Mandatory split payment mechanism

The institution of the split payment mechanism has been operating in Polish tax law since July 2018, when to the bill of 11 March 2004 on tax on goods and services 1 (Next: the VAT Act) the new Regulations of Chapter 1a of Chapter XI ‘Mechanism of split payment’ have been introduced.

The mechanism (hereinafter: MPP) concerns how to regulate payment in the case of transactions between taxable persons.

In practice, the payment received by the supplier is divided into two streams: 1) the amount corresponding to the net value of invoice sales that is paid to the counterparty's bank account (or otherwise cleared), 2) the amount of VAT on the invoice which is paid to the VAT account associated with that counterparty’s bank account.

1. Introduction

The introduction of the MPC was aimed at preventing fraud and tax fraud. In practice, it was intended to prevent the disappearance of taxable persons who received a payment from a counterparty (net + VAT) but did not pay VAT on it to the tax office (VAT due). Thus, the possibility of possible fraud has been limited already at the transaction stage. This in turn was supposed to lead to the sealing of the tax system.

Initially, the MPP functioned only in a voluntary option, with the decision to apply it in the hands of the buyer. By force of Council Implementing Decision (EU) Directive 2019/310 to 18 February 2019 authorising Poland to introduce a specific measure derogating from Article 226 Directive 2006/112 on the common system of value added tax 2 , However, Poland was authorised to introduce MPPs for certain goods and services in the mandatory option. The provisions in this respect shall apply from 1 November 2019

2. Goods and services covered by the compulsory split payment mechanism

The list of goods and services covered by the compulsory MPP shall specify Annex 15 to the VAT Act Act This includes, in particular, those goods and services which have so far been covered by the so-called reverse charge mechanism (listed goods) In Annex 11 to the VAT Act Act: steel products, secondary raw materials, waste, electronic products and services listed In Annex 14 to the VAT Act Act – works) and rules on the so-called joint and several liability of the buyer (the goods listed In Annex 13 to the VAT Act Act: some steel products, fuels, oils and vegetable and animal fats, cameras, SSDs), but not only. Many other goods and services were covered by the split payment mechanism, such as coal and coal products, electrical machinery and equipment and parts and accessories for cars and motorcycles.

With the repeal of the rules governing the application of the so-called reverse charge in domestic transactions from 1 November 2019 the obligation to submit summary information has also been abolished VAT-27.

The mandatory MPP does not exclude the voluntary use of this mechanism. For goods and services other than those mentioned In Annex 15 to the VAT Act Act the optional use of this mechanism has been left to date.

3. Transactions covered by the mandatory split payment mechanism

Not every supply of goods and services listed In Annex 15 to the VAT Act Act is cleared using a mandatory MPP. In this respect, the Goods and Services Tax Act introduces certain restrictions to exempt minor transactions and transactions between certain types of entities.

3.1. Instruments above 15,000 PLN

Appropriate regulations include the newly added Article 108a(1a)(1b) the VAT Act In accordance with that provision, when making payments for the goods or services listed In Annex 15 to the VAT Act Act, evidenced by an invoice in which the total amount of the claim represents the amount in question under Article 19 Act on 6 March 2018 Business law 3 (Further: p.p.), taxpayers are obliged to use MPPs. The taxable persons responsible for issuing such invoices are in turn obliged to accept the payment made in such a mechanism.

Only those goods and services listed by the MPP legislator In Annex 15 to the VAT Act Act, the delivery of which has been documented by an invoice, and only if the total amount of duty shown in that invoice represents the amount in question under Article 19 p.p., the mechanism is not covered by:

• 1) supplies not invoiced,
• 2) invoiced deliveries but in which the amount of total receivable (gross value) does not exceed 15,000 PLN.

On this basis, for example, taxpayers benefiting from an individual exemption will be exempted from the obligation to apply the MPP. The invoices issued by them do not show the amount of the tax, therefore it is not possible to regulate the invoice issued by them in this system. The obligation to apply MPPs does not apply to claims arising from invoices in which the gross value of the invoice does not exceed the amount 15,000 PLN.

