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Tax Newsletter March 2018 r.

  1. Regulation relating to transfer pricing documentation is already in force 
  2. Cash contributions are still not taxed 
  3. Assumptions of an act amending VAT Act
  4. Financial statements – new obligation of online submission
  5. Results of wrong qualification of transaction – judgement of CJEU of 21 February 2018, C 628/16 Kreuzmayr GmbH
  6. Judgement of CJEU in case C-159/17

  1. Regulation relating to transfer pricing documentation is already in force 

Regulation entered into force on 15th March 2018. It is a response of the Ministry of Finance to signals that many taxpayers have difficulties with preparation of transfer pricing documentation and reports in statutory time limit, i.e. (as a rule) to the date of submission of tax return.

Thanks to the regulation the term for:

  • preparation of transfer pricing documentation,
  • submission of TP statement to tax office,
  • attachment of simplified report (CIT/TP and PIT/TP) to annual tax return

was extended by the end of the ninth month following the end of a tax year (in practice taxpayers have 6 months more for preparation of documentation).

Regulation relates to obligations arose in 2018 and 2019.

  1. Cash contributions are still not taxed

According to provisions being in force by the end of 2017 cash contribution to capital company was tax neutral for the shareholder making a contribution as well as for the company.

An amended CIT Act being in force from 1 January 2018 contains modified catalogue of tax revenues. Due to new wording of the regulation appeared doubts whether cash contribution cause the revenue in Corporate Income Tax.

After numerous reservations made by public opinion and representatives of tax practice on 2 March 2018 Ministry of Finance issued general tax ruling (no. DD6.8201.1.2018) precising the matter of taxation of cash contributions. Referring to the justification of amending act Ministry of Finance indicated that change had not an aim to broaden  the income catalogue by cash contributions. In its current wording the provision covers only non-cash contribution. Cash contribution to the company or cooperative still does not create a revenue on the side of submitting entity.

  1. Assumptions of an act amending VAT Act

Under the governmental legislative procedure works to amend VAT Act, Tax Ordinance, Insolvency law as well as so called fuel package are conducted.

One of significant changes proposed to VAT Act is new definition of first settlement. Proposed wording does not contain the condition according to which first settlement of buildings, structures or its parts occurs in performance of taxable activities. The project precise also that first settlement covers starting of using buildings, structures or its parts for own needs after their construction or improvement.

Other propositions in the project are as following:

  • unification of threshold of capital ties in VAT Act by increasing the threshold from 5% to 25%;
  • clarification that removing taxpayer from the register shall relate only to taxpayers submitting “zero” returns (that is returns without sales and purchases);
  • extension of catalogue of taxpayers to which subject exemption shall not apply.

The project is now in consultation phase.

The amended act shall enter into force on 1 July 2018.

  1. Financial statements – new obligation of online submission

On 15th March 2018 an amendment to the National Court Register Act entered into force.

According to the new regulations financial statements and other financial documents should be prepared electronically and accompanied by an electronic signature.

It means that in practice, instead of submission to the National Court Register, documents will be gathered in an electronic repository of financial documents.

Changes may be problematic for foreigners being shareholders or members of the governing bodies of the entities obliged to register in NCA. In order to submit company’s financial documents it is necessary to disclose PESEL number of an individual submitting the documents. Simultaneously submission of the financial statement by a proxy is not possible anymore.

  1. Results of wrong qualification of transaction – judgement of CJEU of 21 February 2018, C 628/16 Kreuzmayr GmbH

Preliminary question related to the situation where German supplier, unaware of function of agent who was the purchaser of goods as well as unaware of existence of third party in the supply chain, treated a transaction for Austrian contractor as intra-Community supply of goods. In order to document the supply, agent issued an invoice with VAT amount which was finally deducted by the purchaser in Austrian VAT return.

In practice transaction covered three entities – German supplier, agent from Austria and final purchaser also from Austria. The problem with proper identification of transaction was caused by the fact that contractor did not inform the seller about its role as an agent. Before the goods were delivered to Austria they were sold to the final purchaser (from Austria).

CJEU took the standpoint that if the final purchaser acquired the goods before their movement, supply realized on his behalf shall be treated as moveable. Therefore German supplier should treated his supply as local, taxed in Germany.

CJEU ruled that lack of knowledge about the final purchaser shall not have any impact. According to this, final purchaser has no right to deduct VAT from an invoice documenting transaction wrongly qualified as supply of goods. Nevertheless, CJEU accepted a possibility of correction of earlier settlements by arrangements with the supplier.

  1. Judgement of CJEU in case C-159/17

The case concerned the company with registered seat in Romania, registered for VAT purposes in this country. Due to the breach of obligation to submit VAT return, local tax authorities decided about  cancellation of a registration. Despite lack of registration the company was still issuing invoices with VAT amount.

The company was obliged to pay the amount corresponding to VAT amount previously collected in period in which it was not registered for VAT purposes.

Afterwards the company applied for deduction of VAT amount paid for goods and services used to render services in period in which it was not registered for VAT purposes. The tax authority  refused.

In a preliminary question Romanian court asked whether VAT Directive stands against domestic regulation which enables tax authorities to refuse the right to deduct VAT in case its registration was revoked on the grounds of non-submission of VAT return on time.

According to CJEU taxpayer shall not be restricted to perform its right to deduction because it was not registered for VAT before using purchased goods within the course of its taxed activity.

CJEU stated however that provisions of VAT Directive do not prevent domestic rules enabling tax authorities to refuse the right to deduct VAT when due to infringement tax authorities could not have information necessary to prove that all material requirements for VAT deduction were fulfilled.

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