- Sales outside the European Union must not jeopardize the EU exporter – until 17th of November (of January) time to resume proceedings on the tax carousel
- The tax authorities cannot accept the findings of other decisions without taking evidence against the taxpayer
- New matrix of VAT rates as of 1 April, 2020.
- Reporting tax schemes in Poland – new official and unofficial explanations
- Tax consequences of the BREXIT on Polish income taxes
1. Sales outside the European Union must not jeopardize the EU exporter – until 17th of November (of January) time to resume proceedings on the tax carousel
On October 17, 2019, the Court of Justice of the European Union issued a judgment in the case of Unitel Sp. z o.o. against the Director of the Tax Chamber in Warsaw (reference number C-653/18). The Court pointed out that Article 146 para. 1 let. a) and b) and art. 131 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax, as well as the principles of fiscal neutrality and proportionality, must be interpreted as precluding national practice such as that at issue in the main proceedings, in which it is considered in every case that there is no delivery of goods within the meaning of the first provision and, consequently, the refusal to benefit from an exemption from value added tax (VAT) if the goods in question were exported outside the European Union and after exportation tax authorities stated that the buyer of these goods was not the person indicated on the invoice issued by the taxpayer, but another undetermined entity. In such circumstances, the exemption from VAT provided for in Article 146 para. 1 let. (a) and (b) of that Directive should be refused, if the failure to establish the actual buyer prevents it from being shown that the transaction constitutes a supply of goods within the meaning of that provision, or if it is established that the taxable person knew or should have known that the transaction involved fraud involving damage to common VAT system.
The Court also pointed out that Directive 2006/112 should be interpreted as meaning that if in those circumstances the benefit from the exemption from VAT provided for in Article 146 para. 1 let. a) and b) of Directive 2006/112 is refused, it must be considered that the transaction in question does not constitute a taxable transaction and therefore does not entitle the deduction of input VAT.
The case examined by the Court concerned the conditions of taxation of exports in connection with the export of mobile phones to Ukraine. The tax authorities questioned the use of a zero VAT rate and imposed a regular rate, as for domestic sales. The authorities stated that the goods were acquired not by entities listed on the invoices, but by other undetermined entities. The Court found that if there is no doubt about the export of goods outside the EU and sales are being made, the zero rate should be used. The Court states that even in cases of fraud, it does not affect the Community VAT system. And a Polish taxpayer cannot suffer from negative consequences because of it. Since the fact that the fraud was committed in a third country cannot be sufficient to exclude the existence of fraud committed against the common VAT system, it is for the national court to examine whether the transactions at issue in the main proceedings were not related to such fraud and, if committed, an assessment whether the taxpayer knew or should have known that it had place.
The European Court of Justice examined the questions referred for in a preliminary ruling filed by the Supreme Administrative Court. In the justification, the Tribunal indicated that pursuant to art. 146 para. 1 let. A) and b) of the Directive, the Member States exempt the supply of goods consigned or transported outside the EU by the seller or on his behalf, or by the buyer or on his behalf. This provision should be interpreted in connection with art. 14 paragraph 1 of the Directive, according to which “delivery of goods” means the transfer of the right to dispose of things as the owner. This exemption is intended to guarantee taxation of the supply of the goods in question at their place of destination, i.e. the place where the products are consumed. As the Court has noted several times, the provisions referred to in paragraph 19 of this judgment, and in particular the term ‘sent’ used in Article 146 para. 1 let. (a) and (b) of the VAT Directive, indicate, that exports of goods take place and the exemption on export delivery applies when the right to dispose of the goods as owner has been transferred to the buyer and the supplier demonstrates that the goods have been sent or transported outside the EU, and that as a result of this shipment or transport goods have physically left the territory of the EU. The Court has also ruled that the concept of ‘supply of goods’ is objective and that it applies irrespective of the purposes and results of the transactions in question, without the tax administration being required to investigate the intentions of the taxpayer concerned or to take into account the intentions of the economic entity other than that taxpayer operating in the same supply chain. It follows that transactions such as those at issue in the main proceedings constitute supplies of goods within the meaning of Article 146 para. 1 let. a) and b) of the VAT Directive, if they meet the objective criteria on which that concept is based, cited in paragraph 21 of the judgment. The fact that the exported goods are purchased outside the EU by an entity which is not indicated on the invoice and which has not been established, does not, however, preclude these objective criteria from being met. Consequently, the classification of a given transaction as a supply of goods within the meaning of Art. 146 para. 1 let. a) and b) of the VAT Directive cannot be subject to the condition that the buyer be identified. As regards the principle of proportionality, it should be recalled that a national provision goes beyond what is necessary to ensure the proper collection