Example

For e.g.

construction services, where a contract is concluded for the execution of construction services from Annex 15 the VAT Act, of a gross value 30,000 PLN, and according to the contract provisions, the contractor shall clear separately three stages of work with separate invoices of gross value 10,000 PLN any mandatory MPP will not apply.

The transaction value exceeds the total 15,000 PLN, but in order for the MPP to be mandatory, the gross value must be exceeded 15,000 PLN by the total amount of the invoice receivable.

It is not clear how to proceed when an invoice containing more than one the total amount of the item is, however, above 15,000 PLN, However, the sale of the said goods In Annex 15 to the VAT Act Act shall no longer exceed that amount. In practice, different approaches arise to this issue, namely:

1. a strict approach, according to which in such a case it will be necessary to pay the entire invoice in the MPP, because the provisions relate to an invoice in which ‘the total amount of the claim represents at least the amount of the 15,000 PLN” – the invoice in question meets this criterion;
2. liberal approach – according to which such invoice is not covered by MPP, because the value of the goods listed In Annex 15 to the VAT Act Act is in this case lower than 15,000 PLN;
3. an indirect approach — according to which, however, the gross value of the invoice exceeds the amount 15,000 PLN, The MPP applies to this invoice, with this obligation only applicable to the duties on the goods concerned In Annex 15 to the VAT Act Act – This means that the charge for the goods/service shown In the second invoice items can be paid in a different way.

In tax explanations from 23 December 2019 on MPP 4 it was pointed out that the obligation to settle receivables in MPP would in this case apply only to the amount corresponding to the amount of VAT resulting from the acquisition of the goods or services listed In Annex 15 to the VAT Act Act

Example

When invoice of gross value above 15,000 PLN will contain at least one item (e.g. amount 3,000 PLN net + 690 PLN VAT) covered Annex 15 to the VAT Act Act, the obligation to apply the MPP will then apply to an amount equal to the amount of tax on that particular item, i.e. an amount equal to 690 PLN. This does not, of course, preclude the possibility of settling part of the receivables in MPP beyond that covered by the obligation or the entire claim from such an invoice.

For the mandatory MPP, however, it will not matter whether the supplier has a registered office or a permanent place of business in Poland or is a foreign entity registered here only for VAT purposes. If a taxable person acquires goods or services in the territory of the country from a taxable person not established in the territory of the Republic of Poland or established in a permanent place of business but registered for VAT purposes in Poland, such a transaction shall also be subject to a mandatory settlement using this mechanism if the conditions for the mandatory MPP are met.

3.2. Public-law partnership agreements

According to Article 108a(1e) the VAT Act the mandatory MPP shall not apply to the payment of the amount of the debt resulting from the invoice documenting the transactions carried out under the public-private partnership agreement in question. Under Article 7(1) Act on 19 December 2008 on public-private partnerships 5 (hereinafter: u.p.p.), if the entity to which the payment is made at the date of delivery was a private partner with which the public entity has concluded a public-private partnership agreement, or a one-man private partner company or a capital company whose sole partners are private partners with which the public entity has concluded a public-private partnership agreement.

3.3. Mandatory split payment mechanism and deductions

The use of MPPs is also excluded in the event of a deduction. This principle is clearly indicated Article 108a(1d) the VAT Act, according to which, in the event of the deduction in question, under Article 498 Act on 23 April 1964 Civil Code 6 ((c) the MPP shall not apply to the extent that the amount of the duty is deducted. In tax explanations from 23 December 2019 7 it was pointed out that the counterparty's claim does not have to relate to the invoice for which the MPP is obliged to pay.

However, it should be borne in mind that if, after the mutual deduction, there is still an amount to be paid, this difference must be settled in accordance with the compulsory MPP assumptions.

Example

If the taxable person making the purchase on the basis of the invoice covered by the mandatory gross MPP 21,000 PLN, VAT 3,926.83 PLN – is therefore the debtor of the counterparty – at the same time the creditor of the amount 25,000 PLN and both claims meet the conditions indicated under Article 498 k.c., this can deduct your claim in the amount 21,000 PLN and thus exempt from payment obligation in MPP.

