One of them is a very common transaction, which consists in shifting the costs incurred by the entrepreneur onto another entity. In order to perform this correctly, you need to answer a few questions that will provide information allowing the correct settlement of this transaction.
In the Polish act on tax on goods and services (hereinafter: the VAT Act), there are provisions that partially show us how to proceed in the case of re-invoicing - they do not regulate the issue comprehensively.
1. On own behalf and for the benefit of a third party
The basic provision in this regard is ar. 8 sec. 2a of the VAT Act. Pursuant to this provision: When a taxpayer, acting in his own name but for a third party, participates in the provision of services, it is assumed that that taxpayer has received and provided the services himself.
By analyzing the content of this provision, we can easily come to the conclusion that it applies to a situation where, firstly: we act on our own behalf, and secondly: we act for the benefit of a third party.
Determining these circumstances is very important, not only from the point of view of how we tax the transaction, but whether it is taxable at all.
The purpose of re-invoicing is to transfer the costs incurred by the re-invoicing entity onto the entity that actually used the given services, despite the fact that the entity re-invoicing the given services did not perform them. The "re-invoice" is therefore a simple VAT invoice issued by an intermediary between the relevant service provider and the actual buyer of this service. This applies to a situation where a taxpayer buys a service and then resells it "unprocessed" to its contractor.
When do we act on our own behalf and for the benefit of someone else?
We act on our own behalf in a situation where we are obliged to bear the cost, e.g. we are a party in a service contract and the service provider derives from us an obligation to provide money to him.
Acting on someone else's behalf means that the service cost paid by entity A is consumed by entity B.
IMPORTANTacting on one's own behalf but for a third party means that entity A will be formally obliged to incur the expenditure, but in fact the service will be consumed by entity B.
A typical example of such a situation is charging the costs of water consumption in rented premises. In such a situation, the party inthe water supply contract is most often the owner of the premises, who is also obliged to pay for its consumption, regardless of whether he will actually be reimbursed by the tenant who actually used the water.
What VAT rate do we apply in this case?
In a situation when we act on our own behalf but for someone else's benefit, there arises a casereferred to in Art. 8 sec. 2a of the VAT Act - we almost always use the rate thatwas on the original invoice!
It is not the case that the VAT rate should always be duplicated on the invoice / exemption from the original invoice. First you need to determine:
1. Is re-invoicing a separate service or is it part of a comprehensive service?
In the most popular case, i.e. rental, we can find some tips in the verdict of the Court of Justice of the European Union C-42/14 (Minister of Finance vs. Military Housing Agency in Warsaw), in which the CJEU stated that if the cost of utilities from the rental service is singled out on the invoice, or a separate invoice is issued and, in addition, the cost depends on the consumption of utilities, and is not fixed, e.g. settled with a lump sum, then we deal with two independent rental services and e.g. water supply.
In my opinion, consumption may depend not only on the actual consumption determined on the basis of the meter, but may also be determined by, for example, a key area in its entirety, it is important that this fee is not fixed, but changes.
Entity A leases 20% of the property. The invoice for water consumption is PLN 1000 plus VAT and applies to water consumption in the entire facility, but as a rule, the total invoice depends on the actual water consumption in the entire facility and its value may change every month. Then Entity A's fee will change and depend on consumption, so it will not be a lump sum.
When we are dealing with a separate service, we generally apply the same rate as on the original invoice, while if the services are part of a comprehensive service, we use the rate appropriate for the comprehensive service.
2. Does re-invoicing concern a service whose place of provision will be in the territory of the country (domestic service), or will it be provided outside the territory of the country (export of services)?
The provision of services, in the context of VAT, should always be analyzed in terms of the place of supply of these services. The provisions in this regard are contained in Art. 28a-28n of the VAT Act and the regulation of the Minister of Finance issued on the basis of art. 28o of the VAT Act.
The most popular case when re-invoicing will not include the VAT rate at all, is when we re-invoice a service provided, for example, in Poland for an entity that does not have a registered office or a permanent place of business in Poland, and the place of service provision is regulated according to the general rule specified for B2B transactions in art. 28b of the VAT act, according to which, in such a case, the place where the service is provided is at the place where the customer is established.
There may be a situation where we receive apurchase invoice with the VAT indicated on it, but we will re-invoice this service (pass the cost) without VAT.
3. Are we an entity that may apply, for example, a reduced rate or exemption from VAT, e.g. due to restrictions introduced by the legislator (subject-subjective VAT exemptions)? From who do we purchase services and what VAT status do we have ourselves?
When we purchase services from an entity exempt from VAT, and we ourselves are an active VAT payer, the purchased service will be documented with an invoice without the VAT amount charged. However, at the time of resale of these services as an active VAT taxpayer, we will resell this service while charging VAT according to correct rate for this service.
IMPORTANTwhen re-invoicing a service purchased from a VAT-exempt entity, a VAT taxpayer should apply the tax rate appropriate for a given service.
However, if we purchase services that are exempt not because of the entity that provides them, but because of the type of service (objective exemption), then the entity that re-invoices them applies the same rate, e.g. insurance services.
