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TAX EXPLANATIONS FROM 23 DECEMBER 2019 1

ON THE SPLIT PAYMENT MECHANISM

What are the explanations?

The clarifications concern the application of a mandatory split payment mechanism.

Tax regulations to which the explanatory notes relate and purpose of the explanatory notes issued

On 1 November 2019, the Act of 9 August 2019 amending the Value Added Tax Act and certain other acts2 (hereinafter: Introductory Act) entered into force. It implements in the VAT Act of 11 March 20043 (hereinafter: VAT Act) the obligation to apply the split payment mechanism when making payments for purchased goods and services.

The envisaged changes also consist in the abandonment of the special VAT settlement, i.e. the reverse charge in domestic trade, the repeal of the regulations on the guarantee deposit and changes in the rules on joint and several liability.

The establishment of a compulsory split payment mechanism is based on Council Implementing Decision (EU) 2019/310 of 18 February 2019 authorising Poland to introduce a special measure derogating from Article 226 of Directive 2006/112/EC on the common system of value added tax4 (hereinafter: Implementing Decision).

The purpose of the explanations is to present the principles of operation of the split payment mechanism in its obligatory form and the changes affecting the optional model.

Indicate here the tax explanations for the split payment mechanism already issued. They describe all the main issues for this institution taking into account the optional nature of the split payment mechanism introduced on 1 July 2018.

The tax explanations of 29 June 2018 relating to the optional split payment mechanism can be found under the link:

1 General explanations of tax law regulations concerning the application of these regulations (tax explanations) issued pursuant to Article 14a § 1 point 2 of the Act of 29 August 1997 Tax Ordinance (Journal of Laws of 2019, item 900, as amended), hereinafter: Tax Ordinance. According to art. 14n § 4 point 1 of the above mentioned act, the taxpayer's compliance with the tax explanations in a given settlement period results in the protection provided for in art. 14k - 14m of this act.2 Journal of Laws of 2019, item 1751, as amended.3 Journal of Laws of 2018, item 2174, as amended.4 OJ EU L 51/19.

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https://finanse-arch.mf.gov.pl/documents/766655/6448094/Objasnienia+tax+-+Shared

payment+mechanism+29.06.2018.pdf

These explanations do not replace the Tax Explanations of 29 June 2018, they should be considered as an addition to the new regulations in force from 1 November 2019.

CONTENTS

1. SPLIT PAYMENT MECHANISM - SUBSTANCE AND SCOPEAPPLICATIONS.....................................................................................................................................4

2. NEW MANDATORY MPP FORM..................................................................................................5

2.1. SCOPE OF APPLICATION......................................................................................................................52.2. INVOICE DESIGNATION.......................................................................................................................62.3. OBLIGATION TO ACCEPT PAYMENTS................................................................................................72.4. CONSEQUENCES OF VAT OBLIGATIONS ON THE PURCHASER.....................................................72.5. OBLIGATION TO HAVE A SETTLEMENT ACCOUNT..........................................................................9

The essence of the obligation.........................................................................................................9Compensation mechanism for foreign operators.....................................................................9

2.6. OBLIGATORY MPP A FACTORING.................................................................................................102.7. MPP A POSSIBILITY OF OFFSETTING CLAIMS..............................................................................112.8. PAYMENTS IN FOREIGN CURRENCIES.............................................................................................112.9. CHANGES IN CX RELATED TO MANDATORY MPP.....................................................................122.10. MPP'S IMPACT ON TAX DEDUCTIBLE COSTS...............................................................................122.11. CHANGE IN THE SCOPE OF ENTITIES THAT MAY SETTLE QUARTERLY......................................132.12. OBLIGATIONS IN THE MANDATORY MPP TO CORRECT SETTLEMENTS.............................142.13. OBLIGATORY MPP A EXISTING SEALING MECHANISMS............................................................16

Reverse charge in domestic trade..............................................................................................16Changes in joint and several liability.......................................................................................16Intertemporal issues.......................................................................................................................17

3. EXTENDED AVAILABILITY OF FUNDS IN THE VAT ACCOUNT........................20

4. CHANGES IN THE VAT.21 ACCOUNT RELEASE PROCEDURE

5. SUMMARY PAYMENTS..................................................................................................................21

6. IMP PROGRAMMINGS...................................................................................................................22

7. NEW DECLARATION MODELS.................................................................................................22

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1. split payment mechanism - nature and scope

The mechanism of split payment (hereinafter also referred to as: IPP) is a solution concerning a specific method of making payments using the VAT account kept for the holders of settlement accounts kept by banks or registered accounts in SKOK opened in connection with the conducted business activity5, on account of receivables documented by an issued invoice with the VAT amount shown. This institution has been operating in the Polish legal system since 1 July 2018.

This mechanism can only be applied to transactions to other VAT taxable persons, that is to say B2B transactions, and only in relation to the payment of an invoice showing the VAT amount.

