In this issue: Employees' Capital Pension Schemes (ECPS) soon to be universal. Revised bill has been referred by Ministry of Finance for public consulation and…
In this edition:
- What does split payment mean for taxpayers?
- Transport package to include plant oils.
- New tax likely to be effective from January 2018.
- CBC-P – new obligation for CIT payers.
WHAT DOES SPLIT PAYMENT MEAN FOR TAXPAYERS?
11 September 2017 saw the presentation of the third draft amendment to VAT Act and Certain Other Acts, the latest in a series of statue modification proposals, which introduced the split payment mechanism. As envisioned by their authors, implementing the proposed solutions will be conducive to increasing tax security by countering malfeasance and VAT fraud.
Compared with the previous modification proposal, the latest draft amendment was compounded by providing for some of the demands put forward by taxpayers and financial institutions during the process of public inquiry.
First of all, the scope of circumstances under which a VAT account can be charged has been extended. Taxpayers have been equipped with the possibility to transfer the amounts of unduly received payments or the VAT amounts obtained that are to be paid to a supplier or provider. On the other hand, VAT liabilities related to the import of goods still cannot be settled by means of a VAT account.
In addition, the draft amendment provides for making transfers between a taxpayer’s VAT accounts, but only those held with the same bank. This is likely to adversely affect entrepreneurs’ liquidity due to the fact that should all accounts with the same bank be closed, the only possible means of recouping the funds will be to petition the Head of Tax Office to assign the deposited amounts to a clearing account selected by the taxpayer, and the waiting period for the issuance of decision amounts to sixty days.
Furthermore, detaining some of the funds on VAT accounts will probably result in increased costs associated with conducting business activities, as some taxpayers will be forced to seek external financing, i.e. loans and borrowings, factoring. However, not only will taxpayers be required to incur split-payment related expenses, but they will also have to be ready to bear the costs of:
- upgrading it accounting systems
- increased outlay related to current accounting services
- increased bank fees and charges for SAF bank account reports (JPK_WB) as a consequence of holding numerous bank accounts.
The Ministry of Finance and Development is wrong to assume that the update enabling the use of transfer forms in split payment mechanism is the only change that will affect accounting and financial systems. Charts of accounts may have to be modified by adding new settlement accounts or on account of VAT. Implementing such changes might facilitate controlling settlements between entities and the amount of funds deposited on particular settlement and VAT accounts. Additionally, in the case of taxpayers that have chosen to take advantage of the automated processes of booking accounting documents in financial systems, implementing new solutions into the processes should be considered.
In the wake of introducing split payment and considering the fact that using the mechanism is voluntary, expenses related to accounting and financial services are likely to rise. The increase will stem from the need to monitor activities on VAT accounts, and to reconcile settlement accounts with suppliers, recipients and the tax office. In addition, despite having been automated, the processes of preparing and accepting payments under the split payment mechanism are likely to become more time-consuming. This is due to the fact that a separate payment will have to be made for each of the purchase invoices.
The fact that an increased number of bank statements validating the invoice payments will be required during audit activates and proceedings as well as tax inspections will also contribute to an increase in the cost of accounting and outsourcing services. Currently, such documents are only required of taxpayers applying for a VAT refund within 25 days pursuant to applicable regulations.
To make matters worse, cash flow planning, which can currently be considered challenging, is likely to become even more complicated as of 1 April 2018 due to the changes that have been implemented. Therefore, taxpayers should already be identifying factors that might adversely affect their prospective cash flows and be ready to introduce relevant changes to their business models.
The abovementioned factors include:
- the sale of goods on Polish territory exceeding the value of domestic acquisitions (mostly the sale of imported goods or acquired under intra-community acquisitions),
- applying higher VAT rates to goods and services purchased that to resold ones,
- the overabundance of payments made by means of transfers compared with the ones made by means of bank accounts, e.g. a taxpayer tends to make payments by means of cards, cash or online payment systems such as PayPal, PayU, DotPay,
- delivery payment terms longer than acquisition payment terms,
- refunds of input tax in excess of output tax made to a VAT account within 25 days, in case of there being no domestic purchases or tax liability arising within the forthcoming month
- closing all accounts with a bank whose services a taxpayers has been using before verifying the balances on VAT accounts.
The proposed amendments are still a far cry from being flawless, and the Ministry persists in diminishing their adverse influence on taxpayers. The officials claim that in the long term the split payment mechanism will transpire to be beneficial for all parties concerned as it will eliminate entities involved in tax fraud.
