Practical knowledge

Our newsletters and publications provide practical business guidance and up-to-date insights into the case law of both tax authorities and courts. We use these short forms to share our knowledge and experience.

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Publications

Services involving assembly or installation of plant or machinery are not always connected with real property
Magdalena Szczepańska, Dawid Przeździak
Puls Biznesu

The article discusses the matter of VAT treatment of assembly or installation services on real properties. As services connected with immovable (real) property are not defined in the VAT Act, each case should be analysed on its own merits to determine if the given service is taxed in the country where the property is situated. The article presents EU legislation that governs this matter as well as discussing a recent Polish tax ruling as an illustration of the current approach taken by the Polish tax authorities.


Feed additives omitted in the VAT matrix
Lidia Adamek-Baczyńska, Monika Maćkowiak
Puls Biznesu

1 July 2020 saw entry into force of a new VAT matrix which replaced the PKWiU classification with the combined nomenclature (CN) codes. However, the matrix refers to some goods by description, for example where it mentions “animal feed” as set out under item 10 of Schedule 3 to the VAT Act concerning the 8% rate. A question then arises what is “animal feed”? There is no statutory definition of feed in Poland. The EU definition in Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 may be helpful. In accordance with that definition, the supply, importation and intra-Community acquisition of feed and related additives should enjoy the 8% rate of VAT. Such a broad definition of “feed” has been acknowledged by Polish tax authorities, i.e. in binding rate information dated 3 July 2020, ref. 0115-KDST2-1.450.72.2020.2.AW, where it was held that 8% VAT applies to feed additives. However, it should be remembered that the taxation of goods and services for which no definition has been provided will continue to be at the discretion of tax authorities.

Still not clear how to calculate thin capitalization limit
Lidia Strzelecka, Joanna Parysek
Rzeczpospolita

The article discusses how tax authorities and administrative courts differ in their approach to calculation of thin capitalization limit. According to the former, deductibility is limited either by the PLN 3 million threshold or by the 30% EBITDA limit on exceeding borrowing costs. In contrast, courts say that the PLN 3 million threshold should be applied in combination with the 30% EBITDA limit. The article also refers to Finance Ministry’s promise to resolve these controversies when amending the law.


Electronic invoices are a must in times of pandemic
Magdalena Szczepańska, Natalia Sęk
Puls Biznesu

Electronic invoicing is one of the tools supporting business during the pandemic. The article addresses the requirements that must be met to ensure that electronic invoicing is compliant with the VAT Act. There is an established line of authority which offers a business-friendly way for taxable persons to determine how to implement e-invoicing in a manner that is correct in the eyes of the tax authorities. However, to be on the safe side, especially as regards the right to deduct VAT under electronic invoices, businesses may find it worthwhile to apply for a private tax ruling in this regard.


Does home office create a permanent establishment?
Ewelina Buczkowska, Paweł Kempa
Rzeczpospolita

The COVID-19 pandemic has increased the use of home office arrangements where employees work remotely from their homes. Such telework may sometimes create a permanent establishment of the employer, which requires him to register for tax purposes and apply corporate income tax to part of his Polish-source income. The Polish tax authorities have not established any practice as to the tax treatment of such cases so that case-by-case analysis is necessary. However, some guidance on PE issues related to home office has been provided by the Secretariat of the OECD.


How to document sales for low amounts of money?
Lidia Adamek-Baczyńska, Monika Maćkowiak
Rzeczpospolita

The amended provisions on stating the tax identification number (NIP) on receipts for customers who are taxable persons still raise doubts with respect to issuing standard invoices for receipts that are deemed simplified invoices (for up to PLN 450 or EUR 100 gross). A vast majority of tax rulings point out that receipts documenting sales for up to PLN 450 or EUR 100 gross should be treated as “standard” invoices. Therefore, no additional documents (standard invoices) should be issued. In this respect, the ruling by Director of National Revenue Information dated 28 May 2020 (ref. 0114-KDIP1-3.4012.160.2020.2.ISK) comes as a precedent. The authority held that a standard invoice may be issued for a receipt if the customer returns the receipt (simplified invoice) to the seller.


