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Mandatory split payment in Poland starting September 2019?

In February of this year, the Council (EU) authorising Poland to introduce a special measure derogating from Directive 2006/112/EC on the common system of value added tax. Poland got permission for implementing a mandatory split payment mechanism with respect to selected transactions if executed between VAT taxpayers (B2B).

Namely in practice it could be implemented an obligation for sellers related to  introducing  a special remark on the sale invoices that VAT shall be paid to the separate and blocked VAT bank account of the supplier opened in Poland..

On this basis, the Polish Government has prepared a draft of Act amending the VAT regulations providing for the introduction of compulsory payments in the split payment model. The provisions on the application of divided payments introduced from July 2018, are currently voluntary, which means that any purchaser can decide to make (or not) a payment for an invoice using split payment method. However, according to the proposed solutions, payments in the split payment model will become compulsory in the case goods and services mentioned in the new provisions.

According to the project, some changes to the invoicing model will apply from September 1, 2019, other than January 1, 2020. Due to the early stage of the project, It is difficult to clearly assess whether these deadlines will be maintained. However, the proposed rules are so revolutionary that it is worth paying attention to them already today because you have to prepare for them well.

The split payment mechanism will be mandatory for transactions in sensitive goods that are often used in VAT fraud. Change it is for all goods and services covered by the reverse charge mechanism and jointly and severally liable. Additionally the split payment will also be compulsory for instance for transactions, the subject matter of parts and accessories for motor vehicles; coal and coal products; electrical machinery and equipment, parts and accessories thereof and electrical equipment and parts thereof and accessories.

New responsibilities of the seller (invoice issuer)

  • recognizing whether the delivery of goods / services is listed in the list of goods or services for which the payment-sharing mechanism will be applied.
  • determination of invoices documenting such transactions with remark in the Polish language “mechanizm podzielonej płatności” (i.e. “split payment method”)
  • acceptance of payment made by the buyer in the split payment model.

New responsibilities of the purchaser (paying invoice)

  • make a payment for invoices with a note “mechanizm podzielonej płatności” with the application of the split payment for transaction amounts greater than or equal to 15 000 PLN.
  • identify costs that do not constitute  tax deductible costs if the payment das not respected split payment obligation.

Severe penalties for failure to fulfil obligations for the seller and the purchaser

  • VAT penalties for the seller.
  • VAT penalties for the purchaser.
  • increasing the tax base for the purposes of the income tax by a purchaser.
  • new offenses in the Polish criminal tax code.

The introduction of the proposed changes will necessitate the updating of sales support processes, including invoicing, invoice registration, payment processing and VAT settlement. And in the long run, also income tax settlement procedures. The change may also affect agreements concluded with suppliers and customers in industries covered by the obligatory application of the split payment mechanism.

It will also be necessary to introduce changes in programs that support sales, in financial and accounting programs, in systems for preparing and ordering transfers. If the basic changes were to take effect as early as September 1, 2019. short time was left to design and introduce necessary modifications to the IT systems.