Regulations establishing the zero VAT rate for gratuitous supplies of goods and services have come into force. This is what entrepreneurs have been waiting for the most after the recently announced preferences in income taxes.

In the article we present tax solutions allowing for safe transfer of goods as part of Ukrainian aid.

Gratuitous benefits – current general rules

Pursuant to Article 7(2)(2) of the VAT Act, all donations of goods on which the right to deduct has been granted are taxable. A high tax base in the form of the purchase price of goods or the cost of production is applied here (Article 29a(2)). Similarly regulated is the issue of services, which, even if they are free of charge, may be deemed to be taxable if they involve:

1) the use of goods forming part of the taxpayer’s enterprise for purposes other than the taxpayer’s economic activity for the benefit of any entities, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on the purchase, import or manufacture of such goods or their components;

2) any other gratuitous supply of services for purposes other than the business activity of the taxable person.

(part of the provisions not referring to the assistance in question have been omitted above). In the case of services, the taxable basis is, in turn, their cost of provision by the taxpayer.

Unfortunately, in the case of a transfer of goods even to a public benefit organisation, VAT exemptions do not apply as a rule. This is the case only for the transfer of certain food products (Article 43(1)(16)). In the case of gratuitous provision of services, there is no such VAT exemption at all.

Aid to Ukraine – ad hoc VAT relief

In recent days, a new legal act was published – the regulation of 3 March 2022 amending the regulation on goods and services for which the rate of VAT is reduced and the conditions for applying reduced rates (Journal of Laws of 2022, item 531). Pursuant to the provisions added under this act, the 0% VAT rate may be applied in the period from 24 February 2022 to 4 March 2022 to gratuitous supplies referred to in Article 7(2) of the VAT Act and to gratuitous provision of services referred to in Article 8(2) for purposes related to assistance to victims of the consequences of warfare on the territory of Ukraine. However, this rate has a significant subjective limitation. It applies only to supplies to specific entities:

1) the Government Strategic Reserve Agency;

2) medical entities within the meaning of Article 4 par. 1 of the Act of 15 April 2011 on medical activity;

3) local government units.

Additionally, such a transfer of goods is to be documented by an agreement specifying the purpose of the transfer.

As can be seen from the (incomprehensible) assumption, the circle of entities that can be recipients of free services has been strongly limited, first of all eliminating a whole range of humanitarian organisations, which has no justification.

For the time being, this form of support is planned to last until 30 June and those in power are leaving themselves scope for extending this period. It is worth noting here that lobbying efforts are being made by the community of tax advisors to extend the application of the 0% VAT rate to free-of-charge transfers of goods to help with the situation in Ukraine, also to other entities.

Transfer of goods for a symbolic one PLN

Although the Voivodship Administrative Court in Rzeszów took a different position in its judgment of 11 June 2015, ref. no. I SA/Rz 397/15, but although the Supreme Administrative Court upheld this judgment (judgment of 6 June 2017, ref. no. I FSK 1788/15), it confirmed the right to estimate the tax base as for a donation if the delivery for PLN 1 would be aimed at concealing a donation. In the discussed situations, the risk of such a ruling should be assessed as high on the basis of the practice to date. Of course, it cannot be ruled out that due to the purpose of such a transfer and the specific situation we are dealing with, the tax authorities would depart from such practice. But this can only be seen after the expiry of the statute of limitations on tax liability, i.e. until 2027.

At the present time, the transfer of goods for a symbolic zloty would probably pass without much echo due to the undoubted rightness of helping refugees. It is hard to imagine a situation in which there is a battle with the authorities about the legitimacy of using a non-market price to help people fleeing war, but whether such controls will not take place in the future is hard to judge.

Transfer of goods by an EU entity that is not a Polish VAT payer

What should be emphasised is that non-taxation in this case may be achieved by the place of supply outside Poland while maintaining preferential taxation. This can be achieved by making an intra-Community supply of goods from another EU Member State by, for example, an entity related to the Polish donor, acting as a VAT taxpayer other than a Polish taxpayer, directly to the recipient of the donation. In Poland such ICS, although free of charge, could benefit from the 0% VAT rate in relation to the taxable base established pursuant to Article 29a(2) of the VAT Act, if other conditions for the application of this rate were met, so analogously such (or analogous, i.e. exemption with the right to deduct) preferential taxation could also potentially occur in the member state of supply.

In the country of dispatch it would of course be necessary to check the practice in this respect and fulfilment of conditions for application of preferences, assuming that the gifted entity would not demonstrate WNT in Poland (more on this below). What is important, however, is precisely the lack of necessity to settle the intra-Community acquisition of goods on the part of the recipient of the gift, which is indicated by Polish individual interpretations. It is stressed that, as provided for in Article 5 paragraph 1 point 4 of the VAT Act, a ICA  transaction is a supply of goods for remuneration (this condition is not explicitly indicated for ICS, on the contrary, a supply under Article 7 paragraph 2 may also be a ICS).

It means that in this case the obligation to tax the ICA transaction does not arise. This position is confirmed by the individual interpretation of the Director of the Tax Chamber in Warsaw of 19 September 2011, IPPP3/443-870/11-2/LK and the individual interpretation issued on 24 May 2016, IBPP4/4512-34/16/LG.

If, at the same time, a donation of goods belonging to the company and located in Poland is considered, then in order to apply the discussed variant on the transfer they would first have to be sent from Poland to another country under WDT, including to another group company, and only then sent back to Poland. On the other hand, if the goods to be donated are already located abroad, then the question of their transfer to the foundation should be additionally verified on the basis of the tax law of the place of transfer.