Example Where a taxable person making a purchase on the basis of an invoice covered by a compulsory MPP for all items in that invoice with a gross value 21,000 PLN, VAT 3,926.83 PLN – is therefore the debtor of the counterparty – at the same time the creditor of the amount 15,000 PLN and both claims meet the conditions indicated under Article 498 k.c., he may deduct his claim to a height 15,000 PLN and thus exempt from the obligation to make payment to the MPP in so far as the deduction has taken place and the remaining amount of the claim (i.e.

6,000 PLN gross, VAT of 1,121.95 PLN) is obliged to pay according to MPP rules.

Example

Where the taxable person making the purchase on the basis of the invoice covered by the compulsory MPP for all items in that invoice with gross value 21,000 PLN, VAT 3,926.83 PLN – is therefore the debtor of the counterparty – at the same time the creditor of the amount 15,000 PLN and both claims meet the conditions indicated under Article 498 k.c., he may deduct his claim to a height 15,000 PLN and thus exempt from the obligation to make payment to the MPP in so far as the deduction has taken place and the remaining amount of the claim (i.e. 6,000 PLN gross, VAT of 1,121.95 PLN) is obliged to pay according to MPP rules.

In practice, it is noted that Article 498 k.c. only regulates the issue of bilateral deductions, which gives rise to doubts as to the possibility of excluding the split payment also in the case of deductions and offsets made between more than two entities.

This is addressed in the tax explanations from 23 December 2019 8 , indicating that due to the nature of the deduction under Article 498 k.c.

referred to two persons who are both debtors and creditors, at present there is no possibility to recognise the multilateral compensation for the fulfilment of payment obligations in the compulsory MPP.

3.4. Payments in foreign currency

No payment may be made to the VAT account in foreign currency. However, a transaction in a currency other than gold shall not be exempt from the obligation to apply the mandatory MPP. For foreign exchange transactions concerning goods or services covered by the compulsory MPP, it is therefore appropriate to carry out two payments. The point is:

• 1) payment of the amount corresponding to the amount of VAT, by means of a transfer message to the VAT account in euro, according to the amount of VAT indicated in the VAT notes on the invoice,
• 2) payment of the net amount – this part should be paid by separate transfer in foreign currency or can be settled otherwise.

If the gross value of the invoice is indicated in foreign currency, then in order to determine whether the gross value of the invoice exceeds the limit indicated for the mandatory MPP (15,000 PLN), Exchange rates should be used in accordance with the rules adopted under Article 31a the VAT Act

1. 5. Payment of the claim taken into the bank account of a judicial bailiff or enforcement body in the execution of that claim

According to tax explanations, 23 December 2019 9 , the obligation to pay in the split payment does not apply either to the payment of the debt taken by the bailiff or enforcement body, even if that claim relates to the sale to which the compulsory MPP applies.

In such a case, payment to the bailiff or enforcement authority shall not constitute payment for the goods or services purchased. Instead of having to pay the counterparty for the goods or services purchased, there is a new payment title, that is to say, execution of the claim taken.

Therefore, in such a situation, the taxpayer (the purchaser) will not be required to pay to the bailiff or enforcement body in the MPP. We are dealing with the special nature of the legal relationship, which decides that the buyer does not have to apply MPP in payments to the bailiff or enforcement body.

The purchaser should not pay in the MPP, as in this case it carries out the seizure of monetary claims received from the enforcement authority or the bailiff.

3.6. Payments by insurers to entities third Injury elimination

A similar situation exists with regard to payments made by insurers to entities third the damage elimination when the payment is a liability for the insured/impaired. In tax explanations from 23 December 2019 10 it was pointed out that in such situations, the right to pay compensation to the injured party, e.g.

a car workshop, usually takes place. Insurers shall then pay according to the content of the compensation invoice, which may include the items included In Annex 15 to the VAT Act Act, However, its payment to the injury elimination agent is compensation.

The insurer will therefore not apply MPP in such situations, as this mechanism is not used to pay compensation. In this case, we are dealing with the specific nature of the legal relationship, which decides that the insurer does not apply MPP in payments to the injury elimination entity.