On the other hand, if we are dealing with objective and subjective exemptions from VAT, i.e. the exemption applies to specific services provided by a specific entity, (e.g. certain postal, sports or cultural services). Therefore, when re-invoicing this type of service, the reseller cannot apply the same exempt VAT rate -The VAT rate appropriate to the nature of the service should apply (without using the tax exemption for specific entities).
4. Has there been a change in VAT rates between receipt and re-invoicing of the service in circumstances requiring the application of the new rate on the re-invoice?
In a situation where there is a change in VAT rates, the application of the appropriate rate will consist in determining the date when the tax obligation arises and applying the appropriate rate on that date.
IMPORTANTIn such situations, we recommend that you always check transitional (temporal) letters from which another rule applicable in this case may be derived.
WARNING!Energy and all of its forms are GOODS (gas, electricity) and therefore Art. 8 (2a) is not applicable as it solely concerns services. However, in such a situation there are no restrictions as to the transfer of costs of purchasing goods, thus we operate on the basis of their resale and apply the rate as it was when they were purchased. Unless their resale is of a special nature and is carried out, for example, as part of intra-community supply of goods, export, etc., then the ra
Margin - there is no prohibition of adding your own margin when re-invoicing. Problems, but not necessarily related to tax, may arise when we increase the price in the case of specific services, for example, an official price (technical inspection of a vehicle), or one requiring, for example, a concession. Then, other regulations, e.g. those regulating the price, may be violated, but in principle there are no limits as to the margin.
Tax obligation - for re-invoicing arises the same way as the obligation for a given service. It does not always mean that it is on the same date - e.g. in the case of re-invoicing of utilities (water, garbage collection), rental services, the obligation arises, as a rule, on the date of issuing the invoice. However, in the case of a re-invoice, the tax obligation for the buyer will arise on the date of the re-invoice, and not on the date of the original invoice. The date of the obligation may also change not due to what we buy, but from who. The time when the obligation arises will be different when the re-invoiced service is resold by the taxpayer applying the general rules of VAT settlement, and differently by the so-called small taxpayer who opted for the cash-based method of settling VAT. The tax obligation for a small taxpayer will arise for a given transaction according to the deadline for settling the payment for the service indicated on the re-invoice. The taxpayer settling VAT on general terms will recognize the tax obligation according to the rules that have been established for a given type of service.
ATTENTIONif we re-invoice a service for which we apply the general principles for the emergence of a tax obligation, and it arises in a different accounting month than the one in which this service will be re-invoiced, it will mean that we will, in principle, recognize the selling of this service by the by corrected declaration in which the tax obligation arose.
Place of provision of services - if the place of provision is the territory of a country other than PL, then we are dealing with the export of services, otherwise we should recognize the import of services (the general rule is that in the case of B2B services, the place of provision is the place where the customer is located, while for B2C it is where the service provider is established).
2. We act on our own behalf and for our own benefit
A situation that most often causes costs to be charged onto another entity may arise when we act on our own behalf and for our own benefit. To determine whether we are dealing with such a situation, we also need to check:
- who is actually paying the expenditure and
- 0who ultimately uses it
We determine this case without analyzing the deeper conditions of such a situation, because as a rule, we can always come to the conclusion that if someone incurred an expense in a case that concerns the client, he was acting on behalf and for the benefit of the client.
Important: in this situation we verify who actually incurred the expense and who actually used it, a typical example illustrating this issue will be the purchase of a bus ticket.
Entity A was commissioned to take photos in the field for a calendar. In order to carry out the order and get there, he decided that he would go to the place by bus, i.e. he chose the means of transport himself and paid for it and used the transport himself. The client was not obliged to bear this expense, nor did he actually use the transport. In such a situation, it means that the contractor incurred the expenditure on his own behalf and for his own benefit. Therefore, this is not a situation regulated in Art. 8 sec. 2a of the VAT Act - this part will be included as a component of the entire photographic service. The tax obligation will arise according to the appropriate date for the photo service as a component of that service.
3. We act on behalf of and for someone’s benefit
Another case when costs are shifted to another entity may occur when someone bears the costs on someone else's behalf and for someone else's benefit. Here we are dealing with a situation where we bear the cost for someone, i.e. he is obliged to pay, but he agreed with us that we will incur such a cost, e.g. for practical reasons.
Lawyers are working on behalf of the client to file a complaint to the administrative court against the decision of the authority. According to the law, the administrative cost of the entry is paid by the client, but the lawyers, as part of their services, do it instead. According to the law, it is the client who is obliged to do it and he benefits from it. If the client does not pay this cost then the complaint will not be recognized by the court. In the above case, we are also not dealing with the situation specified in Art. 8 sec. 2a of the Act on VAT, this issue is regulated by Art. 29a paragraph. 7 point 3 of the VAT Act.
The tax base does not include the following amounts: received from the buyer or customer as a reimbursement of documented expenses incurred on behalf and for the benefit of the buyer or customer, and recognized temporarily by the taxpayer in the tax records kept by him.
This activity is outside the scope of VAT - the transfer of the cost in such a situation takes place, for example, with a debit note.
Margin - you cannot add a margin. When we increase the value of the expenditure by it, the margin will be taxed (as a service, e.g. brokerage).
Should you be interested in obtaining further information, or would like to discuss the impact of the above changes, please contact us.