The basic assumption of the split payment mechanism is to separate the payment of receivables by transfer into two streams, i.e:

an amount corresponding to all or part of the amount of VAT shown on the invoice which is credited to a special account of the supplier, called a VAT account, and

an amount corresponding to all or part of the amount corresponding to the net sales value shown on the invoice, which is transferred on a general basis or is settled in another way.

It should be noted that IPP cannot currently be used for non-cash settlements other than transfers, e.g. payments by payment cards, transfers, bills of exchange. This means that paying e.g. by card in a situation where there is an obligation to pay in an MPP will mean not fulfilling the obligation to pay in an MPP.

The essence of the new solution introduced as of 1 November 2019 is that payment for the purchase of goods or services listed in Annex No. 15 to the VAT Act (hereinafter: Annex No. 15), documented by an invoice of a gross amount higher than PLN 15,000, will have to be made by the purchaser by means of a transfer message6 , in order to be able to talk about the application of the split payment mechanism and avoid tax sanctions associated with its non-application. Payment in the IPP will ensure that the supplier/service provider receives an amount corresponding to the VAT amount shown on the invoice to the special VAT account held for his billing account.

In parallel, the voluntary mechanism of split payment, introduced by the Act of 15 December 2017 amending the Value Added Tax Act and certain other acts7 , is still in operation, covering other goods and services, as well as goods and services listed in Annex No. 15, if the invoice documenting their acquisition is for an amount not exceeding PLN 15 000.

5 Article 2 point 37 of the VAT Act.6 Article 108a section 3 of the VAT Act7 Journal of Laws of 2018, item 62, with later amendments.

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2. a new mandatory form of IPP

2.1. Scope of application

A split payment will have to be applied by the purchaser when settling the claim if all the following conditions are met:

1. the object of the transaction are the goods or services listed in Annex 15, and

2. the amount of gross receivables shown on the invoice documenting the supply of goods or services from Annex 15 exceeds PLN 15 000,

3. the action is carried out for the taxpayer.

The obligatory form of MPP is used for supplies of goods and services which, in principle, have so far been covered by the reverse charge regime and to a large extent by the scope of joint and several liability (i.e. it will cover the goods and services listed in Annexes 11, 13 and 14 to the VAT Act repealed by the Introductory Act).

In addition, the mandatory split payment mechanism also covers transactions involving parts and accessories for motor vehicles, coal and coal products and electrical machinery and equipment, their parts and accessories. A detailed list of goods and services covered by a mandatory IPP is contained in Annex 15.

It should be noted that the obligation to settle the amount due under the split payment mechanism applies only to the amount corresponding to the VAT amount resulting from the acquisition of goods or services listed in Annex 15.

If an invoice with a gross value of more than PLN 15 000 includes at least one item (for example, for the amount of PLN 3000 net + PLN 690 VAT) covered by Annex 15, then the

obligation to apply the split payment mechanism will relate toan amount equal to the amount of tax from this particular item, i.e. an amount equal to PLN 690. This does not, of course, preclude the possibility of settling a part of the debt over and above that covered by the obligation or the entire debt on such an invoice in a split payment mechanism.

If a taxpayer purchases goods or services in the territory of the country from a taxpayer not having a seat of business activity or a permanent place of business activity in the territory of

the Republic of Poland, registered for VAT purposes in Poland, this transaction is also subject to a mandatory split payment mechanism if

the above mentioned conditions are fulfilled.

In order to illustrate the mandatory IPP, it should be clarified that in the case of e.g. construction services in a situation where a contract for construction services from Annex 15 is concluded, with a gross value of PLN 30 000, and in accordance with the provisions of the

contract,The contractor settles the three stages of the works separately with separate invoices with a gross value of PLN 10,000 each, the obligatory split payment mechanism will not apply. In such a situation, the value of the transaction exceeds PLN 15,000 in total, however, for the obligation to apply the split payment mechanism it is necessary to exceed the gross value of PLN 15,000 by the total amount of receivables on the invoice.

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2.2. Invoice designation

The invoice for a transaction covered by a mandatory IPP should include the words "split payment mechanism". Such a marking shall inform the buyer that the invoice in question, in view of the subject matter of the transaction and the amount, should be paid using the split payment mechanism.

Failure to include the indication 'split payment mechanism' on an invoice issued will result in sanctions being imposed on the taxable person who issued the invoice.

of 30% of the tax amount shown on the invoice8.This sanction will be charged on the amount of tax attributable to the supply of goods or services listed in Annex 15.

If an invoice with a gross value of more than PLN 15 000 includes one item (for example, for the amount of PLN 2 000 net + PLN 460 VAT) covered by Annex 15, then the sanction will be

charged only on the value of the amount of tax due on account of thisof a specific item, i.e. from an amount equal to PLN 460.

