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Changes in VAT in so-called VAT groups

In July, the Polish government presented a bill to introduce broad changes to tax and insurance laws, known as the “Polish Deal.” In addition to changes in income taxes, the bill also provides for significant changes in VAT.
Gerard Goliasz
Senior TAX Specialist

As regards the VAT Act, the proposed changes to the regulations concern:

  1. The possibility of joint settlements by several taxpayers in so-called VAT groups
  2. Changes in the form of options for taxing financial services
  3. Promotion of non-cash transactions in Poland, introducing a quick VAT refund for non-cash taxpayers
  4. Changes to binding rate information.

Today we describe the changes regarding VAT Groups. 

VAT group

Pursuant to the existing regulations in force in Poland, unlike corporate income tax payers, VAT payers cannot settle their accounts jointly, regardless of the financial, economic and organizational relations between them. As a rule, Polish VAT payers settle this tax individually, and each of them separately submits VAT SAF-T files (JPK_VAT), while transactions between related entities are documented with invoices. The Polish Deal bill would introduce into the VAT Act of 11 March 2004 the possibility of joint accounting by several taxpayers within so-called VAT groups.

Who can be part of a VAT group?

Under the proposal, a VAT group could be created by taxpayers:

  1. Established in Poland, or
  2. Not established in Poland, to the extent that they conduct business activity in Poland through a branch located in Poland.

Pursuant to the Act on Rules for Participation of Foreign Undertakings and Other Foreign Persons in Economic Turnover in the Territory of the Republic of Poland of 6 March 2018, regulating the issue of establishing branches, a branch is a separate and organizationally independent part of economic activity, performed by an undertaking outside the undertaking’s registered office or principal place of business.

As the act does not prohibit the establishment of branches by foreign entities from outside the EU (on the basis of reciprocity), it should be assumed that such branches can function and could also be part of a VAT group.

In our view, this does not present any difficulties, and it is obvious that in most if not all cases such a branch would meet the requirements specified in the definition of a “fixed establishment” under Art. 11 of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax.

In addition to the aforementioned conditions, a VAT group could be created by entities meeting additional conditions, namely that they are related:

  • Financially, i.e. if one of the entities forming the VAT group has a direct, more than 50% share in the share capital of the other entities
  • Economically, meaning that
    • The main activity of members of the VAT group is of the same nature
    • The types of activities carried out by members of the VAT group are complementary and interdependent, or
    • A member of the VAT group carries out activities wholly or largely used by other members of the VAT group; and also
  • Organizationally, that is:
    • Legally or in fact, directly or indirectly, they are under common management, or
    • They organize their activities wholly or partially in concert.

The conditions for the existence of financial, economic and organizational links between members of a VAT group would have to be met continuously for the period in which the group has the status of a VAT payer.

Another requirement is that these entities have their headquarters in Poland. Taxpayers who do not meet this criterion could also establish it to the extent that they run a business via a branch located in Poland.

The amendment to the regulations also introduces certain restrictions, such as:

  • One entity may be a member of only one VAT group.
  • A VAT group cannot be a member of another VAT group.
  • The VAT group may not be extended to include other entities, nor may it be reduced by removal of any of its entities.

VAT group—what should be done to establish it?

  1. Enter into a written agreement on establishment of a VAT group, containing at least:
    • The name of the VAT group with the additional indication “VAT group” or “GV”
    • Identification data of the taxpayers forming the VAT group, including data on the branch in the case of a taxpayer not established in Poland, and the amount of the share capital of each of the taxpayers
    • Designation of a representative of the VAT group, appointed from among its members
    • Identification data of the shareholders and the amount of their share in the capital of the taxpayers forming the VAT group, holding at least 50% of the shares in the share capital of the taxpayers
    • Indication of the period for which the VAT group is established, not shorter than 3 years (although the agreement could be extended).
  2. Submit a registration application (VAT-R) and the agreement to the tax office for the representative of the VAT group.

Benefits of introducing VAT groups

Generally, introduction of the possibility of joint VAT accounting should be considered a step in the right direction. Because only the group would be the taxpayer, intra-group transactions would not be subject to taxation, invoicing or the split-payment mechanism. In addition, the VAT group would submit one VAT declaration and would need only one bank account to process VAT returns and accept payments.

A disadvantage of this solution is undoubtedly the joint and several liability of the group members for its obligations during the period when the VAT group is the taxpayer and after the group loses this status. In addition, despite elimination of some obligations, new ones have been introduced, such as allocating the proportion of intra-group VAT to taxed and untaxed activities. Additionally, matters are complicated by the fact that a group could be required to establish a proportion within the group and another proportion for the group as a whole. The group would also have to keep records of transactions within it.

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