VAT revolution from April 2018 – Split Payment mechanism is approaching | SSW Tax Alert

On Thursday, 9 November, the Sejm unanimously adopted the governmental proposal for the amendment of the VAT Act, introducing the split payment mechanism, which is expected to close the VAT gap.
According to the proposal, obligatory VAT dedicated accounts are to be created within entrepreneur’s bank accounts. Under the split payment mechanism, the purchaser of goods or services will only pay the net invoiced amount to the regular account of the supplier whereas the VAT amount will be transferred to the dedicated VAT account. The entrepreneur will only be able to draw on the VAT account to pay the VAT amount due in respect of the invoices of its suppliers, or to pay the VAT amount payable according to the VAT declaration to the account of the tax office. Tax authorities will not have access to the VAT account but in case when the entrepreneur wishes to use the amounts deposited therein for other purposes than a VAT payment, they will have to apply to the head of the competent tax authority to release the funds. The head of the tax authority will have as much as 60 days to consider such application.

The application of the split payment mechanism will be limited to B2B relations and will not be compulsory, yet a serious inconvenience of the regime is that the decision in this respect will rest with the purchaser of goods or services. In other words, if the buyer decides to pay the VAT amount due to the supplier to the VAT account rather than the regular account, the supplier cannot refuse to accept this form of settlement. The choice of this method does not imply that it has to be applied in every case – the decision may be taken individually for each invoice due for payment. The application of the mechanism will, in turn, entail a number of incentives; with respect to taxpayers applying the mechanism (and as regards the invoices it is applied to), the so-called VAT sanction is not applicable, nor is joint and several liability of the buyer, and additionally it will be regarded as evidence of the taxpayer’s acting in a good faith.

In case of the recovery of excess input tax over output tax, it will still be possible to have the refund made to the regular account (freely available= but in case when the taxpayer opts for a refund to the VAT account, the refund deadline will be accelerated to 25 days.

Currently, the bill has been handed over to the Senate. It is expected to come into force as of April 2018.

Should you wish to discuss how this revolutionary change will impact your business and how you can prepare for it, our specialists are ready to assist you.

Patrycja Goździowska – Partner, Tax advisor

Tomasz Wickel – Partner, Atoorney at law