The sanction will not be applied to natural persons who are responsible for the same act for a fiscal offence or crime (see 2.9. Changes in the CCC related to mandatory IPP).

The issuer of the invoice will avoid sanctions if the payment by the purchaser is made in accordance with the IPP rules. Thus, if the vendor mistakenly does not mark the invoice with the necessary reference, then it will be in the interest of the invoice issuer to inform the purchaser that he issued the invoice without the required marking, as well as of the purchaser's obligation to pay in the MPP. This information may be provided by the seller to the buyer in any form and by any means, even before the issue of a corrective invoice.

It should be noted that the seller is in any case obliged to correct the invoice issued incorrectly, i.e. without the required marking. The invoice can also be corrected by a correction note.

It should be noted that the obligation to pay the amount due on an invoice under the split payment mechanism is not dependent on the fact that a special indication is included in the

invoice. Thus, even if the seller did not fulfil his obligation and did not mark the invoice accordingly, the buyer is still obliged to pay the amount due for the goods or services in

Annex 15, if the invoice amount is higher than 15,000 gross, under the split payment mechanism.

The buyer must verify the object and the value of the transaction, as it is the buyer who initiates the payment and is responsible for the choice of payment method.

It is not sanctioned to include the endorsement 'split payment mechanism' on the invoice despite the absence of such an obligation. If the purchaser receives such an invoice, there is no obligation to pay such an invoice to the IPP.

The obligation to provide information on the 'split payment mechanism' will not be imposed on taxpayers benefiting from a personal exemption because, under the rules

8 Article 106e section 12 of the VAT Act.

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Ordinance of the Minister of Finance of 3 December 2013 on the issue of invoices9 , these taxpayers shall include only the date of issue, sequence number, first and last names or names of the taxpayer and the purchaser of goods or services and their addresses, name (type) of goods or services, measure and quantity (number) of supplied goods or range of performed services, unit price of goods or services and total amount of receivables (§ 3 point 3 of the said Ordinance). It should also be noted that the amounts of tax are not shown on the invoices issued by these taxable persons, hence the MPP does not apply to supplies made by such taxable persons - this mechanism applies only to VAT sales.

A taxpayer exempted both objectively and in terms of sales value is obliged to pay in the IPP if the conditions for mandatory application of this mechanism are met.

2.3. Obligation to accept payments

A taxpayer who is obliged to issue an invoice marked with the words 'split payment mechanism' shall be obliged to accept payment resulting from such an invoice in the split payment mechanism.

As a result, in particular, a seller who supplies goods or services covered by Annex 15 may not use savings and settlement accounts in this activity (see 2.5. Obligation to have a settlement account).

It should be remembered that, in accordance with the provisions of the Act of 29 August 1997 - Banking Law10 (hereinafter: Banking Law), no VAT accounts are opened for savings and settlement accounts, so the purchaser would not be able to fulfil his obligation to pay a given invoice at the IPP.

Contractual terms between the supplier and the buyer excluding the application of split payment mechanism to sales covered by the obligation

form of split payment, will be null and void as contrary to the Act11.

2.4. Consequences of VAT obligations on the purchaser

The payment made by the purchaser in the IPP is a key element of the new system, hence its functioning has been secured by a sanctioning regulation.

If it is found that the purchaser, despite his obligation to make payments to the IPP, will pay in another way, the head of the tax office or the head of the customs and tax office sets the

additional tax liability at 30% of the amount

the tax on the acquired goods or services that were subject to the obligation. 12

9 Journal of Laws of 2013, item 1485.10 OJ. 2018 item 2187, as amended.11 Article 108a section 1b of the VAT Act.12 Article 108a section 7 of the VAT Act.

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The sanction is not applied to natural persons who are liable for the same act for a fiscal offence or crime (see 2.9. Changes in the CCC related to mandatory IPP).

The purchaser will avoid liability if, despite the payment of such an invoice by other means (instead of the obligatory use of the split payment mechanism), the supplier has settled the entire amount of tax arising from the invoice. The absence of a threat to the interests of the State Treasury is therefore grounds for not imposing sanctions on the purchaser.

The following section describes the use of offsetting institutions for mandatory IPPs (see 2.7. IPP and the possibility of offsetting claims).

If an invoice with a gross value of PLN 20,000, VAT of PLN 3,739.84 will include items covered by Annex 15, then no penalty will be charged if the supplier includes the invoice in the sales

register, provides information about it in JPK_VAT and the entire VAT amountfrom this invoice, i.e. PLN 3 739.84 will be included in the VAT return.

