Taking a look at the latest project of changes in the Polish VAT Act with planned implementation of Directive 2017/2544 coming into force from 2019.
What is the objective?
Firstly, it is a step forward in the unification process of tax system within EU Member States.
Secondly, by drawing these regulations the EU is meeting the expectations of taxpayers who are looking for simplifications while offering services worldwide. The latest changes are direct result of observations on functioning of the mechanism in its current form within last few years.
Short look back
The idea started in 2015 with introducing a type of region-wide VAT registration mechanism called MOSS (Mini one stop shop).
The system was designed for B2C sales of telecommunications, broadcasting and e-supplied services. (TBE services).
As the value added tax system is still not fully unified in the EU, this solution enabled compliance with constantly changing local regulations concerning these services. This in turn paved the way towards modernizing the taxation of cross border e-commerce services.
Thanks to MOSS, taxpayers are not obligated to register for VAT purposes in every member state where their customers are established or have their place of residence.
the provider of above services is using either EU scheme which applies to taxpayers established in the EU or the non-EU scheme for companies established outside the EU.
Both options allow for VAT registration as well as filing VAT returns and paying the tax in one selected member state. The system is shifting the obligation of separate payments to the tax authorities of the member state of identification. All VAT due in other member states is redistributed to the relevant authorities in member states of consumption.
Does it work?
Despite many advantages of the system not everything is working perfectly, especially when taking into account the detailed rules of MOSS which may be seen as unequal for some type of taxpayers.
For instance, non-EU companies which are already registered in one member state on the basis of different business activity (e.g. sale of goods) cannot register their TBE sales through MOSS.
Furthermore, the system does not protect small and medium business of non-EU suppliers with any sales thresholds which are common for sales in many local regulations. Regardless of the sales volume, the seller is required to register for VAT purposes.
Additionally, the requirement of identifying the location of the customer (as a consumption location for tax purposes) may lead to many compliance challenges as most TBE services are sold by electronic means, including telephone where the identification may be difficult, if not impossible, to obtain.
Finally, despite intention of simplifying procedures compacting it to one member state, undertakings are still required to conduct each transaction in line with the local VAT regulations of member state of consumption. This includes paying attention to differing tax rates or even regulations concerning obligatory data on the invoice.
The upcoming regulations introduce substantial changes in the MOSS system. Most of them deal with the inconvenience experienced by the start-ups and small and medium businesses. The amendments will come into force starting 1st January 2019.
The Directive puts forward a threshold in the amount of 10 000 EUR annually (or equivalent in local currency which in Poland will amount to 42 000 PLN) up to which the e-services may be subject to regulations set for TBE in country where the business has its registered office (home country).
The requirement of compliance with invoicing principles for the country of consumption has also been updated. In accordance with the Directive, the seller will be entitled to issue invoices based on principles laid down by the country of the registration.
Another important change refers to non-EU suppliers who will be released from the excessive regulatory loops in situations where they could not enter MOSS system while already VAT registered in the EU.
All above mentioned changes will be implemented into the Polish VAT Act yet some transitional provisions will apply. These will ie. allow the taxpayers to withdraw from MOSS as while still below the statutory threshold or include non-EU entities to enter the system despite being already registered for VAT.
The proposed deadline for the withdrawal of MOSS application is the beginning of February 2019.
The simplification of MOSS procedures will hopefully result in a greater competitiveness of small and medium companies as well as start-ups specialising in e-services.