of tax if it actually makes the right to exemption from VAT subject to compliance with formal obligations, not taking into account substantive conditions, and in particular not taking into account the question of whether they were met. Transactions should be taxed taking into account their objective characteristics. It follows that the goods at issue have been sold, shipped outside the EU and have physically left the territory of the EU, and therefore, subject to verification by the referring court of the facts, it appears that the criteria that the transaction must meet in order to constitute a delivery goods within the meaning of art. 146 section 1 lit. a) and b) of the VAT Directive, have been met, irrespective of the fact that the actual purchasers of these goods have not been established. The principle of tax neutrality for the purposes of VAT exemption cannot be invoked by a taxpayer who intentionally participated in a tax fraud and put the functioning of the common VAT system in jeopardy. In accordance with the Court’s case-law, it is not contrary to EU law to require an economic operator to act in good faith and take all reasonable steps to ensure that his act does not lead to a tax fraud. In the event that the taxpayer knows or should have known that his transaction may constitute a fraud committed by the buyer and has not taken all reasonable measures at his disposal to avoid such fraud, he should be refused the exemption. The supplier cannot be held liable for payment of VAT regardless of his participation in the fraud committed by the buyer. It would of course be disproportionate to prescribe the taxpayer to lose tax revenue due to fraudulent acts of third parties over which the taxpayer has no influence. The supplier cannot be held liable for payment of VAT regardless of his participation in the fraud committed by the buyer. Attributing to the taxpayer the loss of tax revenue caused by fraudulent acts of third parties over which the taxpayer has no influence would clearly be disproportionate.
It should be remembered that, according to the Tax Code, Polish exporters (as well as intra-Community suppliers) may apply for resumption of proceedings and recovery of overpaid VAT within a period of one month from the publishing of the judgement of the Court of Justice of the European Union in the Official Journal of the European Union.
The judgment impacts already completed proceedings in a way that could constitute a basis for resumption of proceedings, this applies not only to exports, but also to intra-Community supply of goods, as the CJ EU theses relate to delivery in general. Paradoxically, this judgment is less useful in pending proceedings because, as practice shows, the tax authorities and some courts unfortunately overlook the favorable judgments of the CJ EU in ‘ordinary’ proceedings.
2. The tax cannot accept the findings of other decisions without taking evidence against the taxpayer
On 16th of October 2019, the Court of Justice of the European Union issued a judgment in Case C-189/18, the actual state of which concerned a situation in which the tax authority issued a decision unfavorable for the taxpayer in the field of VAT, which was based entirely on documents obtained in the course of other matters not individually related to this taxpayer, and other entities in which it was found that these entities participated in VAT fraud and did not exercise due diligence. This resulted in a situation in which the facts of the taxpayer’s case referred to findings from other cases in which the taxpayer was not a party to the proceedings. The authority did not conduct any evidentiary proceedings explicitly in the decision issued in relation to the taxpayer, but only used the decision from other cases in proceedings against the taxpayer.
The Court has held that EU law does not provide rules on how evidence is to be taken in the case of VAT fraud, so that such evidence must be determined by the tax authority in accordance with the rules on the taking of evidence laid down in the system of national law, which evidence must be objective. Both rules and national practice must not affect the effectiveness of EU law and must respect the rights guaranteed by EU law, taking into account the EU Charter of Fundamental Rights. The Tribunal indicated that tax authorities cannot uncritically accept findings from tax decisions issued against other taxpayers without conducting evidence proceedings against a taxpayer who is a party to a given pending proceeding. The authorities not may feel released from the obligation to take evidence against the taxpayer. EU rules stipulate that the granting of a final administrative decision confirming the existence of fraud against a taxpayer who was not a party to the proceedings leading to such a statement is contrary to the obligation incumbent on the tax authority to objectively and impartially investigate all the circumstances allowing to conclude that the taxpayer has seen or he should have seen that the transaction invoked to justify the right to deduct was related to fraud.
The tax authority has no right to refrain from conducting reliable and objective evidentiary proceedings against the taxpayer, relying only on materials obtained from other cases against other entities. The taxpayer should be guaranteed the possibility of active participation in the proceedings by presenting his circumstances, position and evidence. The taxpayer should be guaranteed the right to inspect documents and case files in order to ensure his right of defense based on the principle of procedural equality of the parties. According to the Court, it is not compatible with EU law to deny a taxpayer access to the case file unless it is justified by an important public interest or the right of other entities to keep information confidential, but the case must be assessed on a case-by-case basis. In the event of a violation of the abovementioned fundamental principles of EU law, procedural objections in this respect may be justified.