The obligation to pay in split payment does not apply to payment of a debt seized by a bailiff or enforcement authority, even if the debt relates to a sale to which the mandatory split

payment mechanism applies. In such a situation, the payment made to the bailiff or enforcement authority shall not constitute payment for the goods or services acquired. In this

case, the obligation to pay the contractor for the purchased goods or services is replaced by a new title of payment, i.e. enforcement of the seized claim. Therefore, in such a situation, the

taxpayer (purchaser) will not be obliged to pay to the bailiff or enforcement authority in split payment. In this case, we are dealing with the special nature of the legal relationship, which

determines the inapplicability of the IPP by the purchaser in payments to the bailiff or authority

...of an executioner.

The purchaser in this situation should not pay under the split payment mechanism, since in this case he is executing the seizure of the monetary claim received from the enforcement authority or bailiff.

The situation is similar with regard to payments made by insurers to third party loss adjusters, where the payment constitutes the fulfilment of liability for damages towards insured/equipped

persons. In such situations, the right to compensation is usually ceded to the entity liquidating the damage, e.g. a car workshop. The insurer shall then pay in accordance with the contents of the

invoice documenting the loss adjustment, which may include the items contained in Annex 15, but its payment to the loss adjuster is the payment of compensation. Therefore, the insurer will not use the split payment mechanism in such situations, as the MPP is not used for the payment of

compensation. In this case, we are dealing with the special nature of the legal relationship, which determines the inapplicability of IPP by the insurer in payments for

to the injury elimination entity.

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2.5. Obligation to have a settlement account

The essence of the obligation

The holding and use of a settlement account (or nominative account in SKOK) is a necessary condition for the application of the split payment mechanism. Only for this type of account is a VAT account opened, a necessary element on which the whole mechanism is based. Hence, an obligation was introduced to have a settlement account or a registered account in the SKOK opened in connection with business activity by taxpayers who supply goods or services and taxpayers who purchase goods or services referred to in Annex 1513.The obligation to have a settlement account is derived from the obligation to pay in the IPP. That is to say, if a mandatory payment in an IPP applies to a transaction, the absence of a settlement account - either on the buyer's or the seller's side - is not a factor which could exempt the parties to the transaction from the obligation to apply an IPP.

Compensation mechanism for foreign operators

Poland undertook, during the works carried out by the European Commission, to introduce a system of compensation for taxpayers who do not have a seat of business activity or a permanent place of business activity in the territory of Poland.

This system assumes reimbursement of the costs of servicing the settlement account or registered account in SKOK and the VAT accounts kept to them for the above-mentioned entities14. The compensation applies only if such a taxpayer, due to the scope of its business activity, is obliged to have a settlement account (a registered account with SKOK) and a VAT account with a Polish bank.

Compensation shall be made only to the extent that it results from the use of Polish accounts for the purposes of the mandatory split payment mechanism.

Reimbursement is made at the request of the taxpayer submitted to the Head of the Second Tax Office Warsaw-Śródmieście.

The application may be submitted for quarterly, semi-annual or annual periods until25. on the day of the month following the quarter, semester or year in respect of which

the application is made.

In the application for reimbursement, the taxpayer should specify the amount of costs incurred and the number of the settlement account (or the number of the registered account in the SKOK) to which the reimbursement is to be made. The taxpayer shall attach to the application documents confirming the amount of costs incurred. In case of justified doubts as to the legitimacy of the application or documents attached to it, the head of the tax office may ask the taxpayer for additional explanations or documents.

13 Article 108e of the VAT Act.14 Article 108f of the VAT Act.

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Reimbursement is made in Polish zloty within 30 days of receipt of the application. If the head of the tax office asks for additional explanations, the deadline for reimbursement may be postponed, but it may not be later than 30 days from the date of receipt of the additional explanations. In such a situation, no interest is payable on any subsequent reimbursement.

Refusal of reimbursement shall be in the form of an order against which a complaint is made. To the extent not covered by specific regulations, the provisions of Section IV of the Tax Ordinance apply mutatis mutandis to requests.

2.6. Mandatory MPP and factoring

In a situation where the buyer of goods or services pays a receivable to the factor, in connection with the transfer by the supplier of rights to the receivable for the supply of goods or services to the factor, the buyer is obliged to pay the IPP to the factor. This means that a buyer paying to a factor is subject to a regime of regulation of a mandatory MPP if the statutory conditions for payment in the MPP are met. In this case, payment to the factor should be made in the IRP.

The payment made to the MPP in favour of the factor results in joint and several liability of the factor together with the supplier of these goods or services for the VAT not settled by the supplier. A factor may exempt itself from this joint and several liability if it transfers to the

supplier of goods or services the amount received in the IPP from the purchaser. 15

It should be noted that the mandatory split payment mechanism does not apply to advance payments made by a factor to a supplier of goods or services under a factoring contract, even

if the supplier of goods or services makes sales in the course of its business to which the mandatory split payment mechanism applies. Advance payments made by a factor do not

constitute payment for goods or services acquired where the essence of those payments is to finance the activities of the supplier and not to pay for specific goods or services sold.

