In the provisions of the implementing law Polish Deal 1.0 (Act dated 29 October 2021) a new Chapter 2b – taxation in the VAT group was introduced into the VAT Act.
The aim of the solution proposed by the Ministry of Finance is to enable affiliated entities meeting the criteria in terms of financial, economic and organisational relations of common VAT clearing.
These provisions will enter into force on the day 1 January 2023 This was originally to occur from 1 July 2022, However, Act dated 9 June 2022 – so-called Polish Deal 2.0 – This period has been extended.
The VAT group aims to significantly simplify settlements between its members and to increase the financial efficiency of the group's cooperation. This tool will be voluntary.
Referring to this relationship, for example, in the case of a financial link, the criterion was adopted. 50% equity. It's just that one of taxpayers owned directly above 50% shares in or over share capital 50% voting rights in control bodies, acting as or managing bodies, or more than 50% the right to participate in the profit, of each of the other taxpayers who are members of that group.
The link cannot therefore be indirect. This limits the number of companies that can form VAT groups at the outset. In addition, the condition of financial, economic and organisational links between the members of the VAT group must be fulfilled continuously for the period during which that group has its status. one a taxpayer.
In addition, the VAT group may not be extended to include other members or reduced to any of its members. This means an unchanging number of entities in the group during its duration. On the one hand, This should certainly facilitate the control of the VAT group by the tax authorities, while on the other hand, this approach seems to be a bit too rigid in view of the wealth of economic life.
Currently, activities carried out within related entities are documented by VAT invoices, each of which submits a separate JPK VAT file, which contains a declaration and registration part.
The VAT Directive entitles Member States to introduce rules enabling VAT groups to be created in national law. The functioning of VAT groups has already introduced 18 EU countries. Despite the existence of an analogous mechanism, i.e. Tax Capital Groups (PGKs) under CIT, the concept of group settlements did not exist in Poland at all. This entails a painful need for intra-group invoicing, taking into account the rules on related parties, which further impedes the operation.
Moreover, the Ministry of Finance considers that the lack of possibility to establish VAT groups discourages taxpayers from creating PGK on the basis of CIT. According to ministerial data for years 2010–2016 only registered in Poland 160 PGK and Belgium VAT groups in 2016 operation 2675.
Conditions to be continued
Tax payers may form a VAT group:
- 1) established in Poland or
- 2) not established in Poland, to the extent that they conduct business in Poland through a branch located in Poland.
This means that VAT groups will not be able to create entities associated with different countries, for example where the parent company operates in Germany and the daughter companies in Poland. Common foreign VAT settlements will therefore be possible at branch level when a company established in Poland has a branch in another EU Member State or vice versa.
In order to form a VAT group, it will be necessary to conclude a written agreement. It must contain at least:
- the name of the VAT group with the additional indication ‘VAT group’ or ‘GV’;
- the identification of taxable persons forming the VAT group, including the branch data in the case of a taxable person not established in the country and the share capital of each of those taxable persons;
- an indication of the representative of the VAT group appointed from among its members;
- identification of shareholders (shareholders) and their share of the share capital of taxpayers forming the group, having at least 50% shares in the share capital of these taxpayers.
Notifications of the VAT group will be made through the VAT-R form (currently a print updated for the purposes of the new rules) to which the group's appointment agreement is to be attached. Once registered, individual members of the group will be removed from the VAT register.
At the same time, VAT data will be included in the list of active VAT taxable persons. The contract will be concluded at least 3 years, with the possibility of its extension to 30 days before the expiry date. Then it will be necessary to complete the formalities by presenting a new contract.
The representative of the VAT group will understand the entity representing the rights and obligations of the group. The competent tax authority is to be the head of the tax office competent for the representative of the VAT group.
Introduction of VAT groups – benefits
The essential element for the functioning of VAT groups is that the provision of goods and services by entities belonging to the VAT group is not subject to VAT. This means tax neutrality within the VAT group.
It is also apparent from the nature of the VAT group that the supply of goods and services by the entity belonging to the group to an entity not belonging to it is considered to have been made by that group and vice versa.
The list of further benefits includes:
- limiting administrative responsibilities - for example, fewer documents to be analysed with fewer JPK VAT files;
- no internal invoices within the group (just issuing an accounting note);
- the beneficial impact on the liquidity of the entities involved – to obtain the full refund of the input tax immediately instead of the reimbursement of the individual members at different dates;
- savings due to the lack of VAT of activities carried out between entities in the VAT group – to offset the lack of VAT neutrality for entities without a full right to deduct input tax;
- for intra-group turnover, the application of the split payment mechanism will be excluded.
Introduction of VAT groups – threats
In addition to the benefits previously indicated, the following consequences arising from the creation of a VAT group should also be considered: the joint and several liability of members of the VAT group, the proportion of VAT and the obligations relating to the recording of transactions between entities in the group.
The joint and several liability of the entities of the VAT group shall mean the common responsibility for its VAT obligations due for the period of operation of that group. However, it must be taken into account that this responsibility will also occur after the end of this period.
It is worth mentioning that each of the entities forming the group will have to calculate the VAT proportion on its own. This means that any entity included in it will be treated independently.
Moreover, a common proportion for the whole VAT group will also be established where it is not possible to determine the amounts of input tax charged in relation to mixed operations (which allow for the right to deduct VAT and do not allow VAT exempt/non-taxable VAT) for individual members of the group.
This makes the deduction rules for the deduction of input tax for those accounting for proportions complicated and give rise to many doubts from the beginning.
The absence of taxation of transactions between entities in the VAT group will not imply the lack of adequate recording of those transactions. Formalism in the form of the need to record transactions in a group in a situation where turnover between companies forming a VAT group is recorded in their accounts available to tax authorities on request in the form of a JPK KR file appears unnecessary.
In summary
It can be concluded that existing administrative responsibilities will be replaced by new ones.
This means that the work in this area is likely to fail, although it seems that the overall implementation of VAT groups should bring more benefits than damage, all the more so that the legislator has given up the need to link VAT groups with PGK.
It should be stressed that the Ministry of Finance has decided to explain the growing doubts in the tax explanations. At this point, their draft is available, the final version of which will come soon after the public consultation.
For example, for the time being, it is still unclear whether the protective power of the tax interpretation obtained during the VAT group after it has lost its status as a VAT taxable person will continue to apply to each of its members.
As a result, following clarification of existing ambiguities, which are likely to be finally clarified by tax interpretations/administrative courts, implementation of VAT groups may be envisaged by a large number of taxpayers.
Mateusz Krawczyński
About the author: Junior tax consultant in Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. He is currently studying the Law at Lazarski University. Previous professional experience in one of the so-called Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.