This judgment can also be used as a basis for the resuming of the following, not just “carousel frauds”, but in which two cumulative conditions are fulfilled:
- The taxable person has disputed the right to deduct input VAT,
- The decision is based on indirect evidence, in particular decisions made in respect of other entities.
3. New matrix of VAT rates as of 1 April, 2020.
On April 1, 2020, the new VAT rate matrix will come into force, which will be based on the so-called Combined Nomenclature (CN). The purpose of the changes is to eliminate the situation in which similar goods are taxed differently. The VAT rate will change, including in the following products: soups, broths, homogenised food, tropical and citrus fruits, some nuts: pistachios, almonds, coconuts, hygiene articles – from 8% to 5%, fruits, vegetables, fruit, vegetable and fruit and vegetable juices without the addition of water – 5%, health care goods – 8%. Products mustard, some processed spices – from 23% to 8%, for books (including e-books and paper editions) – the rate will be 5%, while newspapers, journals and printed magazines (also in electronic form) – 8% (however, the exception will be regional and local magazines, which are published in formats other than electronic (5% rate), children’s accessories – 5%, bread, confectionery regardless of their type and date will have a 5% rate. The following products are subject to an increase in VAT, including: seafood, crustaceans, molluscs and aquatic invertebrates, as well as preparations from them – from 5% to 23%, ice used for food and other refrigeration purposes – from 8% to 23 %, coffee-23% specialized magazines – from 5% to 8%, unprocessed spices (e.g. saffron, nutmeg, cumin) – from 5% to 8%. Entrepreneurs should focus attention on the correct reclassification of their services so that they comply with the new matrix.
It should be indicate that will need three classifications to settle VAT instead of the current one. To date, goods and services for the purposes of VAT are identified by the Polish Classification of Products and Services (hereinafter: “PKWiU”). From April 2020, the goods will be classified by the Combined Nomenclature (hereinafter: “CN”). The purpose of correctly determining the rate will be to use three different classifications. CN is the European classification used for the needs of the Common Customs Tariff, which has its source in the international Harmonized System of Marking and Coding of Goods developed by the World Customs Organization. In terms of services, the regulations refer to PKWiU. From November 1, 2019, goods and services will be covered by the obligatory split payment mechanism and will be identified according to PKWiU of 2008. Annex No. 15 to the VAT Act introduced by amendment specifies the list of goods and services to which the split payment will be compulsory, however in the annex, the legislator refers to the symbols of PKWiU. In other annexes, the legislator refers to the CN or PKWiU of 2015. Therefore, three classifications will apply to the correct determination. It should be noted that this can create problems with certainty regarding a given tax rate. However, the legislator will introduce binding rate information, which will give the taxpayer an opportunity to apply to the tax authorities to specify how a given transaction should be taxed and at what rate if such doubt arises. Inquiry will be possible both on the basis of CN and both PKWiU versions.
4. Reporting tax schemes in Poland – new official and unofficial explanations
On 1st of January, 2019, the provisions regarding the obligation to report tax schemes entered into force. They were introduced to the provisions of the Tax Code as a result of the implementation of the EU Council Directive 2018/822. The Polish system has extended the reporting obligation to include Polish domestic transactions, provided that the relevant conditions are met. On 31st of January, 2019, tax explanations in this respect were published, issued by the Minister of Finance. In October 2019, additional explanations appeared:
a) Ministerial Q&A on MDR, unfortunately sometimes raising questions rather than dispelling doubts,
b) Prepared by bankers, unofficial explanations for the banking sector – interesting but requiring broader commentary.
The provisions on tax schemes cover all taxes. The scope also includes events that took place in 2018 (in a situation where taxpayers after 25 June 2018 performed activities that met the cross-border criterion, they are required to report them). In the situation of other domestic activities, they are subject to reporting, provided that the activity was performed after November 1, 2018 (the deadline for reporting such activities expired on July 1, 2019, if the promoter was in the case, if the promoter was not involved in the case, and the solution was implemented only by the beneficiary or if the promoter did not comply with its obligations, then the deadline expired on October 1, 2019.) Just knowing the rules and explanations is not enough to certainly conclude that a particular activity has been correctly qualified for the scheme.
