Draft Act dated 11 March 2016 on the amendment of the Goods and Services Tax Act (hereinafter: draft amendments to the VAT Act), presented by the Minister of Finance, assumes an increase in the VAT rate for certain health-related goods. Position provisions will be amended 82, 93 and 103 located in Annex 3 to the Act of 11 March 2004 on tax on goods and services (Journal of Laws of 2004, item 535; hereinafter: VAT Act).
Proposed changes in Annex 3 VAT laws will be introduced as of 1 July 2016
The draft amendments to the VAT Act will be adapted to last year's judgment of the Court of Justice of the European Union (hereinafter: TEU) of 4 June 2015 on C-678/13 European Commission v Republic of Poland.
In that judgment, the CJEU stressed that the reduced VAT rate, referred to in accordance with Directive 2006/112 of 28 November 2006 on the common system of value added tax; (Official Journal of the European Union L (2006), No.
347/1; Next Directive 2006/112): value added tax, for the supply of medical equipment, ancillary equipment and other equipment which are not intended solely for personal use by persons with disabilities or which are not usually intended to mitigate the effects or treatment of disabilities, and products which are not pharmaceutical products normally used for the protection of health, disease prevention and medical and veterinary purposes or products used for contraception and personal hygiene, as specified in the headings 82, 92 and 103 In Annex 3 to the VAT Act, the Republic of Poland has failed to fulfil its obligations under Article .96-98 Directive 2006/112.
The following are listed in these headings:
- item 82: organic sulphur compounds and other organic-inorganic compounds - only cysteine, cystine and their derivatives (Polish Classification of Products and Services - PKWiU ex 20.14.51.0),
- item 92: hygiene or pharmaceutical products (including pacifiers), of rubber other than hard rubber (PKWiU 22.19.71.0),
- item 103: contact lenses; glasses of glass or other materials (PKWiU 32.50.41.0).
According to the TEU, Poland applied an incorrect rate of tax for the above-mentioned goods in the amount 8%. However, a judgment does not imply an obligation to increase for all those goods the rate of tax to 23%. Polish legislation is to be adapted to the TEU judgment and to reduce the exemption from item 92, 103 and fall asleep 82 Annex to the VAT Act to continue to apply the rate 8% for goods indicated there.
Poland was obliged to comply with this judgment as soon as possible.
In the justification for the draft amendments to the VAT Act, the legislator emphasises that the decision of the TEU prejudges the shape of Polish rules in this respect (i.e.
it is impossible to apply a reduced rate of tax to these goods), it is necessary to adopt amendments as soon as possible in order to avoid financial penalties by Poland.
The European Commission can bring an action to the TEU in case Poland fails to comply with its judgment Article 260(2) Treaty on the Functioning of the European Union (Official Journal 2012/C 326/01) by proposing a lump sum and/or periodic penalty payment for each day of infringement assessed by the TEU of the provisions to be paid by the Member State).
Moreover, the justification for the draft amendments to the VAT Act indicates that the repeal of the item 82 Annex 3 to the VAT Act will result in the taxation of cystine, cystine and their derivatives at the basic VAT rate. Cysteines, cystines and their derivatives are usually used as food ingredients (mainly for dietary supplements) and as pharmaceutical ingredients.
The judgment also stresses that for the goods listed in heading 103 In Annex 3 to the VAT Act, the Commission argues that this item allows the use of a reduced rate of VAT for lenses and glass of each type, and since only lenses and glass which are used to correct vision fall within the scope of the point 4 Annex III to that Directive, this item does not fall within the scope of that Annex for all goods which it covers (point 44 judgment).
Proposed by the legislator changes in Annex 3 to the VAT Act, which covers the basic VAT rate for certain goods listed in that Annex, is a complement to the requirements resulting from the provisions of the Directive 2006/112. In the Annex to the VAT Act, the item is repealed 82, and the position changed 92 and 103.
Code 92 is replaced by the following: hygienic or pharmaceutical products (including pacifiers), of vulcanised rubber other than ebonite solely of contraceptives and airbags, this is included in the ex group 22.19.71.0 PKWIU.
Position 103 read as follows: Contact lenses, glass eyeglass lenses and other materials for the correction of vision.
Changes made by the legislator in Annex 3 The VAT Act aims at implementing the TEU judgment on the application of a reduced rate of VAT to certain medical products. In the event of failure to comply with the judgment, Poland is threatened with the introduction of a penalty by the European Commission and, consequently, sanctions due to non-compliance with EU rules provided for in the Treaty on the Functioning of the European Union.
In view of the compliance of the Polish legislator with the judgment of the CEU, it will still be possible to apply the rate 8% goods indicated in headings 92 and 103 Annex to the VAT Act. Unfortunately, other goods not mentioned there, including cystines, cystines and their derivatives, will be covered 23% VAT rate. As a result, taxpayers who have so far had a reduced rate 8% will pay higher taxes 23%. This will increase the prices of these goods by a higher tax.