Split payment, i.e. less than three months left to a small revolution

Piotr WYRWA
Tax Supervisor at RSM Poland

There are less than three months left until the obligatory split payment mechanism is introduced. Given how this mechanism is going to impact taxpayers’ cash flows and how many entities will have to face it on a daily basis, we may refer to this as a small revolution.

Changes will be discernible

The legislator assumes that the drafted changes are supposed to affect over half a million VAT taxpayers. Half a million is a large group, and it is no wonder that there will be enthusiasts (yes, this is possible!) while some people will find these regulations a source of concern about the correctness of their tax returns. Some will view these new regulations proof that the Polish legislator is not offering a level playing field. Perversely, let us start from an entity that must be the most satisfied, even though it will not be using the split payment. This is the State Treasury, obviously, as it expects that – according to the presented estimates for obligatory split payment – the budget revenues will increase by PLN 1 billion annually (owing to the reduction of the VAT gap by about 0.5 percentage points, counted in relation to theoretical VAT revenues).

There will be enthusiasts

Theoretically, taxpayers who are already using the split payment may be happy, as well. When introducing changes, the legislator decided to provide for several simplifications as compared to the regulations in force. For example, this is about giving taxpayers the option of making collective bank transfers covering several invoices received from one contractor and subject to the split payment. A collective bank transfer order would be used for this purpose, a precondition being that it must include all invoices received from a single supplier within a period not shorter than one day and not longer than one month and it shall state the amount corresponding to the total VAT of these invoices. Unfortunately, the legislator forgot that you may receive invoices both in the split payment regime and outside this regime from the same contractor. Does it mean that, if collective bank transfer orders are used in such case, the split payment will cover all supplies? The draft act does not offer any straightforward answer to this question (and many other ones, as well), hence taxpayers, who were supposed to be happy, will rather join the group of taxpayers who are uncertain about the correctness of their VAT returns.

And there will be opponents

Unfortunately, the group of “uncertain” users may turn out to be the largest. Even though many aspects have been clarified since the voluntary split payment was introduced last year, there are still quite a lot of things that raise concerns. For example, what to do with invoices where only some items pertain to goods or services covered by the split payment? On the one hand, a prerequisite for using the mechanism is that the purchased goods and services are classified in the category indicated in new Appendix no. 15 to the VAT Act. However, under the new regulations, any invoice featuring such goods and services must have a “split payment mechanism” designation. With such a designation, would not it be necessary to have the entire VAT transferred to a dedicated VAT account? The regulations do not offer any straightforward answer here.

Unequal treatment?

And finally, some may consider the obligatory split payment an instance of unequal treatment of taxpayers. And this is not about the fact that Appendix no. 15 includes “only” 150 items on the list. Thus, for many taxpayers, the split payment is going to be a distant problem (read: until their industry is entered on this list). Provisions under which foreign entities may request a reimbursement of service costs of their VAT account, which they must open in Poland if they are to sell goods and services covered by the mechanism, can be considered a failure to provide a level playing field. That is because the legislator does not offer such an option to Polish entities, unfortunately. We should note at this point that the mechanism will also have to be applied by the smallest entrepreneurs who often use their private bank account for business purposes. Why will these entities not be reimbursed? This question remains unanswered.

Questions without answers

As you can see, the obligatory split payment requires an in-depth analysis as there are many nuances involved. Believe me, the doubts I have discussed above are just an outline of the problems taxpayers will have to face in less than three months’ time.

We encourage you to join our webinar scheduled for 11 June, 10:00 am. We are going to try to clarify the nuances of the new regulations so that you can decide for yourself if the obligatory split payment is a reason to be happy (which is what we wish you with all our hearts) or rather another challenge or a source of concerns (please, do not worry, we are here to help!).