The most common questions concerning the split payment concern what is the split payment, who is concerned, the rules and the effects of the mechanism and how to apply it in practice. In this article, we will try to resolve some of the doubts.
Split payment has been operating in Poland since 1 July 2018 as a voluntary and only applicable in transactions carried out by transfer of PLN to other VAT payers. The system undergoes various legal and logistical modifications, which makes taxpayers very difficult. Let's take a look at some of him.
What is the split payment
Payment using MPP is based on one transfer to the supplier for the delivery or service concerned. The separation of payments occurs by using a special transfer message made available by the bank/SKOK. In the transfer message, the buyer indicates:
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- VAT amount (or part),
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- gross sales amount (or part),
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- the invoice number on which the payment is made,
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Supplier's NIP.
The bank shall automatically divide the net sales amount by paying it to the supplier's billing account and the remaining amount of the sum corresponding to the invoice VAT shall be transferred to the supplier's special bank account – the VAT account. A transfer in a split payment is not possible on the ROR account.
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From 1 November 2019 the payment for the invoice is covered by the compulsory MPP after the following cumulative conditions are fulfilled: the total amount payable that results from the invoice (i.e. the gross value of the entire invoice) exceeds 15,000 PLN, at least one the invoice item concerns sensitive goods or services (defined in Annex 15 the VAT Act) and the seller and purchaser are VAT taxable persons.
For other MPP transactions, it remains voluntary. On the other hand, non-business consumers and traders who receive invoices without the amount of VAT indicated (e.g. those received from contractors who are exempt taxable persons) cannot benefit from it.
On the other hand, voluntary selection refers to transactions where invoices documenting the sale of goods/services covered by compulsory MPPs contain an amount lower or equal to 15,000 PLN gross or sales of mixed goods/services (i.e. goods/services covered and not covered by compulsory MPP) to 15,000 PLN gross, or to the settlements in the form of deductions referred to in Article 498 KC, as well as for the settlement of liabilities arising from the invoice, which documents transactions under the implementation of the Public-Legal Partnership Agreement.
A mandatory MPP will not be used in transactions under a public-private partnership agreement if the seller at the date of delivery was a private entity (not a public entity) and if the settlement takes the form of a deduction.
On the other hand, based on the content of the transitional provisions, two the reverse charge procedure shall be applied:
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- before 1 November 2019 the taxable person has supplied the goods or services listed in Annex 11 or Annex 14 to the VAT Act for which the tax obligation was created or the invoice was issued after 31 October 2019,
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- rod 31 October 2019 the taxable person has supplied the goods or services listed in Annex 11 or Annex 14 to the bill for which the invoice was issued before 1 November 2019
Transaction logistics
Transactions covered by compulsory MPPs must be carried out by clearing accounts established for business activities which are indicated in the list of VAT taxable persons. In order to accept payment for a split payment transaction, it is compulsory to have a VAT account.
The bank or the SKOK established such accounts automatically after the entry into force of the voluntary MPP rules (in 2018) those customers who used their corporate account.
There is no obligation to place the VAT account number on the invoice, as the bank is responsible for the correct distribution of net amounts and VAT when ordering the transfer.
An entrepreneur who clears transactions through his personal account (private, ROR) does not have a VAT account established – he will not be able to order or accept payments covered by the mandatory MPP.
Payment using MPP is made on the buyer's side one Transfer. The separation of payments occurs by using a special transfer message made available by the bank/SKOK. In the transfer notice, the purchaser indicates: the amount of VAT (or part), the gross sales amount (or part), the invoice number for which the payment is made and the supplier’s NIP. The purchaser does not need to know the supplier's VAT account number, as the transfer, as before, will indicate the supplier's bill.
Bank/SKOK automatically opens one the VAT account to all the clearing accounts of its customers. At the request of the entrepreneur, the bank/SKOK may open more VAT accounts. Opening and maintenance of VAT accounts is a free service.
Mandatory invoice endorsement
VAT payer selling goods or services covered by a compulsory MPP with an invoice exceeding the amount 15,000 PLN must enter the endorsement of the ‘sharing mechanism’. In the absence of that designation, the supplier shall make a correction by issuing a corrective invoice or the buyer may correct the error by issuing a corrective note.
In the absence of an obligation to post annotation on the issue of an invoice, the tax authority imposes an additional tax liability on the issuer 30% the amount of tax shown on this invoice.
The sanction will be calculated only on the value of the VAT amount which is attributable to the supply of goods and services covered by the compulsory MPP. However, when the purchaser regulates the entire amount through a split payment corresponding to the amount of VAT, the issuing party shall be exempted from the penalties.