The new regulations are to enter into force on 1 April 2018. Consequently, the first payments made by means of the split payment mechanism will be carried out following the effective date, and the initially submitted petitions to refund input VAT in excess of output VAT within 25 days shall pertain to April 2018 settlements or the second quarter of the year. Additionally, pursuant to the proposed changes banks and Credit and Savings Unions (SKOK) will be allowed to open VAT accounts for their clients’ existing settlement accounts within 14 days of the Act being published, no later, however, than 31 March 2018.
Considering the abovementioned facts, taxpayers seem to have little time to plan and implement new software solutions to their accounting and financial systems. They will have to make short work of introducing procedures related to preparing, accepting and making payments as well as reconciling settlement accounts with suppliers, recipients and tax offices. However, they mustn’t forget to analyze the binding contracts and their purchase structures to revise their cash flow policies.
TRANSPORT PACKAGE TO INCLUDE PLANT OILS
The Act on the Monitoring System for the Road Carriage of Goods of 3 April 2017 consolidated previously applicable regulations (fuel and trans-port packages) and introduced new provisions on monitoring road transport of some goods. Within the period ending on 22 September 2017 the Act encompassed good such as fuels, alcohol, some chemical substances, lubricant agents, solvents and dried tobacco (the so called sensitive goods). Following the abovementioned date, the scope of the goods covered by the Act was expanded to include various types of plant oils.
The transport package introduces a number of obligations for sending entities, receiving entities, carriers and drivers. Pursuant to the new requirements:
- a special register must be notified about the commencement of carriage on national territory;
- carriers must be provided with a reference number;
- carriers are required to supplement notifications with data pertaining to the transport service provided;
- recipients are obliged to complement the notification with information about the actual receipt of goods;
- carriers are not to accept orders of transport of goods subject to registration if the notifying party fails to provide them with a reference number;
- carriers and vehicle drivers are to refuse the transport of goods if they have not received.
The Act also provides for some exemptions from the regulatory regime. Goods of certain low weight, sent by means of postal services and subject to some particular procedures such as transit, warehousing or temporary importation are not monitored. The same applies to goods that are not the subject of VAT liable transactions.
Reporting the carriage of sensitive goods is performed by means of Electronic Services Portal of the Customs Service (PUESC), under the SENT system. Having notified the register, the reporting entity is provided with a reference number that is valid for 10 days and should be shared with the carrier and the receiving entity.
The ordinance of the Minister of Development and Finance dated 13 June 2017 (effective as of 22 September 2017) on goods whose carriage is subject to the monitoring system for the road carriage of goods encompassed an additional set of ‘sensitive goods’. As a result, plant oils which Polish Classification of Goods and Services lists under numbers from 10.41.21 to 10.41.49, subcate-gories from 10.45.51 to 10.41.60 and subcategory 10.62.14 became subject to monitoring.
These are, for example:
- raw soy oil,
- raw olive oil,
- raw sunflower oil,
- raw palm oil.
It is also worth noting that the implementation of the transport package was accompanied by new punitive measures, such as monetary penalties and fines, whose amount is contingent on the type of discovered inaccuracies. They might amount to:
- 46% of net value of the carried goods subject to the notification requirement, not lower than PLN20,000
- or PLN5,000 to PLN20,000.
NEW TAX LIKELY TO BE EFFECTIVE FROM JANUARY 2018
The last edition of our Newsletter featured information on the government draft amendments to the Corporate Income Tax Act and other statutes. The new, revolutionary changes are planned to become effective as of January 2018.
Presently, the process of public consultations and official review has been completed. According to the information obtained from the Ministry of finance, some of the issues raised during the procedure will be taken into account and several of the proposed provisions will be modified. Naturally, the wording of the regulations in question will take definite shape following the conclusion of parliamentary works. Nevertheless, due to the significance of the changes, the proposed solutions deserve a closer look now.
Regulations on the new tax on value of certain building are among the most significant laws that were altered during the public consultations process.
The amendments to the draft Bill provide for introducing a building value threshold and lowering the tax rate.
It is therefore likely that as of 1 January 2018 some service and commercial buildings will become subject to the so called “minimum tax”. The building in question will include:
- shopping centers,
- department stores,
- independent shops and boutiques,
- other service and commercial buildings,
- office buildings (except for buildings for the taxpayer’s own needs),
whose initial value amounts to at least PLN10, 000,000 (gross tax value determined monthly).