How to tax joint venture income?
Ewelina Buczkowska, Maja Dajczak
Rzeczpospolita

The article presents the problem of treating joint venture revenues. Even though joint ventures are gaining popularity, they have not been defined for tax law purposes. The essence of a joint venture is that at least two entities, which do not have sufficient competence or resources on their own, start collaborating towards one commercial objective. Under CIT and PIT acts, joint ventures do not enjoy the status of the taxpayer – their participants do. Sole proprietorships should recognise joint venture income under “non-agricultural business”. However, doubts arise as to what natural persons not in business should do. None of the income sources specified in the PIT Act directly covers joint venture income. This means that perhaps it should be recognised under the so-called “other gains”. This is the view taken by administrative courts. However, tax authorities are of a different opinion. According to them, income gained by participants who make cash contributions should be recognised as capital gains. Regarding the CIT Act, controversies on how to recognise joint venture income arose in 2018 when the division between the two income sources was established. According to tax authorities, income should be recognised under the right source at joint venture level, not at the participant level. Given the multitude of possible situations and the difference in positions held by tax authorities and administrative courts, each and every case requires an individual analysis.


Evidence of intra-Community supplies of goods following the entry of Quick Fixes into force
Lidia Adamek-Baczyńska, Natalia Błażejewska
Puls Biznesu

Council Directive 2018/1910 of 4 December 2018 (as regards Quick Fixes) came into effect on 1 July 2020. No changes related to the documentation confirming intra-Community supplies were introduced. The existing provisions of the VAT Act in this respect still apply. However, what raised the taxpayers’ concerns was the entry into force of the Council Implementing Regulation (EU) 2018/1912 of 4 December 2018. Its provisions require taxable persons to have at least two items of non-contradictory evidence (divided into two groups), issued by two different parties that are independent of each other, in order to confirm an intra-Community supply of goods. In practice, obtaining such evidence would be problematic for many businesses. The Head of the National Revenue Information System presents a favourable line of authority, recommending that taxable persons still obtain the evidence specified in the Regulation, but noting that its lack does not preclude zero-rating.


Which VAT rate for maintenance services involving supplies of spare parts?
Lidia Adamek-Baczyńska, Olga Palczewska
Rzeczpospolita

The maintenance of plant, machinery or cars often involves not only the service itself but also a replacement of parts. A question arises as to what VAT treatment is applicable in such cases. Are these two separate supplies: of services and of parts, or one composite supply? This is especially important where one element of the overall service is subject to different tax treatment than the others, e.g. triggers split payment or is subject to a reduced VAT rate. The authors analyse the case practice of courts and tax authorities to resolve this issue.


How to issue a correcting invoice with system limitations on the part of the customer?
Magdalena Szczepańska
Puls Biznesu

The Polish VAT Act specifies the requirements for invoices (including correcting invoices) to be considered properly issued. One of the typical requirements in Polish law is the use of phrases in Polish, such as “faktura korygująca” (correcting invoice), “mechanizm podzielonej płatności” (split payment mechanism) or “kwota podatku VAT w PLN” (VAT amount in PLN). Primarily, it is foreign entities which register their operations in Poland only with a view to settling specific transactions that are facing problems in meeting those statutory requirements. The changes they would have to make in their accounting systems are often too expensive, especially if required to run only a small part of their operations in a different country. The article lists cases in which the foreign entities may adapt the documents they issue so as to comply with the VAT Act.


Registering sales to employees
Lidia Adamek-Baczyńska, Joanna Parysek
Puls Biznesu

Businesses are generally required to use fiscal cash registers to record their sales to individuals not in business. However, the law (Finance Minister’s regulation of 28 December 2018 on exemptions from the duty to keep records using cash registers) waives this duty for supplies of goods or services to own employees. The article invokes several tax rulings confirming that businesses do not need to record sales to their own employees even if the sale involves goods or services which are otherwise not exempt, such as sale of computers or provision of company cars.


Doubts as to use of receipts to issue invoices continue
Lidia Adamek-Baczyńska, Monika Maćkowiak
Rzeczpospolita

1 January saw entry into force of amended regulations on issuing invoices on the basis of till receipts. Such an invoice may be issued only if the receipt features the customer’s tax ID (NIP). This change in law caused plenty of concern among businesses, for example whether existing cash registers will have to be replaced, or whether it is possible to correct a wrong NIP from the receipt, or whether they will still be allowed to issue invoices for individuals not in business on their request. The article presents the tax authorities’ response to those questions. It is noted that a receipt for a low-value transaction (up to PLN 450 or EUR 100, gross of tax) may be treated as a simplified invoice. Many businesses find it challenging to adjust to the new law on receipt-based invoicing, what with severe penalties for non-compliance.


