SLIM VAT 3 is a new VAT simplification package that implements many of the demands made to the Ministry of Finance by entrepreneurs and aims to facilitate the application of the provisions of the VAT Act. Among a number of new solutions is the modification of the split payment mechanism, or split payment. Amongst other things, the issue of joint and several liability has changed, the catalogue of public receivables that can be paid from the VAT account has been expanded and the principles of operation of split payment in the VAT group have been changed.
The SLIM VAT 3 package is expected to enter into force from 1 January 2023.
How does it work now?
The very concept of joint and several liability operates for many activities governed by the Civil Code and implies that both parties to a transaction or activity bear the negative consequences of the event.
As a reminder, the split payment mechanism involves dividing the amount that the buyer must pay to the seller (the invoice amount) into a net amount and VAT. The net amount is transferred to the seller’s account and the VAT amount is transferred to a VAT account specially created by the bank.
Where a split payment is made to a taxable person other than the taxable person indicated on the invoice, that taxable person shall be jointly and severally liable with the supplier of those goods or services for the supplier’s outstanding tax arising from that supply or service up to the amount mistakenly received in the VAT account.
Joint and several liability is excluded when the taxable person who received the payment in error makes payment into the VAT account of the supplier of goods or services indicated on the invoice or returns the amount to the VAT account of the taxable person from whom he received the payment.
The phenomenon of joint and several liability also arises when a taxable person uses factoring services, i.e. a tool for improving financial liquidity, whereby a factor (bank or other financial institution) purchases receivables from an entrepreneur (factor). The factor transfers the amount of the invoice less a commission to the factor and the client then becomes indebted to the factor. If the factor receives funds from the debtor to the VAT account, the factor is liable for the VAT resulting from the invoice. This also applies if the taxpayer decides to change factor. During the period until the switching process is completed, the receivables from the buyers can continue to flow into the account of the old factor, who must be jointly and severally liable for the tax received. In order to release himself from liability, the old factor must transfer the VAT amount to the supplier’s account and the supplier then transfers this amount to the account of the new factor.
What changes will SLIM VAT 3 bring?
It is not uncommon for taxpayers to decide to change factor, and the current procedure for ‘releasing’ from joint and several liability can prove cumbersome. The SLIM VAT 3 package comes with a facilitation. According to it, the existing factor can release itself from joint and several liability when it makes a payment to the VAT account of the taxpayer, which is the financial institution indicated in the acquisition agreement concluded between the institution and the supplier or the buyer.
As part of the amendments, the catalogue of receivables that can be paid from the VAT account has also been expanded. A tax on the extraction of certain minerals, a retail sales tax, a levy on foodstuffs, a flat tax on the value of production sold, a tonnage tax and a so-called monkey tax have been added to it.
In addition, the operation of MPP in the VAT group will change. It is planned to introduce a regulation that will allow VAT group members to transfer funds in their VAT accounts to the VAT account of the group representative.
The changes introduced by the SLIM VAT 3 package will certainly facilitate the procedure of ‘releasing’ joint and several liability in the event of a change of factor, and the possibility of paying further types of taxes and fees may realistically improve the liquidity of entities using the split payment mechanism.