3.7. Mandatory split payment mechanism and invoice corrections

In view of the link between the compulsory MPP and the specific amount limit on the invoice and its inclusion, at least one from the items indicated In Annex 15 to the VAT Act Act, VAT corrections can generate different obligations linked to this mechanism.

On the one hand, such a correction may result in an obligation to pay in the MPC, from second and – to make such an obligation disappear. The following are examples of ways of accounting for MPP adjustments[11].

Example

Diagram 1 shows the situation in which the original invoice exceeded the value 15,000 PLN gross but not covered by compulsory MPP as it did not cover goods or services from Annex 15 to VAT. As a result of the adjustment of the invoice, additional items (values) were included. 2,000 PLN Gross) — these are the items from Annex 15 to the VAT Act Act

Example

Diagram 2 shows the situation in which the original invoice included positions from Annex 15 to the VAT Act Act and exceeded its value 15,000 PLN the gross, and thus has been marked with the words ‘the mechanism of the split payment’ and paid in this mechanism. As a result of the correction, the value of the invoice was reduced, but after correction the invoice still includes items from Annex 15 to the VAT Act Act, and its value still exceeds 15,000 PLN gross.

Example

Diagram 3 shows the situation in which the original invoice included positions from Annex 15 to the VAT Act Act and exceeded its value 15,000 PLN the gross, and thus has been marked with the words ‘the mechanism of the split payment’ and paid in this mechanism. The correction reduced the value of the invoice. Its value continues to exceed 15,000 PLN gross, but the invoice no longer covers items from Annex 15 to the VAT Act Act

Example

Diagram 4 shows the situation in which the original invoice included positions from Annex 15 to the VAT Act Act and exceeded its value 15,000 PLN the gross, and thus has been marked with the words ‘the mechanism of the split payment’ and paid in this mechanism. After correction, the invoice still includes the items from Annex 15 to the VAT Act Act, but its value no longer exceeds 15,000 PLN gross.

Example

Diagram 5 shows the situation in which the original invoice included positions from Annex 15 to the VAT Act Act and exceeded its value 15,000 PLN gross, and thus it has been marked with the words “the mechanism of the split payment”. However, until the correction date the invoice was not paid. After correction, the invoice still includes the items from Annex 15 to the VAT Act Act, but its value no longer exceeds 15,000 PLN gross.

4. Cumulative advances and transfers

Mandatory MPP should also be applied to advances. In this case, the words ‘an advance’ shall be entered in the transfer message instead of the invoice number. From 1 November 2019 the possibility of a split payment through so-called collective transfers was also introduced, i.e. covering more than one invoices. This possibility arises from Article 108a(3a-3c) the VAT Act In accordance with those provisions, in the event of an issue to the taxpayer by one supplier or service provider during a period not less than one day and no longer than one month more than one invoices, payment using MPPs may involve more than one invoices. Then the transfer message:

• 1) includes all invoices issued to the taxable person by one supplier or service provider during a period not less than one day and no longer than one month,
• 2) contains an amount corresponding to the sum of the amounts of tax shown in those invoices,
• 3) the place for the indication of the invoice number should include the period for which the payment is made.
• 5. Organisation

The introduction of the compulsory MPP resulted in a change in the rules on VAT invoices. Added recipe Article 106e(1)(18a) the VAT Act, according to which in the case of invoices in which the total amount of the claim represents the amount 15,000 PLN, involving the supply to the taxable person of the goods or services in question In Annex 15 to the VAT Act Act, The invoice should contain the words ‘the mechanism of the split payment’.

This is a very important element of the changes, as the non-invoicing of these terms on the invoice makes it possible to apply sanctions to the issuer of the invoice. He gives it to the tax authorities.

Article 106e(12) the VAT Act, according to which, in the event that the taxable person has been found to have issued an invoice with the exception of the words ‘shared payment mechanism’, the head of the tax office or the head of the customs and tax office shall fix an additional tax liability equivalent to 30% the amount of tax on the supply of goods or services listed In Annex 15 to the VAT Act Act, shown on this invoice.

