Business Support Solution on draft amendments to VAT – split payment system
Work is currently in progress on the draft bill amending the VAT Law and other laws, whereby the mechanism of the so-called split VAT payment will be implemented, whose main goal is to seal the VAT system.
Thanks to the split payment tool, the buyer of goods/services could pay for the purchased service or goods in two amounts – separately into two accounts of the seller, that is to say:
- in net receivables – to the account pointed out by the seller (current account), and
- in the amount of the tax itself – to the account dedicated for VAT purposes (VAT account). At the same time access to the funds collected in the VAT account will be limited for the taxpayer.
The funds collected in the VAT account will be assigned for:
– paying the VAT liability from tax return
– paying the input tax on purchase invoices.
The split payment mechanism will pertain to payments settled solely between businesses. The initiative of this manner of settlement will rest with the buyer, thus including the seller/supplier of goods and services in the settlement. Restricted access to funds collected in the seller’s VAT account means that the head of the tax office only at the request of the taxpayer may, within 90 days, issue a decision approving a non-VAT settlement allocation of funds in this account. Permission for another intended use of funds from the VAT account will be refused by way of a decision, for example where reasonable fear arises that no tax liability will be performed or if another proceeding or inspection is pending against the taxpayer.
It should be noted that the mechanism could not be used for cash-settled receivables, given that direct payments and transfers from current accounts of the taxpayer have been excluded from the allowable forms of crediting the VAT account.
For a greater influence on the management of funds from the VAT account, the taxpayer will have to file a request for a transfer of funds to the current account. Nonetheless, the tax authority will first comprehensively audit the taxpayer and decide whether the release of funds collected in the VAT account is safe from a tax point of view. The head of the tax office will have to decide on the transfer of funds within 90 days and will determine the amount of transfer.
It is also worth noting that the split payment mechanism will not be mandatory, whereas the legislator offered a number of benefits for taxpayers which will opt into transferring the payment into the two accounts. The list of incentives will include:
- waiving the principle of joint and several liability in the event of supplies of sensitive goods specified in Annex XIII to the VAT Law,
- waiving the assessment of additional tax liability,
- the interest increased by 150% on VAT arrears will not be charged if 95% of the invoices for the period to which the arrears pertain have been paid through split payment,
- accelerated 25 day return of excess input VAT.
Whereas the VAT account may be used only to some types of incoming payments, it could not always be used to process payments in accordance with the split payment procedure. In the absence of funds in the VAT account, however, the payment procedure under split payment would remain available, provided that the entire amount of the liability is paid from the taxpayer’s current account.
This same situation will emerge if payments from recipients credit the VAT account past the VAT return date, which will prevent or limit the possibility of making full payment of the current return tax liability from the VAT account. The legislator failed to provide for the possibility of crediting the VAT account with the inward payment or own transfer originating from another account or made in cash.
Retailers, which make most of their purchases from businesses while most of turnover is generated at sales outlets with cash or card payments will be particularly vulnerable. In this case, the possibility of using the VAT account to pay the input tax on purchase invoices and to settle the liabilities from VAT returns will be limited.
The legislator provided for free of charge opening and maintenance of this account for any business.
The technical issue of settlements through split payment is to be set forth in a separate regulation.
The proposed amendments are expected to take force from 1 January 2018.
Magdalena Szczepańska – Tax Policy Specialist at Business Support Solution SA (www.bssCE.com)