Payment for goods or services is made by the buyer to the factor. In this case, we are dealing with the special nature of the legal relationship, which determines the non-application of the

MPP by the factor in payments to the supplier of goodsor services.

It will therefore not be necessary for the factor to analyse whether the funds it disburses to the provider of goods or services to finance its activities are somehow linked to the supply of goods or services covered by a mandatory IPP.

Moreover, it is also permissible, in the light of the MPP rules, for the purchaser to pay only the amount of VAT to the seller's VAT account by means of a communication, when paying the net amount by other means, including the use of the institution of the factor.

15 Art. 108a section 5 and 6 of the VAT Act.

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2.7. IPP and the possibility of offsetting claims

An exception to the need to fulfil the obligations related to mandatory MPP is the possibility to use the institution provided for in Article 498 of the Act of 23 April 1964.- Civil Code16 (hereinafter: kc), or deductions. Where the invoice amount for the purchase of goods or services listed in Annex 15 is paid by means of offsetting, the mandatory split payment mechanism shall not include the amount to be offset.

The credibility of the contractor does not have to relate to the invoice which has to be paid in the IPP. On the other hand, due to the nature of the set-off contained in Article 498 of the Civil Code, which refers to two persons who are simultaneously a debtor and a creditor to each other, it is currently not possible to consider multilateral (contractual) set-offs as fulfilling obligations related to payment in an obligatory MPP.

It should be remembered that if there is still an outstanding amount to be paid after the deduction, the difference should be settled according to the assumptions of the obligatory

the split payment mechanism.

For example, if a taxpayer making a purchase on the basis of an invoice covered by an obligatory MPP with a gross value of PLN 21,000, VAT of PLN 3,926.83, who is a debtor of the contractor on this account, is at the same time a creditor towards him for the amount of

PLN 25,000, and both receivables meet the conditions indicated in Article 498 of the Civil Code, he may deduct his receivables in the amount of PLN 21,000 and thus release himself

from the obligation to makepayments in the MPP.

In a situation where a taxpayer making a purchase on the basis of an invoice covered by an obligatory MPP with respect to all items from that invoice with a gross value of PLN 21 000,

VAT of PLN 3 926.83, being on that account a debtor of the contractor, is simultaneouslythe creditor for the amount of PLN 15 000, and both receivables meet the conditions set forth in Art. 498 of the Civil Code, he may deduct his receivables up to the amount of PLN 15 000 and thus release himself from the obligation to make payments to the IPP to the extent that the deduction has taken place, while the remaining amount of his receivables (i.e. PLN 6 000 gross, PLN 1 121.95 VAT) is obliged to pay in accordance with the IPP rules.

2.8. Payments in foreign currencies

It is not possible to pay into a VAT account in foreign currencies.

However, contracting a transaction in a currency other than zloty does not exempt the mandatory IPP.

In the case of foreign exchange transactions involving goods or services covered by a mandatory MPP, two payments should therefore be made:

16 OJ. 2019 item 1145, as amended.

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1. the amount corresponding to the VAT amount by means of a transfer to the VAT account in PLN, according to the VAT amount indicated in PLN on the invoice17,

2. net amounts - this part should be paid for by a separate transfer in a foreign currency or may be settled in another way.

In order to determine whether the gross value of the invoice exceeds the limit indicated for the application of the mandatory MPP (PLN 15 000), if the gross value of the invoice is indicated in a foreign currency, the exchange rates should be applied in accordance with the rules adopted in the VAT Act.

2.9. Changes in the Code of Commercial Companies related to mandatory MPP

In the environment of an obligatory MPP, attention should be paid to the regulations in the Act of 10 September 1999. - Fiscal Penal Code18 (hereinafter: CCC).The criminal law regulations provide for a prohibited act contained in Article 57c §1 of the Penal Code, sanctioning the failure of taxpayers to meet the obligation to make payments using the split payment mechanism, imposed in Article 108a section 1a of the VAT Act.

For committing the above mentioned prohibited act, a fine of up to 720 daily rates may be imposed. On the other hand, in the case of a minor offence, the perpetrator of the offence is liable to a fine for a fiscal misdemeanour.

The liability of the taxable person who issued the invoice also lies with the taxable person who issued the invoice and, despite the obligation introduced, did not make a special mention of it in the form of the information "split payment mechanism". This liability results from Article 62 §1 of the Penal Code, which regulates the issue of issuing an invoice in a defective manner.

It should be emphasized that the presented liability for the invoice's defectiveness and failure to meet the obligation to pay using the split payment mechanism is not cumulative with the additional tax liability of 30% provided for in the VAT Act (see 2.2;2.4 The consequences of the VAT obligations of the purchaser). The Regulatory BoardThe additional tax liability does not apply to natural persons who are liable for the same act for a fiscal offence or crime. At the same time, it cannot be ruled out that a taxpayer who is not a natural person will be charged with an additional tax liability, while separately a natural person who is guilty of failure to meet his obligations will be subject to fiscal penal liability.