Of course, the lack of an invoice noted in this respect can be corrected (as any other irregularity) by means of a corrective invoice or correction note.

Example

Where an invoice of a gross value above 15,000 PLN will contain one item (e.g. amount 2,000 PLN net + 460 PLN VAT) covered Annex 15 to the VAT Act Act, that sanction will be charged only on the value of the amount of tax due under this particular item, i.e. on an amount equal to 460 PLN.

Subject to Article 106e(13) the VAT Act sanctions shall not apply if, despite the issuing of an invoice without the abovementioned words, the payment was made by the purchaser using the MPP.

If, therefore, the seller mistakenly fails to indicate the invoice as necessary, it will be in the interest of the issuer of the invoice to inform the buyer of the fact that he has issued the invoice without the required indication, as well as the obligation for the buyer to pay in the MPP.

This information may be provided by the seller to the buyer in any form and in any way, even before the correction invoice is issued. Nor shall the penalties apply to natural persons who are responsible for the same act fiscal misdemeanour or for fiscal criminal offence.

Due to first difficulties in identifying goods and services covered and not subject to compulsory MPP, after second frequently occurring system restrictions which do not allow exhibitors to place specific endorsements only on selected invoices, and after third In practice, there has been doubts as to whether it is possible to include an endorsement of the ‘shared payment mechanism’ on invoices not covered by this mechanism.

As a rule, only invoices satisfying statutory conditions should be so marked. However, the provisions governing the scope of the invoice data shall specify only the elements necessary for placing.

This means that, in addition to these elements, the taxable person may also include other information on the invoice, which does not constitute a breach of the ‘invoice’ rules.

Also from the point of view of the Act of 10 September 1999 Tax Penal Code 12 (Further: k.k.s.), an invoice containing in addition to the necessary elements also additional information will not be a defective invoice.

This was confirmed in the tax explanations from 23 December 2019 13 , indicating that it is not sanctioned to include on the invoice the endorsement of the ‘shared payment mechanism’ despite the absence of such an obligation. However, if the buyer receives such an invoice, there is no obligation to settle such invoice in the MPP.

6. Penalties for not applying the compulsory split payment mechanism

6.1. Penalties under the VAT rules

Making payments without mandatory MPPs has its consequences in the form of a number of penalties provided for by the rules applicable to the buyer.

Application basis first of them is Article 108a(7) the VAT Act According to him, in the event that the taxable person has been found to have made a payment in the absence of a split payment, the head of the tax office or the head of the customs and tax office shall fix an additional tax liability equivalent to 30% the amount of tax on the goods or services listed In Annex 15 to the VAT Act Act, shown on the invoice to which the payment relates.

The purchaser is able to free himself from this sanction if the supplier or service provider, despite receiving payment without the mechanism in question, has settled the entire amount of tax resulting from the invoice and has paid the tax due to the tax office.

Example

Where an invoice of a gross value 20,000 PLN, VAT amount 3,739.84 PLN, will include items covered Annex 15 to the VAT Act Act, The penalty will not be charged if the supplier takes an invoice in the sales records, it will provide information about it in JPK_VAT and the total amount of VAT on this invoice, i.e. 3,739.84 PLN, shall be included in the VAT return.

Nor shall the penalties apply to natural persons who are responsible for the same act fiscal misdemeanour or for fiscal criminal offence. The consequence of non-application of the MPP may also be to place the buyer jointly liable for VAT not paid by the supplier.

This possibility gives tax authorities a revised Article 105a(1) the VAT Act According to him, the taxable person to whom the goods in question were supplied In Annex 15 to the VAT Act Act, is jointly and severally liable, together with the entity making the supply, for its tax arrears, in part proportionally attributable to the supply made to it, if, at the time of that supply, the taxable person knew or had reasonable grounds to believe that the total amount of tax due to the supply made to him or its part would not be paid to the account of the tax office.

