Archiwa VAT - Eland Tax Advisory

Amendment to VAT regulations from 1 January 2027 – adopted

On 4 September this year, the Sejm passed the so-called major VAT amendment (which is the result of a government project). The act is currently awaiting the President’s signature and publication in the Journal of Laws. We hope that it will not be subject to a veto; below we present a few key changes. As a rule, the provisions of the amendment come into force on 1 January 2027, with some exceptions, but it is worth analysing them all and assessing whether and how they affect your business activity. Key changes To do: Update the list of liabilities that will be settled using the MPP. The list should include: Practical note: A good change, it enables to move away from the practice of archiving the results of regularly performed checks of the status of the contractor(s) for VAT purposes. Practical note: If you are a supplier of goods listed in Appendix No. 15 (for example: car parts): Practical note: Enter a separate record of transactions constituting the import of taxable and VAT exempt services and exclude the latter type of services from recognition in the VAT return. Practical note: The change is beneficial, but for a limited scope of entities. The VAT warehouse procedure will allow to improve cash flow and simplify VAT settlements, but only in the trade of a very limited range of goods. Attention! At the stage of government or parliamentary work, there are several other draft amendments to the VAT Act (e.g. the draft abolishing the obligation to submit VAT-EU summary information, change of legal definition of export of goods and the catalogue of documentation required to prove export of goods). Therefore, the list of changes in the scope of VAT is not yet closed. Summary, what we offer? If you want to know more details – we can help you with that. Authors: Agnieszka Czarnecka / Katarzyna Jaromińska 1 Amendments to Article 105a of the Value Added Tax Act 2 Amendment of Article 96b(2) of the Value Added Tax Act 3 Addition of paragraph 1k to Article 17 of the Value Added Tax Act 4 New Chapter 11 in Section XII of the Value Added Tax Act, including Article 138k – Article 138za

Liquidation of fixed assets and the obligation to correct input VAT

In the course of running a business, entrepreneurs often face the need to liquidate fixed assets (including investments in fixed assets of third party) or intangible assets (further: ITA). If an entrepreneur has deducted input VAT when purchasing or producing such fixed assets or intangible assets, liquidation may mean that the entrepreneur has to adjust the VAT deduction made. When and on what terms should such a correction be carried out according to the tax authorities, and when is it not required? According to the Value Added Tax Act, the correction of input VAT may be necessary, m.in. in connection with a change in the use of a fixed asset or ITA – according to Article 91(7) of this Act, the provisions on the adjustment of VAT deduction “shall apply accordingly in the event that the taxpayer had the right to reduce the amounts of tax due by the entire amount of input tax on the goods or services used by him and made such a reduction, or did not have such a right, and then the right to reduce the amount of tax due by the amount of input tax on that good or service changed”. What can be considered a change of purpose? An obvious example would be the purchase of a fixed asset or ITA with the intention of using it for VAT-taxable activities (e.g. the provision of leasing services) and deducting the input VAT on such purchase, and then transferring this fixed asset or ITA for use in activities exempt from VAT (e.g. for the provision of financial services, maintaining bank deposits for natural persons). In such a case, it may be necessary to adjust the previously deducted input VAT (if such a change of purpose takes place during the so-called “VAT correction period”, which is discussed in more detail at the end of the article). But what about the liquidation of a fixed asset or ITA in a situation where the taxpayer does not change the profile of its business activity and it remains fully taxable / subject to VAT (at reduced or standard VAT rates)? Does such an event also constitute a “change of purpose”, or can it be considered that the liquidation is related to the taxable activity and, as a result, does not change the taxpayer’s right to deduct input VAT on the acquisition or production of such an asset? How should the concept of liquidation be understood under the provisions of the Value Added Tax Act? Physical liquidation of a fixed asset or an intangible asset (ITA) The practice of tax authorities and the jurisprudence of administrative courts show that liquidation is primarily the physical removal, dismantling of individual elements or the entire fixed asset (or ITA) due to the loss of efficiency and usefulness for the taxpayer. On the other hand, in order to assess whether such liquidation constitutes a change of purpose (from taxable to non-taxable activity), it is necessary to take into account the reason for such liquidation, i.e.: The assessment of business needs and reasons for liquidation is quite subjective, so it is crucial to analyze each case individually and collect appropriate documentation by the taxpayer. … but is it just physical liquidation? It is worth remembering that in the case of movable fixed assets or ITA, the concept of liquidation does not always have to be associated with the physical dematerialization of the asset. The practice of tax authorities and court case law confirm that the reason for the liquidation of a fixed asset/ITA (stated, for example, in the form of a liquidation protocol) may also be m.in.: Also in such cases, it is reasonable to assume that there is no change in the purpose of the fixed asset or the intangible asset and the taxpayer is not obliged to make an adjustment in terms of input VAT deduction. But BEWARE! This does not apply to cases where the taxpayer can be attributed fault for the loss or loss resulting from a failure to exercise due diligence (in such a situation, the lack of correction may be considered an abuse of the right to deduct VAT). Therefore, also in this respect, it will be important whether and how the taxpayer is able to document and demonstrate that due diligence has been observed by him. What about leaving improvements / outlays, i.e. investments in a fixed asset of third party? An exception to the general rule? In practice, it often happens that, for example, when renting premises to conduct business (headquarters, shop, warehouse, etc.), the taxpayer makes improvements / outlays on the premises in order to adapt it to their needs, brand image, or the guidelines of the capital group. Such improvements / outlays are essentially for the lessee an investment in a fixed asset of the third party, entered into the fixed assets register and depreciated for tax purposes. The problem arises when leaving such a premises, e.g. due to the unprofitability of continuing to operate in a given location. In such a situation, the taxpayer has three options: Our experience shows that the last case of investments in foreign fixed assets (described in letter c) is relatively common and concerns the material values of the expenditures (outlays) left. At the same time, in our opinion, the negative positions of the tax authorities and courts are unjustified and ignore the most fundamental rules of VAT. As a result, they are an issue that may be a source of dispute with the authorities and in which we can assist you. Summary – what do we offer? An equally interesting and debatable topic, although not described above, is the liquidation of unfinished investments and determining the tax consequences of such a decision from the perspectives of CIT and VAT. We encourage you to take advantage of our experience in this area. VAT correction period Notwithstanding the above, it should be remembered that the mere change of purpose of a fixed asset or intangible assets will not always

