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Mandatory Split Payment mechanism.

Mandatory split payment mechanism.

On 23rd January 2019 the European Commission published draft decision on authorising Poland to introduce a special measure derogating from Art. 226 of Directive 2006/112 / EC on the common system of value added tax. The said measure is an obligatory split payment mechanism in relation to the supply of certain goods and services in sectors particularly exposed to tax fraud. The motion pertaining to the above was submitted by Poland in May 2018.

The split payment model operates via depositing tax base and VAT amounts into separate bank accounts. The amount paid by the customer is divided by the bank administering the account.   The net amount is assigned to the basic account and the amount corresponding to the VAT tax goes into the special, blocked VAT account. The taxpayer remains the owner of the funds accumulated on the VAT account, however his access is limited . These funds can only be used to pay tax liabilities to the tax office or to pay VAT due from invoices received from the suppliers. Voluntary application of the split payment model has been available in Poland since 1st July 2018.

Introducing new regulations was dictated by the fact that despite numerous measures Poland took with a view of eliminating the  tax frauds, the VAT gap remains at around 25% (according to the Commission’s statistics). One of the already implemented tools that attempted to tackle issue of frauds was the  reverse charge mechanism on the supply of certain goods (including steel, scrap, gold or electronic equipment), and on the provision of construction services by the subcontractors.

In order to further caulk the above sensitive areas the Polish Ministry of Finance plans to introduce a mandatory split payment model applicable to the supply of specific goods and services between taxpayers (B2B) in transactions via electronic bank transfers. An appendix listing goods and services that may be affected by the changes is an integral part of Poland’s application. On top of the  areas already covered by the reverse charge mechanism, there are also goods and services such as: fuel, some plastics, trade-in car and motorcycle parts, coal and greenhouse gas emission rights.

An application accompanied by the positive recommendation of the European Commission was submitted to the Council of the European Union. The authorisation to apply the above derogation will be granted for a limited period and applicable between 1st  March 2019 up to 28th February 2022.

The Ministry of Finance has been carrying out legislative work on amendments to the VAT Act, taking into account the provisions of the derogative decision. Soon we should see the drafts of the new regulations. KR Group’s experts will continually monitor and  inform you about the incoming changes.

Maciej Szeweńko

VAT Consultant     

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