The use of new software solutions increasingly poses the challenge of correctly identifying the emergence of a tax liability for VAT on granted licenses.
Correct recognition of tax liabilities in the case of computer software licenses is extremely important. Late identification of such tax obligations - and thus delayed reporting of transactions in the JPK_VAT register - gives rise to negative financial and tax consequences such as tax arrears and the necessity of paying interest by the entity granting such a license. On the other hand, recognizing the tax obligation on granted licenses too soon entails negative effects on the buyer's side, as this moment, along with the received invoice, determines the right to deduct input tax.
VAT tax on computer software license
By granting a license, a software provider transfers the rights to use computer software under specified conditions and for a specified time. The license can be granted for a fixed or indefinite period. It should be emphasized that a license implies that the software’s copyright remains with the licensor, who continues to be the owner of the program and merely grants the opportunity to use the software to another person or entity.
According to Art. 8(1)(1) of the VAT Act, the provision of services is understood as any provision for a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods within the meaning of Art. 7, including the transfer of rights to intangible assets, regardless of the form in which the legal transaction was made.
The granting of a license for computer software is treated as a provision of services under the VAT Act. It is another way in which the recipient obtains the right to an intangible asset. The supplier transfers the right to use the software, i.e., places the software at the disposal of the recipient with the right to use it.
This topic has undergone various interpretations by the tax authorities over the years. In the past, licensing was treated as an ongoing service. The moment when the tax obligation arose depended on the payment periods agreed upon by the parties of the contract. This approach was applied until the Supreme Administrative Court expressed its opinion in the judgment of September 5, 2017 (file reference number I FSK 2319/15). At that time, the adjudicating panel agreed with the position that the transfer of a license cannot be perceived from the point of view of continuous services - regardless of whether the license is issued to the buyer for an indefinite period or for a predetermined period. The Supreme Administrative Court held that the service is already provided at the moment of completion of all works that enable the customer to use the license. Importantly, payment by instalments also does not affect the moment when the VAT obligation arises, as it is only a form of settlement of the service accepted by the parties of the transaction. In view of the above, in the opinion of the courts, and currently also in the opinion of the tax authorities, the tax obligation should be recognized in accordance with general principles.
When does the tax obligation arise?
According to Art. 19a(1) of the VAT Act, the tax obligation arises at the moment of delivery of goods or performance of services. This is the general principle of taxation of goods and services.
The nature of the service determines the actual moment of their performance. Determining the moment of service performance when granting a software license is therefore dependent on the date of service performance, i.e., the terms of the concluded contract.
In the context of the granting of a license, it is the purchaser who obtains the right to use the software upon fulfilling conditions described in the agreement, i.e., upon the transfer of this right. Therefore, in a situation where the granting of a license takes place on a specific date specified in the contract, e.g. on the date of signing the contract or on the date of transferring the software or license keys, the tax obligation for the granting of the license arises on that date, on the date of signing the contract or on the date of transferring the software or license keys, respectively. Subsequent instalment payments for the granted license are not considered.
In economic transactions, there are also frequent cases where the granting of a license for computer software is conditioned by making an earlier payment confirming the purchase of the license and acceptance of the terms of its use. In this case, the tax obligation will arise upon receipt of payment in relation to the amount received in accordance with Art. 19a(8) of the VAT Act.
*Confirmation of the aforementioned positions can be found in individual interpretations issued by the Director of the National Tax Information, under reference number 0114-KDIP4.4012.28.2018.1.AS dated March 8, 2018, under reference number 0113-KDIPT1-2.4012.323.2019.1.SM dated September 9, 2019, as well as in the interpretation under reference number 0113-KDIPT1-2.4012.35.2022.3.PRP issued on April 19, 2022, confirming the emergence of a tax liability in accordance with Article 19a(1) of the VAT Act in the case of acquiring software licenses from a foreign entity.