2.10. Impact of IPP on tax deductible costs

Income tax payers (in the case of natural persons - conducting non-agricultural business activity) do not include costs in this part as tax deductible costs.

17 For the purposes of converting the amount of VAT, Article 106e(11) of the VAT Act should be taken into account.

18 Journal of Laws of 2018, item 1958, as amended.

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(in the case of recognition as a deductible expense, they reduce the deductible expenses or if it is not possible to reduce the deductible expenses, they increase the amount of revenue), in which payment relating to the invoice despite the obligation to pay using the split payment mechanism was made in a different way. Where the invoice to which a mandatory IPP applies includes items also outside Annex 15, the consequences in terms of deductible costs relate only to the items in that Annex (only these include the obligation to pay in the IPP).

The non-recognition of an expense as a deductible cost will only apply if the invoice has the relevant 'split payment mechanism' information and the taxpayer does not make the payment

despite thisin a split payment.

Where the conditions for the designation of an invoice as 'split payment mechanism' are not met, that is to say, the conditions for mandatory split payment are not met, and yet the invoice contains the designation 'split payment mechanism', then the purchaser is not obliged to pay in split payment and thus will not bear the above consequences in terms of income tax if it pays otherwise than in split payment.

As the amended provisions of the Personal Income Tax Act of 26 July 199119 (Article 22p) and the Corporate Income Tax Act of 15 February 199220 (Article 15d) may often be related to earlier events, the consequences of not being able to include a cost as a deductible cost in the part where a payment relating to a transaction, despite the obligation to apply the IPP, was made otherwise, do not apply to payments relating to costs included as a deductible cost before 1 January 2020.

The provisions of these laws will apply to the payment of receivables in the tax year starting after 31 December 2019.

2.11. Change in the scope of entities that may settle quarterly

The introduction of regulations concerning the obligatory split payment mechanism has an impact on the scope of entities that can settle in periods

quarterly.

Until 31 October 2019, the quarterly settlements could not be used by taxpayers who, in a given quarter or in the preceding four quarters, made the supplies of goods referred to in Annex No. 13 to the VAT Act, unless the total value of those supplies, excluding the amount of tax, did not exceed PLN 50 000 in any month of those periods. As of 1 November 2019, Annex No. 13 to the VAT Act has been replaced by Annex No. 15. The wider scope of Annex No. 15 leads to the redefinition of the framework in which taxpayers can settle quarterly.

19 Journal of Laws of 2019, item 1387, as amended.20 Journal of Laws of 2019, item 865, as amended.

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In this respect, it should be noted that taxable persons who, as a result of carrying out the transactions of goods listed in Annex 15, will lose their right to a quarterly return, will be

required to submit returns for monthly periods starting from the return for January 2020. 21

2.12. Obligations in a mandatory IPP to correct accounts

Due to the fact that an obligatory MPP is linked to a certain amount limit on the invoice and the inclusion of even one of the items indicated in Annex 15, the making of VAT adjustments may generate various obligations linked to the MPP. On the one hand, such an adjustment may result in an obligation to pay in the IPP and, on the other hand, it may cause such an obligation to disappear. The following are examples of ways of accounting for IPP-related adjustments.

21 Article 11 of the Introductory Act.

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2.13. Mandatory MPP and existing sealing mechanisms

Reverse charge in domestic trade

The obligatory IPP replaced the reverse charge mechanism in domestic trade, functioning until 31 October 2019 in the VAT Act.

Part of the transactions (documented by an invoice up to PLN 15,000) covered so far by the reverse charge was not covered by the obligation to settle in the split payment mechanism. In the case of goods, such transactions previously subject to reverse charge have been made jointly and severally liable by the purchaser.

For such acquisitions, the taxpayer may of course apply the split payment mechanism on a voluntary basis.

Changes in joint and several liability

The purchaser (taxpayer) is jointly and severally liable for the supplier's tax arrears in respect of the proportion of the tax proportionally attributable to the supply, if22:

1. the supply concerned the goods referred to in Annex 15,2. at the time of the supply, the taxable person knew or had reasonable grounds to

suspect that all or part of the amount of tax due on the supply made to him would not be paid into the account of the tax office.