The taxpayer informs the Head of the National Tax Administration about the scheme used, submitting the MDR-1 form (usually within 30 days). This is called primary reporting. In turn, follow-up reporting occurs on MDR-3 form. In MDR-1, the solution implemented or which the taxpayer intends to implement should be reported. And in MDR-3 need to show the measurable benefit of this solution, make accurate calculations of the benefits obtained, besides, MDR-3 must be signed by all board members. They are subject to criminal liability for giving false testimony as to the amount of benefits they will report. The deadline for submitting MDR-3 expires at the latest when the declaration is submitted for a given accounting period (e.g. if MDR-3 will apply to CIT and the tax year coincides with the calendar one, MDR-3 will have to be submitted for 2019 year at the latest by the last day of March 2020 in a situation where the scheme concerns VAT, then the deadline for submitting MDR-3 for a monthly period is the 25th day of the next month). In the case of complicated deadlines, PCC may be an example, in which the deadline for submitting tax deductions by PCC is 14 days, however the deadline for submitting the scheme for transactions covered by PCC – i.e. MDR-1 is 30 days, and MDR-3 should be submitted together with the declaration PCC, i.e. within 14 days. There is a case when the deadline for reporting the benefits of the scheme used (MDR-3) is earlier than the one for reporting the scheme itself (MDR-1). The position taken by the Ministry of Finance in published explanations indicates that in such a situation the taxpayer does not have to submit MDR-3. However, this explanation applies to the 2018 schemes. There is no current position in this regard. Within the scope of the procedure, taxpayers should develop an appropriate procedure for reporting MDRs. This applies to both consulting and service companies.
Potentially, any action taken by the taxpayer may be subject to reporting, however, if the taxpayer fails to comply with the obligations imposed in this area, he must face severe penalties, including penalties, including fines up to 720 daily rates exceeding PLN 21 million.
5. Tax consequences of the BREXIT on Polish income taxes
The rejection of the agreement setting the conditions for the exit of Great Britain and Northern Ireland (hereinafter “the United Kingdom”) from the European Union indicates that the moment of the exit of the United Kingdom will not depend on the transitional period in the application of legal norms in relations with the European Union. It will come to the so-called hard Brexit. With the withdrawal of the United Kingdom from the Union without a contract, the rules for taxing transactions on goods and services tax will also change, as it will become a third country, and therefore the rules on intra-Community supply of goods, intra-Community acquisition of goods as well as Poland will no longer apply.. Instead, the rules for importing and exporting goods will apply. After the United Kingdom leaves the Union, the relevant customs procedures will apply, tk. confirmation by the relevant customs customs authority. On the other hand, if you purchase goods from the United Kingdom, you will need to make a customs declaration. The following EU directives on income taxes are aimed at reducing the tax burden and ensuring the neutrality of restructuring operations across borders in the single market. The indicated directives were introduced into the Polish system through the Act of February 15, 1992 on corporate income tax (Journal of Laws of 2019, item 865, as amended, hereinafter referred to as the “CIT Act”).
First Council Directive 2003/49 / EC of 3th of June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States. Concerns the abolition of withholding tax on interest and royalties paid by a company of a Member State to a related company from another Member State. It was introduced to the national legal system through the provisions of art. 21 of the CIT Act, which provide for an exemption from withholding tax for companies subject to income tax in an EU Member State other than Poland. The exemption applies to revenues from interest and license fees indicated in the Act.
The next Council Directive 2011/96 / EU of 30 November 2011 on the common system of taxation applies in the case of parent companies and subsidiaries of different Member States. Its purpose is to eliminate double taxation of dividends transferred between parent companies and subsidiaries of different Member States. The implementation of this directive involves the exemption from taxation of income (income) from dividends and other income from participation in profits of legal persons pursuant to Art. 20, art. 22 and art. 22c of the CIT Act.
Next Council Directive 2009/133 / EC of 19 October 2009 on the common system of taxation applicable in the event of mergers, divisions, divisions by spin-off, transfer of assets and exchange of shares concerning companies of different Member States and transfer of the registered office from one Member State to another Member State, aims to prevent tax discriminatory treatment of mergers, divisions and other similar legal events that affect companies of different Member States compared to identical events affecting companies of one Member State. The implementation of this Directive extends the provisions applicable to national restructuring events to companies in the Union Member States. Detailed regulations in this respect are included in the provisions of the CIT Act regarding the subject of taxation, revenues and costs of obtaining them and tax collection.
On the day of the United Kingdom’s non-contractual withdrawal from the Union, the abovementioned tax privileges will not apply to British entities or operations involving such entities. This means that when taxing dividends and other revenues from participation in the profits of legal persons as well as interest and royalties paid to British companies, it will take place on general principles or with the application of a relevant tax avoidance agreement (in this case the Convention contained in on July 20, 2006 between Poland and the United Kingdom on the avoidance of double taxation and prevention of tax evasion in the field of taxes on income and property profits, Journal of Laws of 2006 No. 250, item 1840).
In the case of individuals, the exit of the United Kingdom from the Union will prevent the benefit of taxpayers – United Kingdom tax residents from preferential taxation of the income of spouses and the method of taxation provided for single parents, on the basis of the principles set out in the Act of 26 July 1991 on income tax from natural persons (Journal of Laws of 2019, item 1387, as amended).