Advance payment in VAT and CIT settlements– the moment of showing payment towards future benefits (transactions)

In accordance with tax laws, an advance payment received for services or supplies of goods carried out in the future does not constitute revenue for CIT purposes, but determines the moment when the VAT liability arises. Payment towards future benefits (transactions) – when the tax obligation arises in CIT and VAT The rules seem simple, but only in theory. In practice, not every payment made before the performance of the service constitutes an advance payment within the meaning of tax acts, and thus not every payment affects the moment when the tax consequences arise in CIT or VAT. The nomenclature does not determine the tax consequences of a particular payment. Therefore, each case should be analyzed individually to avoid business and tax problems. This may include among others: Advance payment and CIT – when tax revenue arises In principle, the date of income from business activity is the date of delivery of the item (goods), sale of the property right, performance of the service or partial performance of the service, but no later than the date of: At the same time, the Corporate Income Tax Act (and, by analogy, the Personal Income Tax Act) explicitly indicates that revenues do not include “payments collected or receivables accounted for supplies of goods and services that will be performed in subsequent reporting periods”1. This means that the payment received before the performance of the service or the delivery of goods can be: or Advance payment and VAT – when to show the output tax (and deduct input tax) As a rule, the VAT liability arises at the moment of delivery of goods or performance of services. However, if all or part of the payment (including prepayment, advance payment, deposit, instalment, etc.) was received prior to this event, the tax liability arises at the moment of receipt in respect of the amount received (with certain specific exceptions indicated in the Value Added Tax Act)2. In principle, a prepayment or advance payment towards a future transaction (although neutral on the basis of CIT) determines the moment when the output VAT should be shown (in the part corresponding to the payment received). However, the practice of tax authorities and the case law of administrative courts show that the matter is not so obvious here either. They indicate that in order for a payment to be considered an advance payment recognised for VAT purposes: Therefore, if a taxpayer receives a payment from a contractor for future services or supplies of goods that can only be ordered in the future (e.g. from a wide range of available products), such a payment may not meet the above conditions at the time of its receipt. The decisive factor will be to what extent, and at what point, the purpose of the received payment is/becomes so precise that it can be linked to the performance of a specific type of service or good (depending on the case, it may be the date of receipt of the payment or, for example, the date of placing the order or making arrangements to credit the earlier payment towards a specific service). Deposits of different nature – when no tax liability arises Sometimes the payment is in the nature of collateral, e.g. for potential losses or the performance of a specific obligation. Such a payment can be tax-neutral. However, it is possible and often used in practice that the status of this payment changes at a certain moment, after a specific condition is met, e.g. the payment of the deposit/reservation fee is credited towards the price for the delivery of the property (and only at that moment is considered an advance payment). Rules for taxation of advances / early payments – summary The nature of the payment received may have a real impact on when the entrepreneur should report the income in CIT and settle the output VAT. What is more, it is also possible that only after receiving the payment an event occurs that results in a change in its nature (affecting tax settlements). Improper qualification of prepayment, on the other hand, may lead to: Therefore, it is necessary to analyze the conditions under which payments are made each time and take care of: If you need support in the above area – please contact us. The law firm’s offer – support in preparation of VAT and CIT settlements As part of our services, we offer: Authors: Katarzyna Jaromińska / Agnieszka Czarnecka 1 Article 12(4)(1) of the Corporate Income Tax Act and Article 14(3)(1) of the Personal Income Tax Act. 2 Article 19a(8) of the Value Added Tax Act