Negative grounds - joint and several liability shall not apply23:1. to the acquisition of goods referred to in item 92 of Annex No 1524 if:

a) this acquisition is made at service stations or liquefied petroleum gas stations, for the standard tanks of vehicles used by taxable persons purchasing these goods, for the propulsion of these vehicles,

22 Article 105a section 1 of the VAT Act.23 Article 105a, paragraphs 3 and 4 of the VAT Act.24 Motor gasoline, diesel fuel, gases intended for the propulsion of internal combustion engines - within the meaning of excise duty regulations

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b) The supply of these goods is carried out by a taxable person supplying gas by pipeline through his own transmission or distribution networks;

2. if the tax arrears did not involve the supplier's participation in an unreliable tax settlement in order to obtain a financial advantage;

3. to the purchase of goods, evidenced by an invoice in which the total amount due isexceeds PLN 15,000 - a new premise excluding joint and several liability in a situation where an obligatory MPP applies,

4. where payment of the invoice was made using the split payment mechanism, a new condition excluding joint and several liability where an optional MPP is used,

5. if the taxable person (the purchaser) demonstrates that circumstances or conditions which justified the presumption by the taxable person that all or part of the tax due on the supply will not be paid by the supplier to the account of the tax office did not affect the non-payment of the tax.

In view of the foregoing, it should be pointed out that transactions involving goods listed in Annex 15 are jointly and severally liable, but which are not subject to the clearing obligation under the split payment mechanism because the amount criterion is not met. Joint and several liability covers goods that have hitherto been accounted for under the reverse charge mechanism and other goods for which a split payment is mandatory (coal, car parts, electronic parts).

However, the institution shall not apply to transactions involving services listed in Annex 15.

The liability rules introduced differ significantly from the previous rules of application also due to the abandonment of the guarantee deposit mechanism.

Intertemporal issues

In the case of supplies of goods and services listed in Annexes 11 and 14 which took place before 1 November 2019 and the effects of which will occur after 31 October 2019, the current regulations shall apply25.Thus, for supplies made before 1 November 2019, the existing rules will apply if tax liability arises or an invoice is issued after 31 October 2019.

However, the obligatory split payment mechanism applies when after 31 October 2019 a supply of goods or services is made, a tax obligation arises and an invoice is issued.

25 Article 10 of the Introductory Act.

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1 November 2019

The existing regulations also apply if the delivery was made after 31 October 2019, but the

invoice was issued before 1 November 2019.

The existing provisions on reverse charge shall apply.

Reverse charge transactions completed before 1 November 2019

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The rules also apply until 31 October 2019 to taxable persons to whom supplies of goods which were covered by the rules on joint and several liability (goods listed in the repealed

Annex 13)26 were made.

1 November 2019

With regard to the goods or services which are currently covered by Annex 15 but which, before the amendment, did not qualify as supplies of goods or services from Annex 11 or Annex 14, the following example shows how to proceed.

On 30 October 2019 an invoice was issued for the supply of hard coal and the supply was made on 4 November 2019. After delivery, the invoice should not be corrected as there was

no obligation to make payment to the IPP since the invoicewas issued before the regulations were changed.

Clarification is also required as to how to settle the adjustment in case the advance payment took place before 1 November 2019 and was settled in reverse and the delivery took place after 31 October 2019 and the remaining amount was paid in accordance with the rules of the mandatory IPP.

The example includes a situation where an advance payment for a supply covered by the reverse charge mechanism was made on 25 October 2019 in the amount of PLN 20 000 net

(VAT of PLN 4 600 settled by the purchaser). The delivery was made and the invoiceissued on 14 November 2019. The amount of the surcharge resulting from the invoice is 60 000 PLN net, VAT 13 800 PLN. On 15 December 2019, a corrective invoice documenting the return of half of the goods, i.e. PLN 40,000 net, is issued. The manner in which the adjustment is made shall take into account the proportionality resulting from the settlement of the advance payment in the reverse charge mechanism, with the final settlement of the transaction in an obligatory MIP. In this case the ratio will be 1:3.As a result, it is corrected:

26 Article 12 of the Introductory Act.

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1. 10 000 PLN net in relation to the payment settled in the reverse charge mechanism (change in VAT in the amount of 2 300 PLN is obliged to include the purchaser in the declaration for a given period), moreover, due to the removal of the summary information in domestic turnover from the VAT Act, the supplier does not perform any action in this respect,

2. 30 000 PLN net, and 6 900 PLN VAT, (VAT is settled by the supplier).

Taking into account the specificity of public procurement law, it is also necessary to point to inter-temporal regulations ensuring the comparability of bids submitted by tenderers in a situation where some of them will still be received during the period of the reverse charge ('excluding VAT') and some already during the period of operation of the mandatory IPP ('including VAT'), as well as ensuring equal treatment of contracts concluded until 31 October 2019 and after 1 November 2019. 27 This prevents the bids submitted under the 'old' rules from not taking into account VAT, but due to the conclusion of the contract after 1 November 2019 the VAT obligation would arise under the 'new' rules, charging the contractor.

3) Extended availability of funds in the VAT account

The possibility of allocating funds accumulated on the VAT account in the area of public-law receivables28 was extended.From 1 November 2019, these funds may be used by the taxpayer not only for payment of the VAT liability but also for payment:

• corporate income tax,

• personal income tax,

• of excise duty,

• customs duties and

• of social security contributions.