Amounts in excess of the threshold of PLN10, 000, 000 PLN shall be deemed to constitute tax base, and the applicable tax rate will amount to 0.035% of the tax base per month.
The rules on paying in the tax have not been subject to change. Taxpayers will be required to calculate and pay in the tax by the 20th day of the following month and will be eligible to offset the amount against monthly (quarterly) advance payments of corporate income tax.
For example, assuming that the tax value of a building amounts to PLN100, 000, 000 PLN, additional tax burdens borne by its owner will stand at PLN378, 000 (90 000 000 x 0,035% x 12). The amount can be settled with current advance income tax payments, which means that, should the owner of the building generate tax loss, the ‘minimum tax’ will become a tangible. Additional burden associated with conducting business activities in Poland.
It is also worth noting that some structures will not be subject to the new tax. These are:
- residential buildings,
- hotels and tourist accommodation facilities,
- transport and communications facilities,
- industrial and warehousing facilities.
CBC-P – NEW OBLIGATION FOR CIT PAYERS
Poland is currently at the forefront of efforts aimed at carrying out OECD objectives related to curbing tax avoidance. To further this purpose, on 27 May 2017 the Act on the Exchange of Tax Information with Other States was enacted (Journal of Laws from 2017, No. 648 – hereinafter ‘the Act’). One of the new tools that the Act sets out is the obligation to report to Polish tax authorities on entities which form part of a group.
Pursuant to article 82 of the Act, a capital group within the meaning of the Accountancy Act is deemed to constitute a group of entities if:
- a consolidated financial statement has been prepared for it,
- it is composed of at least two entities whose registered offices or seats of management are located in different states or territories or of an entity whose registered office or seat of management is located in one state or territory but conducts business activities by means of a foreign company located in a different state or territory,
- its consolidated net turnover exceeded the threshold of EUR750 million in the previous financial year. Should a capital group have its consolidated financial statement prepared in a currency different than the Euro, the conversion of consolidated turnover into Euro to cross reference it with the threshold, is performed pursuant to the latest exchange rate published by the European Central Bank as of the last day of the business year preceding business reporting year; currencies other than the Euro are converted using their respective exchange rates against the Euro.
The term ‘entities with a capital group’ is meant to be understood as:
- a parent entity, subsidiaries and other subordinated entities which are included in the consolidated financial statement or which would be included such a statement if their shares were subject to trading on the regulated market,
- each entity which is not included in the consolidated financial statement solely on the basis of size and materiality criteria,
- a foreign company of the entity set out in points a) or b) provided that the entity prepares its own financial statements for such a company for the purposes of financial, supervisory and tax reporting or internal management control.
As provided by the abovementioned Act, an entity with a group of entities is required to notify the Head of the National Revenue Administration if:
- its registered office or seat of management is located on the territory of Poland
- its registered office or seat of management is located outside the territory of Poland but conducts its business activities by means of a foreign company on its territory.
While making the notification, an entity should specify in what capacity it is to report within a group of entities:
- as a parent entity,
- as a designated entity,
- as another entity, submitting information on a group of entities.
In its notification an entity may indicate that it will not report information on a group of entities, however, should it choose to do so, it will be obliged to specify the reporting entity and the state in which the information will be provided.
Notifications are to be submitted no later than on the last day of financial reporting year. For the 2016 reporting the notification must be made within 10 months of the last day of that financial year (as stipulated in the interim provisions of the Act).
The Act also provides for sanctions that can be imposed on errant entities that fail to report on the abovementioned information. Pursuant to Article 90 and subsequent articles, the Head of National Revenue Administration can impose a monetary penalty of up to 1 million PLN by way of decision.
It is important to bear in mind that pursuant to the new Act, two additional obligations arise. Article 86 of the Act requires taxpayers to report on a given entity’s role with a group of entities. Additionally, parent entities or designated entities indicated in a prior notification will be obliged to inform the Head of National Revenue Administration about the entire group of entities – such information is to be provided within 12 months from the end of a reporting year (as provided by Article 83 of the Act).
Reports are to be submitted to a relevant authority by means of electronic communication in the xml format. The Ministry of Finance stipulates specific criteria to be met by a properly prepared file on their website.
For the sake of our clients we prepared special tool that generates electronic CBC-P reports.
If your company is obliged to submit CBC-P, feel free to contact our tax department.