Is it possible to fall victim to fraud and then pay a lost sum tax? I'm afraid so. For VAT clearing companies, this possibility constitutes a business risk. This is because the taxable person issuing the VAT invoice must pay the amount of VAT specified on that invoice to the Tax Office also if the contractor has not paid it.
The relief for bad debt is a design to protect against it. The premise is that the taxable person will pay VAT even though he has not received the claim, but will retain the right to deduct it. As a result, the tax bill will go to zero. Relief for bad debts in Polish law is an obligation under the EU Directive. The mankament is that the legislature over the Vistula has adopted this regulation in a very truncated version. There is doubt as to the compatibility of Polish legislation with EU law.
How Can You Lose Double
An entrepreneur who sells, for example, semi-finished products may issue all the goods to the contractor and at the same time issue an invoice with a payment deadline seven days. If the invoice covers 10,000 PLN net plus 2,300 PLN VAT is the amount 2,300 PLN subject, on monthly settlement, to payment to the account of the tax office to 25. the day of the following month. Also in case of non-payment.
Relief for bad debts means the possibility to deduct the amount 2,300 PLN VAT due to the Tax Office in the next tax period. There is no doubt that this scheme is justified. Otherwise, the entrepreneur will pay VAT de facto because he has been the victim of a fraud or at least an insolvent counterparty.
The EU Directive outlines in a general way the principles of relief for bad debts and at the same time leaves the Member States the conditions under which this structure can be used. However, it is important to remember the basic objective of protecting the entrepreneur from a double and clearly unfair financial loss.
Relief for bad debts in Polish version
Poland has implemented the directive on relief for bad debts, but there are opinions that national regulations are far too restrictive of the possibility of using this shield.
For example, a taxable person cannot make a deduction if the invoice has expired since the end of the year in which the invoice was issued two years. If an unfair contractor has for a long time deceived the creditor that everything will regulate this relief for bad debts will be ‘out-of-date’.
Similarly, the debtor has been removed from the VAT register. In this case, the creditor will also be subject to a specific ‘financial penalty’. The entrepreneur will be in the same position if the debtor is in insolvency proceedings. This will also prevent at least part of the loss.
Questionable similar restrictions do not conflict with the primary objective of the EU Directive, which is to protect entrepreneurs affected by counterparties? It appears that neither the legislator intends to change these regulations to more friendly or national courts are willing to present this matter to the EU Court of Justice in the form of a preliminary question. It remains to be hoped that VAT payers will be reliable not only towards tax offices but also towards each other.
source: https://www.forbes.pl/prawo-i-podatki/ulga-na-zle-dlugi-w-vat-prawo-polskie-i-unijne/9bbw6e0
Author:
Andrzej Dmowski
Managing Partner Russell Bedford, Doctor of Legal Sciences, Lawyer, Tax Advisor, Restructuring Advisor, Certified Public Accountant – Expert Auditor in Ireland, Certified Fraud Examiner - Expert in Crime Detection and Abuse, Certified Internal Controls Auditor - International Internal Auditor.
Graduate of the University of Cambridge - British Centre for English and European Legal Studies - Faculty of Law and Administration, Graduate and Fellow of the Faculty of Law and Administration of the University of Warsaw.
Specializes in settlement of transactions between related entities - transfer pricing, legal and tax aspects of M&A and issues concerning derivatives of financial instruments.