Subject to Article 105a(3) the VAT Act that responsibility shall not apply:

1) for the acquisition of motor gasoline, gas oils and gases intended for the propulsion of internal combustion engines, if:

• (a) this acquisition shall be made at filling stations or liquid gas stations, to standard vehicle tanks used by taxable persons purchasing these goods, to drive these vehicles,
• (b) the supply of these goods is made by the taxable person supplying the wired gas through his own transmission or distribution networks;
• 2) where tax arrears have not been associated with the participation of the entity supplying the goods in unfair tax settlement in order to benefit from the asset;
• 3) to purchase goods documented by an invoice in which the total amount of the duty does not exceed 15,000 PLN;
• 4) to purchase goods for which the taxable person paid using the MPP.
• 6.2. Penalties under income tax legislation

On the basis of income taxes, the consequence of making payments with the exception of compulsory MPPs is that expenditure cannot be counted as revenue costs. State Article 15d(1)(3) Act on 15 February 1992 on corporate income tax 14 (Next: the Corporate Income Tax Act) and Article 22p(1)(3) Act on 26 July 1991 on personal income tax 15 (Further: u.p.d.o.f.), according to which taxpayers do not include costs for obtaining cost revenue in the part where the payment for transactions with a value exceeding 15,000 PLN – Despite the inclusion of the words "divided payment mechanism" on the invoice, this mechanism has been omitted.

Individual interpretation of the Director of National Tax Information from 15 November 2019 16

Where it appears that the goods or services purchased by the Applicant do not fall within the scope of the goods and services listed In Annex 15 to the VAT Act Act, In spite of the VAT invoice, the ‘shared payment mechanism’ to the Applicant will not apply the exemption from the cost of obtaining the revenue in question under Article 15d(1)(3) the Corporate Income Tax Act In order to be eligible for the tax costs of expenditure incurred as documented by this invoice, the other conditions for recognising the expenditure as revenue costs resulting from the the Corporate Income Tax Act, will not be necessary by the Applicant for its payment in MPP.

7. Appropriations collected on the VAT account

Date 1 November 2019 the list of titles for which the funds collected in the VAT account can be used has also been extended. According to the revised Article 62b Act on 29 August 1997 Banking law 17 ((b) the VAT account may also be charged by way of payment:

1) to the account of the tax office:

• (a) VAT, including VAT on imports of goods, additional tax liability, including tax, as well as interest on late tax on goods and services or interest on late tax,
• (b) corporation tax and advances on that tax, as well as interest on late tax and interest on advance tax,
• (c) income tax on individuals and advances on that tax, as well as interest on late tax and interest on advance tax,
• (d) excise duties, pre-payments of excise duties, daily payments, as well as interest on late payment of taxes and interest on pre-payments of excise duty,
• (e) customs duties and interest on late payment of those duties;
• 2) claims on social security contributions as well as claims on contributions to FP, SFWON, FGSZP and FEP and on health insurance to which ZUS is obliged.
• 8. Transitional provisions

Provisions introducing mandatory MPPs entered into force 1 November 2019 According to Article 10 Act on 9 August 2019 amending the Goods and Services Tax Act and certain other laws 18 (Next: u.z.the VAT Act) they do not concern the supply of goods or services listed in the previous Annex 11 and 14 to the VAT Act Act, made:

• 1) before 1 November 2019, for which the tax obligation arose or the invoice was issued after 31 October 2019,
• 2) rod 31 October 2019, for which the invoice was issued before 1 November 2019
• – for which the provisions of the existing version should apply.

___________________________________________

Legal basis

1. Article 498 k.c.
2. Article 7(1) U.P.P.
3. Article 22p(1)(3) u.p.d.o.f.,
4. Article 15d(1)(3) the Corporate Income Tax Act,
5. Article 62b p.b.
6. Article 19 p.p.,
7. Article 31a(105a)(106e)(108a), Annex 11-15 to the VAT Act Act,
8. Article 10 U.z.the VAT Act

The article comes from the book A. Bieńkowska and Łukasz Grzegorczyk "A review of tax changes 2020”, published by C.H. Beck Publishing House: https://www.ksiegarnia.beck.pl/18922-przeglad-zmian-podatkowych-2020-agnieszka-bienkowska