Are we facing another revolution in VAT? SLIM VAT2 comes into force as of 1 October 2021

Please be advised that on August 19, 2021. The President signed the Law Amending the Laws on Value Added Tax (VAT) and the Banking Law (hereinafter: "SLIM VAT 2"). The Act enters into force on 1 October 2021, with the changes regarding adjustments to import of goods and neutral settlement of WNT, import of services and domestic supplies subject to reverse charge effective from the day after the Act is published in the Journal of Laws.

The changes constitute another package of simplifications of VAT settlements and ensure compliance of Polish regulations with EU law in areas where the CJEU found them to be incompatible with the VAT Directive.

The most important changes resulting from the Act, concerning SLIM VAT 2:

1. Restoration of the right to neutral deduction of VAT

The condition making the deduction of input VAT in the same period in which the output VAT was reported dependent on the reporting of output VAT within three months from the end of the month in which the tax obligation arose has been abandoned - implementation to the Polish legal system of the judgment of the Court of Justice of the European Union in case C-895/19 A.

Previous regulations enabled deduction of input VAT on inter alia import of goods or services, if the output VAT was settled in the tax return within three months from the end of the month in which the tax obligation arose. In the judgment C-895/19 the Court of Justice of the European Union ruled that this construction is incompatible with the VAT Directive.

As a consequence, after the proposed amendments enter into force, the right to reduce the amount of output tax by the amount of input tax arises in the settlement for the period in which the tax obligation arose with respect to the acquired goods or services, provided that the taxpayer includes the amount of output tax on these transactions in the tax return in which he will be obliged to settle the tax.

2. Extension of the deadline for submission of adjustment for importation of goods under the simplified procedure

The amendment allows a taxpayer who settles tax on importation of goods directly in the tax return to make a correction to the tax return in a situation where the taxpayer did not correctly account for tax in the original return,

A taxpayer will be able to file an appropriate correction to the tax return within four months after the month in which he was to settle the tax on importation of goods.

3. Changes in the bad debt relief

As part of SLIM VAT 2, the legislator has adjusted the provisions of the VAT Act to the CJEU ruling of October 15, 2020 in case C-335/19, in which the Tribunal declared the Polish regulations on bad debt relief inconsistent with the VAT Directive in terms of additional conditions under which the possibility of reducing the VAT taxable base was conditioned.

As a result of the implementation of the ECJ ruling, the SLIM VAT 2 package abolishes the current requirements for the application of the relief, namely that the debtor at the time of the supply of goods / provision of services to him and the day preceding the correction of the return by the creditor

- is not in restructuring, bankruptcy or liquidation proceedings.

The requirement that the creditor must be a registered VAT taxpayer on the day preceding the submission of the correction has been retained.

The act provides a possibility to apply the relief also in case when the purchaser (debtor) are natural persons or VAT taxpayers benefiting from VAT exemption. In this case, the creditor will be able to take advantage of the "bad debt relief" if the debt is confirmed by a final court ruling and referred for enforcement proceedings or if the debt has been entered in the register of debts kept at the national level, or if the debtor is declared bankrupt.

The time limit for taking advantage of the relief has been extended from 2 to 3 years from the date of issue of the invoice documenting the claim (counting from the end of the year in which the invoice was issued).

4. Extension of the number of settlement periods in which a taxpayer will be able to correct his declaration and deduct VAT

According to Article 86 Section 13 of the VAT Act, a taxpayer may deduct input VAT by correcting his tax return for the period in which the right to reduce output VAT arose, but no later than within 5 years from the beginning of the year in which the right to reduce VAT arose. This means that a taxpayer could only correct one period, i.e. the period in which the right to deduct input tax arose, in order to deduct input tax (by means of an adjustment to the tax return).

Art. 86 Section 13 of the VAT Act has been amended so that if a taxpayer exceeds the period in which a purchase invoice is recognised "on a current basis", he will be allowed to correct his tax return:

• for the period in which the right to reduce the amount of tax due arose, or
• for one of the next three settlement periods, and in case of the taxpayer settling quarterly, for one of the next two settlement periods - falling directly after the settlement period in which the right to reduce the amount of output tax arose
• but not later than within 5 years, counting from the beginning of the year when the right arose.

The adopted solution will contribute to reduction of obligations in respect of the number of submitted adjustment declarations (it will be possible to accumulate VAT deductions in one adjustment of the declaration for a selected settlement period in case of invoices for which the right to deduct arose in small intervals).

However, according to the act, extension of the number of settlement periods in which the taxpayer will be able to make the deduction by correcting the return will apply to settlement periods starting only from 1 January 2022.

5. Choice of VAT taxation of sale of real estate in a notarial deed, instead of VAT exemption

The possibility to submit a joint statement of the supplier and purchaser on the choice of VAT taxation of a real estate in a notarial deed, instead of VAT exemption, has been introduced.

The introduction of this solution will mean that taxpayers who choose to submit a joint statement on the choice of taxation of real estate in a notarial deed, will no longer be required to separately submit such a statement to the head of tax office competent for the purchaser before making this supply of real estate.

6. 100% vat deduction on cars used exclusively for business activities

The deadline for submitting information on incurring the first expense for a motor vehicle used exclusively for the taxpayer's business activity has been extended and correlated with the deadline for submitting the JPK records for the completed period.

The taxpayer who incurred the first expense related to a motor vehicle used exclusively for his business activity on a particular day of the settlement period will no longer be obliged to submit VAT-26 to the tax office within 7 days from the day on which the first expense related to this vehicle was incurred, but will be obliged to submit VAT-26 information by the 25th day of the month following the month in which he incurred the first expense related to this vehicle. The information is to be submitted no later than by the deadline for submission of JPK_V7/V7-K records for a given month, also in relation to taxpayers settling quarterly.

7. Changes in the scope of the split payment mechanism

The changes also covered the functioning of the split payment mechanism. After the amendment comes into force, the head of the tax office will be able to issue a decision on releasing funds from the VAT account to the settlement account also in a situation when the taxpayer has tax arrears, provided that they are covered by the decision on deferment or payment in instalments. In addition, the taxpayer will also be able to request permission to withdraw funds from the technical account.

The content of item 60 of Appendix 15 to the VAT Act has also been changed. As of 1 January 2021, this item has been amended to read "ex 26.20.1 Computers and other automatic data-processing machines and their parts and accessories - "only computers and other automatic data-processing machines". After the entry into force of the amendment, the narrowing of the scope "only" to "computers and other automatic data-processing machines" will be removed.

As a consequence, also in case of purchases of parts and accessories for computers and other automatic data-processing machines, payment will have to be made under the obligatory split payment mechanism (provided that the value of the invoice documenting this transaction exceeds PLN 15,000 gross).