EU CJ ruling, should probably be deemed to be compliant with the VAT neutrality principle, the more so as output VAT may be disclosed by way of correction, and thus input VAT may be disclosed as well (as many taxpayers have done in practice following the EU CJ ruling).

Tax deduction – amendment to the general rule of correction of deduction.

The draft SLIM VAT 2 will also amend Article 86(13), regulating the deduction of tax by correcting the tax return for the period in which the right to reduce the amount of tax due arose – if this is not done within any of the time limits specified in paragraphs 10, 10d, 10e and 11 of this article. What remains is the deadline for such correction, i.e. 5 years, counting from the beginning of the year in which the right to reduce the amount of tax due arose. However, the periods in which it will be possible to do so are to be changed. Currently, it is only the tax return for the period in which the right to reduce the amount of tax due arose. What is to change is the possibility to make this correction not only for this settlement period, but also for one of the next three settlement periods, and in the case of small taxpayers (regardless of whether they choose the cash method or not), for one of the next two settlement periods, after the settlement period in which the right to reduce the amount of tax due arose.

Interestingly, the amendment will not apply to import of services, supply from a non-resident or WNT, which can be adjusted only for the period in which the right to reduce the amount of output VAT arose, as Article 86a(13) remains unchanged.

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