Difficulties in classifying which services could be considered as comprehensive services and how to document them are caused by the fact that both national and EU regulations do not directly address this issue. Neither the VAT Act nor Directive 112 provide a definition of this type of services, so taxpayers are faced with a dilemma as to whether they should classify services as comprehensive or not.
What is a comprehensive service?
When attempting to define comprehensive services, reference should be made to the interpretation of tax authorities and national and EU case law.
As a rule, each service (each taxable activity) should be considered to be separate and independent. So when can we talk about a comprehensive service? Well, it is a service consisting of several activities (at least two), of which one is the main element of the service, and the others are auxiliary to the main service – all together allowing to meet the needs of the recipient of the service.
As a rule, each service (each taxable activity) should be considered as separate and independent So when is it possible to speak of a comprehensive service? It is a service consisting of several activities (at least two), of which one is the main element of the service, and the others are auxiliary to the main service – all together allowing to meet the needs of the customer.
Contrary to appearances, it is not the value of individual services that is of any significance in determining the main and ancillary services. Where there are doubts about the nature of the services provided, it is necessary to assess the relationship between the services provided to the customer and whether the ancillary (side) services could constitute services in their own right that would meet the customer’s needs. For this purpose, it is necessary to consider which of these services constitute the main element and which only supplement it. As the CJEU jurisprudence indicates, “a service is to be regarded as ancillary to the principal service, when it does not constitute for customers an aim in itself, but a means of benefiting under better conditions from the main service of the service provider, or when it is a condition for the performance of the principal service”. (C-41/04 in Levob Verzekkeringen BV.). Therefore, it can be concluded that a comprehensive service is characterised by a close link between the activities carried out for the benefit of the customer, which makes them an inseparable service and their division would seem artificial.
The CJEU also points out that the essence of comprehensive services lies in the definition of a key service, which determines the secondary nature of other activities, which are provided to the client only because of the main service. If the auxiliary activities are a means for the proper implementation of the main service and do not constitute the purpose itself, and the main service would be incomplete without these activities and its purpose would not be achieved, then we can talk about a comprehensive service.
The above is also followed by the Polish tax authorities, which refer to the judgments of the CJEU in the issued tax interpretations and indicate that the concept of taxation of comprehensive services was developed by the CJEU.
Example
A company rents office space, as part of which it also uses utilities. Such a supply may constitute a comprehensive service – the rental of premises is the main element in this case and the utility charges re-invoiced together with the rent amount constitute ancillary services not of an independent nature.
It may also be the case that it is not possible to identify the core service and the ancillary services because of the complex nature of the service in question, which requires a number of activities in order to be performed. In such a situation, the service must be considered from the point of view of the customer, for whom that service forms an indissoluble whole, which service is of major importance to him. It is not uncommon to find this out from the initial correspondence/proposal.
Which VAT rate to apply?
It sometimes happens that, within a comprehensive service, there are services subject to taxation at different VAT rates. This problem has repeatedly been the subject of individual interpretations issued by tax authorities, which take the position that if a given service may be deemed to be a comprehensive service, it is generally subject to taxation at one VAT rate. This rate should be determined with reference to the main service (e.g. individual interpretation of the Director of the Tax Chamber of 27 March 2018, ref. 0112-KDIL1-3.4012.39.2018.2.IT, individual interpretation of the Director of the Tax Chamber of 28 August 2020, ref. 0111-KDIB3-2.4012.456.2020.2.AZ).
Comprehensive service and split payment
The split payment mechanism is obligatory for invoices exceeding PLN 15,000 gross, and for goods listed in Appendix 15 to the VAT Act (e.g. fuels, steel, steel products, scrap, waste, precious metals (e.g. gold, silver) and base metals (e.g. copper), tablets, smartphones, consoles, construction services, parts and accessories for motor vehicles, coal and coal products, electrical machines and equipment and their parts and accessories). According to the provisions of the VAT Act, such an invoice must include the phrase “split payment mechanism”. What should be done, therefore, when providing a comprehensive service involving goods listed in Schedule 15 to the VAT Act?
Other individual interpretations issued by the tax authorities are also in a similar vein to the example presented. On this basis, therefore, it may be concluded that the obligation to apply the split payment mechanism may be avoided when issuing invoices for comprehensive services. This is due to the fact that such an invoice concerns a comprehensive service, and the goods listed in Appendix No. 15 are only a component part thereof, and not the main object of sale. It is therefore not possible to allocate such a complex service to any of the items in that Annex.
How present comprehensive services on an invoice?
According to the VAT Act taxpayers are obliged to issue invoices documenting services provided by them. The invoice should reflect the actual course of a given transaction. If a service consists of several services, from which one is the dominant service, and the others are auxiliary, how should it be shown on the VAT invoice?
According to the position presented by the Supreme Administrative Court (NSA) nothing prevents a comprehensive service from being broken down into its individual components on the invoice (judgment of the Supreme Administrative Court of 5 June 2019, ref. I FSK 661/17). Moreover, such breakdown is not excluded by the provisions of the Act. This does not mean, however, that the service ceases to be a comprehensive service because of this, according to the Supreme Administrative Court.
However, it should be noting that the approach of tax authorities to the manner of presenting services and goods on the invoice in the light of the split payment regulations is different. As the invoice should reflect the actual economic event, it should not contain a breakdown of the comprehensive service into separate items. According to the authorities, such a breakdown may suggest that the goods or materials were the subject of separate sales (e.g. individual interpretation by the Director of the KIS dated 12 December 2019, no. 0112-KDIL2-1.4012.451.2019.1.MK). In the light of the VAT Act, it seems that the tax authorities made an incorrect assessment of the way in which comprehensive services should be presented on the invoice. In this case it would have to agree with the approach presented by the Supreme Administrative Court. Pursuant to art. 106e section 1 point 7 and 8 of the VAT Act, an invoice should indicate, inter alia, the name (type) of goods or services, as well as measure and quantity of goods supplied or scope of services rendered. Therefore, indicating one service on the invoice, despite the fact that it consisted of several services, instead of several services making up one comprehensive service, may be perceived as issuing an invoice that in fact does not correctly reflect the actual course of the transaction. Moreover, it is possible to confirm the real intentions of the parties as to the nature of a given transaction on the basis of documents related to it, such as the concluded contract, order or correspondence regarding the transaction.
To sum up, the most important issues regarding comprehensive services, which the taxpayers should consider, are the relation of the provided services within the comprehensive service, determination of the key service from the point of view of the client’s purpose, as well as the issues regarding the invoice – despite the favourable standpoint of the courts regarding the breakdown of the comprehensive service into an invoice, the standpoint of the tax authorities in this respect, which is not so favourable for the breakdown of the service into an invoice, cannot be ignored. Therefore, it is worth to collect documentation/correspondence confirming the actual intention of the parties to the transaction, i.e. to provide a comprehensive service.