Upon receipt of a VAT invoice with the endorsement of the ‘shared payment mechanism’, the purchaser is obliged to pay by means of a special transfer message only the amount of the liability arising solely from the part of the purchase of goods or services covered by the compulsory split payment. The procedure also applies in the absence of annotation where the invoice is issued for an amount above 15,000 PLN and applies to goods or services from Annex 15 VAT Act – this is due to due diligence.
The buyer is also being punished 30% the VAT amount which is attributable to the goods or services purchased under the compulsory MPP if it fails to pay the MPP’s obligation to pay. However, it may also avoid sanctions if the issuer settles the total amount of VAT resulting from the invoice. Moreover, a single-person undertaking is subject to fines of up to 720 daily rates for payment of compulsory MPPs (Article 57c(1) The Tax Penal Code).
In addition, when the amount of the claim is paid without the MPP, despite the invoice stating that the payment should be made in the MPP, it is from 1 January 2020 it will not be taxed.
Unfortunately, there is currently no deadline in the regulations for correcting the error. It may happen that the Authority notices the omission of the obligation before the counterparty’s attention is drawn to it, so that it will not be able to reflect before the imposition of the sanction, which will apply despite the subsequent settlement of claims.
What can be paid from the VAT account
The funds collected in the VAT account may be paid an amount corresponding to VAT on invoices received from counterparties, an additional tax liability and interest on late payment of this duty, import VAT and interest on late payment, advance payments on these taxes, and interest on late payment of these taxes, excise duties, pre-payment of excise duties, daily payments and interest on late payment of these payments, duty and interest on late payment of these duties and interest on ZUS contributions. The tax authorities will not have the resources collected in the VAT accounts, but they supervise their release.
In addition, a split payment mechanism may also be used for advance payments made before the invoice is issued. In this case, an advance must be entered in the transfer message instead of the invoice number. Payment for more than one invoice by means of one Transfer message.
In this case the transfer message in MPP is to include all invoices from one issuer and the amount which corresponds to the sum of the tax amounts shown in the invoices received. The period for which such an aggregate payment can be made in the split payment cannot be shorter than 1 day and longer than 30 days.
The period for which payment is made shall then be indicated as the invoice number.
Release of funds from the VAT account
It is possible to recover the VAT difference in accelerated mode to 25 days – it is necessary to indicate in the VAT return that the refund is to be made on the VAT account and to enter the amount. The difference can also be shown (resulting from excess input tax) within the standard time limit 60 days.
If there is an accumulation of funds in the VAT account, the trader may apply to the tax office to release these funds, i.e. transfer to the billing account. The time limit for the decision of the Authority shall be 60 days.
The head of the tax office may refuse to grant consent only if the applicant has a VAT arrears (up to the amount of that arrears) or if there is a reasonable concern that the VAT liability will not be fulfilled.
In the event of consent, the account holder shall receive a decision, and the bank/SKOK of the trader's VAT account shall be informed of the provision under which it will immediately transfer the VAT account to the billing account.
The application to the tax office will not block the possibility of using the funds collected in the VAT account at the time when the head of the tax office will examine the application. After submitting a request for transfer of funds, you can pay the counterparties an invoice in MPP or pay taxes to the tax office.
The bank/SKOK will transfer to the billing account the amount up to the amount of funds held in the VAT account at the date of receipt of information about the order of the head of the tax office.
Foreign entrepreneurs also obliged to have a VAT account
The question of foreign entrepreneurs conducting transactions in Poland was also clarified. With the entry into force of the mandatory split payment, they were required to hold a VAT account, which is an additional financial burden for them.
As per content Article 108f VAT Act at the request of a taxable person not established in the country of the principal second the tax office shall reimburse the costs incurred by the taxable person for handling the accounts and the VAT accounts for those accounts.
An application for reimbursement may be submitted for quarterly, semi-annual or annual periods until 25. the day of the month following the period for which the application is submitted.
The application for reimbursement shall specify the amount requested by the taxable person and the billing account number or name number of the cooperative savings and credit account to be reimbursed. The application for reimbursement shall be accompanied by documents confirming the amount of costs incurred by the taxable person.
Reimbursement of the costs referred to in section 1, is carried out in the Polish zlotys for the taxpayer's settlement account or the name account in the cooperative savings and credit office indicated in the application, within the time limit 30 days from the date of receipt.
Written by Konrad Kłos, junior tax consultant, Russell Bedford office in Katowice