Change in VAT rates in catering services

Change in the VAT rate matrix from 1 July 2020 means that both entrepreneurs and customers will have to adapt to price changes among the preferred purchases so far. This applies in particular to the catering industry, in which the amendment brought responses to the ambiguities of the interpretation of specific tax rates for its services.

The change was initially expected to apply from 1 April 2020[1], However, due to the pandemic, the Ministry of Finance has postponed this deadline[2]. Similarly, rules relating to the issuance and use of binding rates, which are binding and protective for taxpayers, have been extended.

"We have not only simplified VAT rates so that they are easier to use by entrepreneurs, but also reduced them. And this is largely for the products that we use every day" argued Minister of Finance Tadeusz Kościński. “We have eliminated absurdities by bringing order and simplicity. This is good news for consumers, too.

We've reduced the rates on products. first choices that affect our health and safety”[3] – He added. Although it is certainly not possible to deny the truth with these words, you should refrain from opening champagne.

Change in the way services and products are qualified

Main change of the amendment from 1 July 2020 concerned the departure from the current link of statistical classification to VAT rates. This link is due to Article 5a Act dated 11 March 2004 on tax on goods and services (i.e. Journal of Laws of 2020, item 106 as amended, hereinafter: VAT Act).

Before the amendment, this article built a system based on statistical classification in the form of PKWiU (Polish Classification of Products and Services).

This system was developed and complex, which significantly made it difficult to assign a given supply of goods or to provide a service to the appropriate grouping of PKWiU, and thus the corresponding VAT rate.

Classification was not adapted to the needs outlined under Article 5a VAT laws and the additional, in relation to statistical, breakdowns of similar goods included in the Act have assigned goods to separate groups using unclear and irrational criteria[4].

It was also not possible to obtain a protective individual interpretation of the application of rates.[5].

The amendment amended the method of identification of goods and services for VAT purposes from the existing integrated nomenclature (CN) established by Council Regulation (EEC) No 2658/87 to 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (Official Journal of the European Union L, No. 256, p.

1 as amended) for goods. For services, identification is further based on the classification of PKWiU from 2015[6].

In order to correctly classify the goods into a specific heading, heading, subheading or Combined Nomenclature code (CN), use the Tariff Browser maintained by the Department of Customs of the Ministry of Finance under the ISZTAR Integrated Customs Tariff Information System 4[7].

VAT rate matrix – what is it?

In addition, a new VAT rate matrix based on the following assumptions has been introduced[8]:

• the acceptance of the same rate of VAT for the whole chapters of the Combined Nomenclature (CN);
• where it is necessary to change the VAT rate to the goods concerned, to adopt a general rule for reducing VAT rates;
• balancing the introduction of a simple VAT rate matrix with increases in VAT rates only on selected, few goods and services.

The provisions of the Amending Act on the VAT rate matrix shall include:

• changes In Annex 3 to the VAT Act – list of goods and services taxed at the rate 8%,
• changes In Annex 10 to the VAT Act – list of goods and services taxed at the rate 5%,
• changes In Annex 12 to the VAT Act — list of goods to which the tax exemption specified does not apply under Article 113(1) and (9) VAT laws,
• Repeal Annex 2, 11, 13, 14 to the VAT Act,
• addition Annex 15 to the VAT Act – list of goods and services subject to the split payment mechanism.

Harmonisation of food services

Another significant change, especially for catering operators, is the harmonisation of VAT rates for all activities classified in PKWiU with 2015 as catering services[9]. Therefore, regardless of whether the sale will involve the provision of on-site catering services or the sale of take-out meals, the appropriate rate will be 8%.

This represents a significant difference in the context of previous doubts relating in particular to the sale of take-out meals.

According to the general interpretation of the Minister of Finance[10] the appropriate rate in this case was the rate 8%, but since this type of interpretation is not binding on the taxpayer, there have still been cases of application of the rate 5% for certain catering activities.

Some administrative courts have also approved this procedure[11]. Unification of the rules in this respect will certainly affect overall legal certainty, although it can at the same time increase the price for customers.

Exceptions to the rule

However, this codification does not apply to sales for:

• beverages other than those mentioned In Annex 3 or Annex 10 to the VAT Act or the implementing rules issued on its basis, including their preparation and administration,
• goods not processed by the taxable person other than those mentioned In Annex 3 or Annex 10 to the VAT Act or the implementing rules issued on its basis,
• meals of which the goods indicated as excluded from the groupings mentioned In item 2 and 11 Annex 10 to the VAT Act.

The exemptions described therefore concern, inter alia, the sale of: water, including natural water; non-alcoholic beverages with the contribution of fruit, vegetable or fruit and vegetable juice below.

20% raw materials composition; yoghurt, buttermilk, kephir; gelatines and derivatives thereof; meat and edible offal; fish and crustaceans, molluscs and other aquatic invertebrates; etc. Sales of the products listed in the above exemption shall be subject to the rate 23%.

Most of the entities excluded from the reduced use 8% The rate of tax shall comply with the provisions in force before the amendment.

On the example of catering services, it can be noted that the simplification mentioned by the Minister of Finance did not entirely succeed by the legislators, as can be seen from lobsters and octopuses – in a state not processed by the taxpayer they are taxed at a rate 8%, in the form of meals in which they are found, such as shrimp soup or seafood salads, are already taxed at the rate 23%.

The list of products and individual exemptions could be mentioned even longer, which only shows that, despite simplifications, a clear determination of the rate can still give rise to some doubts. Fortunately, in this case, the new tool available to taxpayers, the Binding Rate Information, which will be discussed more soon, can help. In the next article.

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.