Split payment mechanism still splits

Although it has been an obligation for almost a year to clear invoices through the split payment mechanism in certain cases, many unresolved practical issues remain to this day when trying to apply it.

For the record, from 1 November 2019 the split payment mechanism has become a mandatory way of clearing transactions that meet the following cumulative conditions [1]:

the seller and the consignee are taxable persons;

sales concern sensitive goods and services listed In Annex 15 to the bill. This applies in particular to goods such as:

• fuel
• steel and steel products
• tablets, smartphones and consoles,
• construction services
• coal and coal products
• parts and accessories for motor vehicles;
• the amount is above 15 gross [2].

The problems of clearing transactions through the split payment mechanism are certainly not trivial, especially for buyers who cannot afford to be excluded from the costs of excessive amounts in the current economic situation

This mechanism was amended with 15 December 2017[3] and began to apply with 1 July 2018, initially as a voluntary mechanism. However, in order to encourage taxpayers, the Ministry of Finance has introduced a number of benefits for buyers.

Thus, in applying this mechanism, purchasers were, inter alia, exempt from the joint and several liability of VAT, which concerns the goods listed above.

In Annex 13 VAT laws; exempt from VAT sanctions; and they were entitled to a condition of due diligence that the taxable person using this mechanism made every effort to enter into transactions. In particular, the last advantage was relevant as a safeguard against the risk of alleged complicity in tax fraud.

The problem of clearing transactions using this mechanism has also become relevant with the amendment Article 15d(1)(3) Corporate Income Tax Act [4].

According to its wording, a taxable person may not take into account the tax cost of a payment not made in accordance with the split payment mechanism if a documented invoice contains a clause indicating this [5].

However, the problem arises when such a clause appears on an invoice which does not document the transaction under the obligation to apply this mechanism.

There are no rules prohibiting it from being added to invoices in such a case, and what is more, the taxable person has full discretion as to the information contained on the invoice, provided that they cover the required elements.

The Director of Tax Information referred to this problem in the interpretation of 15 November 2019, No.

0111-KDIB1-1.4010.387.2019.1.SG.: Taking into account the description of the future event and the above provisions of law, it should be concluded that, despite the VAT invoice being marked with the ‘shared payment mechanism’, 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, the Applicant will not benefit from the exemption from the costs of obtaining the revenue in question under Article 15d(1)(3) CIT Act.

This interpretation is, of course, correct. Since the legislator's main objective was to introduce a payment obligation in accordance with the split payment mechanism for certain goods, the provisions related to it should apply at the time of fulfilment of its conditions and not at the time of the correct identification of the invoice.

The justification for the amendment to the VAT Act itself states that this obligation exists even though the invoice is marked [6]. A contrario will therefore not be required if the invoice contains such an indication ‘extremely’.

An example of the fact that, despite the passing of time, problems with the split payment mechanism are not clear to all taxpayers, is the interpretation of the Director of National Tax Information dated 27 July 2020, No 0111-KDIB3-1.4012.319.2020.1.KO.

The taxpayer asked whether information on the obligation to apply the split payment should be entered only if such an obligation arises from the provisions of the Act, or if it can be entered on any invoice, including where there is no such statutory obligation.

The Authority may have misled the taxpayer in its reply, as it also argues that ‘the applicant’s position that ‘putting on each invoice the entry: ‘the mechanism of the split payment’, whether or not the invoice is issued for services subject to compulsory split payment or not, and regardless of the entity to which the invoice is issued, is correct is incorrect’.

In the following sentences, however, it argues that the taxable person may also include other information on the invoice, ‘which does not constitute a breach of the rules on the issue of invoices’. It can therefore be said that the body’s response introduces two conflicting interpretations.

The problems of clearing transactions through the split payment mechanism are certainly not trivial, especially for buyers who cannot afford to be excluded from the costs of excessive amounts in the current economic situation.

The multitude of changes and the proposed tax rules reduce taxpayers' confidence in their victory in the dispute with tax authorities. The solution is certainly not such interpretations, in which only vague rules are repeated, and the substance is referred to in several conflicting sentences.

Author: Damian Kuszewski

The author is a graduate of the Warsaw School of Economics in Finance and Accounting, and is currently a law student at SWPS. From 2018 Associated with Russel Bedford Poland. His professional interests are tax law and, in particular, income taxes.