The new version of the draft law amending the Law on Personal Income Tax, the Law on Corporate Income Tax and certain other laws, known as the new Polish Order, which takes into account some of the comments proposed during the consultations and which has been submitted on 8th September, 2021 to the first reading at the sitting of the Polish Sejm, is expected to introduce many tax changes. In today's article, we will look at the solution regarding VAT groups which will be presumably introduced to the Act on Goods and Services.
The existence of VAT groups will be based on the solutions of Tax Capital Groups (Polish: “PGK”), which function in CIT.
Currently, entities related financially, organizationally and economically, keep separate settlements. It means, that activities performed by them within the framework of their ties, must be documented by invoices. Each of the related party is obliged to submit a SAF-T_VAT file (Polish: “JPK_VAT”) on their own. They are also obliged to make payments (provided that statutory requirements are met) via split payment mechanism and check the taxpayer’s status in the list of taxpayers (so called "white list” of the taxpayers).
What is a VAT group and what is its purpose?
VAT group is a solution which enables joint settlements of several parties related economically, financially and organizationally.
According to the justification of the draft law, the VAT group, that is planned to be introduced by the legislator into the Polish legal system, will be a tool for tax planning within capital groups and will increase the financial liquidity and effectiveness of cooperation within the group. Taxpayers who meet the conditions set forth in the Act will be able to use it voluntarily.
This means that VAT settlements within the group will be neutral. It will not be necessary to issue invoices (accounting notes will be sufficient) and to keep documentation confirming the turnover. There will be no need to use the split payment mechanism within the VAT group and one SAF-T_VAT file will be submitted. VAT group will be recognized as a single taxpayer in transactions with entities outside the VAT group, without the division into companies belonging to the VAT group.
Entities forming a VAT group
VAT group may be formed by taxpayers with or without a registered office in Poland, in case they conduct their business activity through a branch located in Poland, provided that there are financial, economic and organisational ties between these taxpayers.
The legislator defines financial ties as ties in which one taxpayer holds directly more than 50% of shares in the share capital of the other taxpayers who are the members of the VAT group.
In turn, economic ties will occur when:
- the subject of the main business activity of the entities belonging to the VAT group are of the same nature, or
- their types of business activity are complementary and interdependent or
- a member of the VAT group carries out its business activity from which other entities benefit wholly or mainly.
Organisational ties shall be understood as ties where one of the following conditions is met:
- the taxpayers who create the VAT group are under common management, would it be direct or indirect; legal or factual;
- they organise their activities fully or partially in agreement.
What is more, the draft law provides that the above-mentioned ties between the taxpayers must be fulfilled throughout the period in which the group has VAT group status. VAT group will not be able to be extended by other entities or reduced by any of its constituent entities.
VAT group representative
An important role in VAT group operations is assigned to its representative. The representative represents the group with respect to its obligations, which are, e.g.: submission of the registration application to the head of the competent tax office along with the agreement on the establishment of the VAT group; notification to the head of the competent tax office of any changes in factual or legal status, which would result in a breach of the conditions for recognition of the VAT group as a taxpayer or submission to the head of the tax office of a new agreement concluded between the entities forming the group in order to extend the period of operation of the VAT group.
In addition, the representative will be entitled to settle the amount of the excess of input tax over output tax resulting from the tax return for the settlement period in which the VAT group lost its taxpayer status as well as to make corrections of VAT settlements for the settlement periods in which the group was a taxpayer.
In addition, the draft law provides for joint and several liability of entities forming a VAT group for its VAT obligations during the period when the group had the status of a taxpayer and after the loss of this status.
The legislator introduces also a number of conditions that must be included in the agreement on the formation of a VAT group; conditions which fulfilment results in the loss of VAT taxpayer status by the group and requirements related to submission of VAT returns.
The implementation of these and other solutions within the framework of the Polish Order is planned for January 2022. As the draft has been referred to the 1st reading at the Sejm, we will keep you informed on the status of the legislative process.