A VAT group may be created by entities linked by financial, economic and organizational ties. A representative of the VAT group acts for the group with respect to duties connected with settlement of VAT. The regulations on VAT groups enter into force on 1 July 2022.
Rules for operation of VAT groups
Supply of goods and performance of services between members of a VAT group will not be subject to VAT. However, supplies of goods and performance of services by or to members of the VAT group, carried out with entities from outside the VAT group, will be deemed to be transactions made with the VAT group.
In the case of a VAT group, determining the proportion of deduction of VAT based on the ratio of taxed and untaxed activities will be done separately for each member of the group, but in the year in which the VAT group obtains the status of a taxable person, this ratio will be adopted in the proportion determined for each of the members as of the time the VAT group is created.
If the VAT group acquires goods or services that are used by the group to perform activities for which there is a right to deduct input VAT as well as activities for which this right is not available, and it is not possible to assign these activities to specific members of the group, the entire group as the VAT payer is required to separately determine the amounts of input VAT connected to those activities, pro rata to the activities for which there is a right to deduct input VAT. If it is not possible to itemize all or part of such amount, the group is required to set an estimated proportion based on a forecast agreed with the head of the tax office in the form of a protocol.
The VAT group representative will represent the group with respect to its rights and obligations. It is also required to notify the head of the tax office of any change in the factual or legal situation of the group resulting in infringement of the conditions for recognition of the VAT group as a taxable person, within 14 days after such change arises.
Entities forming a VAT group
A VAT group may be formed by taxpayers:
- With their registered office in Poland, or
- Without a registered office in Poland, insofar as they do business in Poland via a branch located in Poland.
Branches of foreign undertakings which are VAT payers may also be members of a VAT group.
For creation of a VAT group, the aforementioned entities will also have to fulfil additional conditions concerning the connections between the entities. The VAT Act defines these connections as:
- Financial—one of the entities forming the VAT group holds directly over 50% of the share capital or over 50% of the votes in the supervisory, founding or managing bodies, or over 50% of the rights to participate in the profit, of each of the other members of the group.
- Economic—the principal activity of the members of the VAT group is of the same character, or the types of activity conducted by the members of the VAT group are complementary and interdependent, or a member of the VAT group conducts activity from which other members of the VAT group benefit in whole or in large part.
- Organizational—legally or factually, directly or indirectly, the members of the group are under joint direction, or organize their activity wholly or partially in agreement.
The conditions for existence of financial, economic and organizational ties between the members of the VAT group must be fulfilled without interruption for the period in which the group has the status of a taxable person.
Restrictions on the entities forming a VAT group
One entity may be a member of only one VAT group. A VAT group may not be a member of another VAT group. A VAT group may not be expanded to include other entities, or reduced by removal of any of the entities in the group.
Duties connected with establishing a VAT group
In the declaration for the first period of its existence, the VAT group will reflect the amount of any surplus of input VAT over output VAT to be carried over to the next settlement period, if such a surplus was reported in the last declarations filed by the members of the VAT group as taxable persons.
The members of the VAT group are liable jointly and severally for its VAT obligations during the existence of the group.
Conditions for establishing a VAT group
To create a VAT group, it is necessary to conclude a written agreement on formation of the group, containing at least:
- The name of the VAT group with the additional designation “grupa VAT” or “GV”
- Identifying details of the taxpayers making up the VAT group, including details of the branch in the case of a taxpayer without its registered office in Poland, as well as the amount of the share capital of each of the taxpayers
- Designation of the VAT group’s representative, from among its members
- Identifying details of the shareholders and the level of their participation in the share capital of the taxpayers making up the VAT group, holding at least 50% of the shares in the taxpayers’ capital
- Indication of the period for which the VAT group is formed, no shorter than three years (although the agreement may be extended within 30 days before the current agreement expires)
- Submission of the registration form (VAT-R) and the agreement to the tax office for the VAT group representative (the group obtains the status of a taxable person as of the date indicated in the agreement forming the VAT group, but no earlier than the registration date).
The group will not be registered if the conditions for recognizing the VAT group as a taxable person are not fulfilled. In that case, the head of the tax office will notify the VAT group representative of the lack of registration.
If the VAT group is successfully registered, the tax office will delete the members of the group from the register as separate VAT payers. The details of the VAT group’s members will be visible in the list of VAT payers as details of the VAT group.
Circumstances causing loss of the VAT group’s status of a taxable person
A VAT group will lose the status of a taxable person:
- As of the day preceding the date of occurrence of changes in the factual or legal state resulting in infringement of the conditions for recognizing the VAT group as a taxable person, or
- Upon expiration of the period for which the VAT group was established.
The head of the tax office will remove from the register as a taxable person a VAT group which has lost the status of a taxable person, and notify the VAT group representative of the removal. As of removal of the VAT group from the register, the head of the tax office will restore the registration of the VAT group members as VAT payers, with the same status as they held prior to their removal from the register, without the need for them to reapply for registration.
Duties connected with loss of the VAT group’s status as a taxable person
If the VAT group loses the status of a taxable person, the group representative is required to file a VAT declaration for the last settlement period of the group’s activity. If that declaration shows a surplus of input VAT over output VAT, the surplus will be subject to refund to the VAT group representative or deduction in the settlement for the next settlement period of the VAT group representative.
After the VAT group loses the status of a taxable person, the VAT group representative retains the right to make corrections to the VAT settlements for the settlement periods in which the VAT group was a taxable person.
Also after dissolution of the VAT group, the members continue to be jointly and severally liable for the group’s VAT obligations for the period of the group’s existence.
Benefits from introduction of VAT groups
Generally, introduction of the possibility of joint settlement of VAT should be regarded as a step in the right direction. Because only the group will be the taxable person, and transactions within the group will not be subject to taxation, invoicing or the split-payment mechanism, the entities forming the group will certainly have less work to do in connection with settlement of VAT. Moreover, the VAT group will file only one VAT declaration, and it will need only one bank account to handle VAT refunds and receive payments.
It should nonetheless be borne in mind that there are also certain negative consequences of operating within a VAT group. First and foremost is the joint and several liability of the group’s members for the group’s VAT obligations during the period when the VAT group has the status of a taxable person as well as after the group loses that status. Additionally, the regulations require determination of the proportion of deduction of VAT based on the ratio of taxable and non-taxable activities separately for each of the entities in the group. The matter is further complicated, as in certain situations the group may be required to determine an additional ratio for the entire VAT group. It should be borne in mind that lack of taxation of transactions between entities in the VAT group does not mean that they can cease to maintain records of these transactions, as the group must also maintain records of transactions occurring within the group.