This also includes interest on arrears or all additional VAT liabilities.

The above catalogue also indicates which receivables can be enforced from the VAT account as part of the execution of the seizure on the basis of an administrative enforcement title. The change made in this respect results from the need to correlate, as it has been the case so far, the scope defining how the funds accumulated on the VAT account can be used with the scope allowing to debit the VAT account on the basis of an administrative enforcement title.

27 Article 15 of the Introductory Act.28 Article 62b Section 2 of the Banking Law.

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4 Changes in the procedure for releasing funds from the VAT account

In the absence of any negative statutory prerequisites, the head of the tax office by way of a decision agrees to transfer the funds accumulated on the VAT account indicated by the taxpayer to a clearing account or SKOK account linked to the VAT account.

From 1 November 2019, a taxpayer may file a complaint against such an order.

The grounds for issuing a refusal to release funds from the VAT account to the taxpayer's settlement account have changed.

The extension of the possibility to regulate other taxes on the VAT account has been linked to the condition that there are no arrears in these taxes in the event of a request for authorisation to release the funds. Similarly, a wider range of investigations will be carried out to determine whether there is a justified fear of non-performance of a tax obligation or tax arrears. This examination will cover not only VAT but also income tax, excise tax and customs duties.

The catalogue of entities that can apply for the transfer of funds from a VAT account to a settlement account has been extended.

The regulations in force until 31 October 2019 allowed for the submission of such an application only by the taxpayer, which in the situation of dissolution of a civil or commercial company without legal personality blocked the way to release funds accumulated on the VAT account.

Hence, the possibility of applying for the release of funds (on the same principles as for

taxpayers) also by former shareholders of the above mentioned companies was introduced. 29

On the grounds of an amendment to the Act of 16 November 2006 on Stamp duty30, the transfer of funds accumulated on a VAT account to a settlement account or a registered

account indicated by the taxpayer was exempted from stamp duty.in SKOK, issued pursuant to Article 108b section 1 of the VAT Act, upon request submitted after 31 October 2019.

5 Summary payments

In the MPP there is a new possibility of making a single payment transfer for more than one invoice. In such a case, the transfer message must cover all invoices issued to the taxable person during the period from one supplier and include the entire amount of VAT shown on those invoices31.This period may not be less than one day and more than one month. A month in this case should be understood as a calendar month, as it is understood consistently throughout the Act.

29 Article 108b section 7 of the VAT Act.30 Journal of Laws of 2019, item 1000, as amended.31 Article 108a section 3a and 3b of the VAT Act.

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In such a situation, the transfer message instead of the number of the specific invoice paid in the split payment mechanism shall indicate the period for which the payment is made32.The adoption of such a solution meets the expectations of taxpayers, who have signalled that the need to make payments in the IPP per invoice is an obstacle for them in certain situations, particularly due to the accounting systems used.

If the purchaser decides to apply the above provision and make the so called summary payment by a single transfer message, then the purchaser is obliged to pay with this message

all invoices issued to him by a given issuer in a given period, regardless of whether these invoices document transactions subject to the obligation to

whether or not to apply the split payment mechanism.

Bulk transfers must cover all invoices issued to a given taxable person during a given period. It must be taken into account here that a bulk transfer covers a period of not less than one day.

6 Advances to the IPP

The split payment mechanism applies to advance payments made before the invoice is issued. 33 If a taxpayer makes a payment on such an advance, the word 'advance' shall be entered in the transfer message instead of the invoice number. This solution applies both to the mandatory split payment mechanism and to voluntary payments in this mechanism.

Where an advance is paid under the split payment mechanism, the taxable person should be able to document that the advance paid by him relates to the specific invoice he received after the advance payment.

If a taxpayer is not able to link a specific advance payment to a specific invoice documenting that advance, there is a risk of doubt as to whether the taxpayer has fulfilled its obligation to pay under the split payment mechanism, if such an obligation has arisen with respect to that advance payment.

It should be remembered that in the case of advance payments, the general rules determine whether an obligation to pay under the split payment mechanism arises, i.e. the value of

gross invoices and the subject of the transaction (purchase of goods or services in Annex 15).

In addition, it should be noted that advances in the IPP are not covered by the pool payment scheme.The wording of the regulation in this respect refers explicitly to the payment of invoices.

7. new declaration models

As a result of the introduction of the split payment mechanism, the VAT returns have been changed. The new models are set out in the Ministerial Regulation

32 Article 108a section 3c of the VAT Act.33 Article 108a section 1c of the VAT Act.

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(1 ) Opinion of the Committee on Finance, Investment and Development of 25 October 2019 on VAT return models34.

Yours sincerely

Undersecretary of State

Jan Sarnowski(signed by qualified

(electronic signature)

34 OJ 2019. ...item 2104.

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