Do VAT carry-forwards become irrecoverable with time?
Lidia Adamek-Baczyńska, Monika Maćkowiak
Rzeczpospolita

If a person has more input tax than output tax, they can have the difference refunded or carried forward into the future. However, what if the person continues to record such differences also in future? Can the right to recover that amount ultimately become time-barred? The tax authorities do not have a uniform take on the issue. The Director of National Tax Information held in one if his tax rulings (ref. 0114-KDIP1-3.4012.744.2018.1.SM, 14 February 2019) that the five-year limitation period under Article 70 of the Tax Code applies also to excess input tax. However, that same authority held otherwise in its ruling of 4 November 2019 (ref. 0115-KDIT1-1.4012.619.2019.1.MM). The same matter was before the Supreme Administrative Court, which ruled on 14 January 2020 (case no. I FSK 685/19) to reverse the lower court’s judgment that was favourable for the taxable person and to remand the case for reconsideration. To avoid disputes with tax authorities, companies should deduct their excess VAT within five years or claim a refund.


Tax treatment of expenses incurred to develop accommodation for workers
Bartosz Pisarski, Marta Krykwińska
Puls Biznesu

The article discusses options for a company to deduct for tax purposes its depreciation expense on real estate (carried as tangible assets) to be provided to its workers for accommodation as a fringe benefit. In accordance with the tax tax ruling dated 13 January 2020 by the Director of National Tax Information (ref. 0111-KDIB1-1.4010.608.2019.1.BS), a company may deduct depreciation expense on real estate provided to its employees as accommodation near the company’s manufacturing site if this serves its business objectives, such as to hire and maintain an appropriate level of workforce for its business purposes or to reduce staff rotation and the related costs. Such cases meet the purposefulness test, i.e. these expenses will contribute to the company’s capacity to generate income or secure or preserve a source of income.


White list and split payment
Magdalena Szczepańska, Natalia Sęk
Puls Biznesu

The article discusses how to correctly apply the white list provisions of VAT law in the context of the split payment mechanism. While the white list and the split payment mechanism two are different concepts, their mutual similarities may sometimes confuse businesses. The authors present the most important characteristics of the two devices. In addition, they also describe each stage of the verification process to be applied in order to ensure compliance with the underlying requirements and avoid various adverse consequences arising from the related regulations.


A currency loan affects borrowing costs
Lidia Strzelecka, Anna Trojanowska
Rzeczpospolita

As of 1 January 2018, borrowing costs are not deductible for income tax purposes to the extent exceeding borrowing costs are more than 30% of what is called tax EBITDA, subject to a safe harbour of PLN 3 million. The article is about requirements related to adjusting borrowing costs on account of exchange differences realised on repayment of the underlying currency debt. According to the authors, with respect to borrowing costs subject to those restrictions, when making f/x adjustments in case of currency debt repayment, taxpayers should ensure that the resulting f/x gains are deducted from while f/x losses are added to the borrowing costs.


Charge to VAT if no handover certificate exists?
Magdalena Szczepańska, Natalia Sęk
Puls Biznesu

Specifying when VAT becomes chargeable in the case of construction services may sometimes be controversial given their specificity. Under CJEU’s decision of 2 May 2019 (C-224/18), signature of a formal record of acceptance (handover certificate) marks the time when construction services are considered to be completed, if the contract so provides. However, what if no handover certificate is executed as the work has defects or has only been completed partially? According to tax authorities, work that has been performed but not formally accepted should be subject to VAT even though no payment has been received for it and the matter is in a civil court. The taxable person claimed otherwise. The administrative court decided in favour of the taxable person and ruled that VAT did not become chargeable and it will not be until the matter of payment is resolved by the civil court that the nature of the claims and the taxable amount becomes known. VAT will become chargeable on receipt thereof.


Belated advance payment will complicate your tax compliance
Magdalena Szczepańska, Natalia Sęk
Rzeczpospolita

The article addresses the VAT treatment of advance payments. It describes controversies about how to recognise an advance payment and the supporting invoice if the payment has been received more than 30 days after the invoice date. There have been recent tax rulings which, favourably for businesses, offer assurance against claims that such premature invoices are “empty”. However, in fear of penalties, taxable persons adjust their accounts and recognise such invoices despite lack of a commercial rationale. With no precise law in place to regulate the duties and methods related to making adjustments on account of premature invoices for advance payments, whether or not any particular treatment is correct will depend on the approach of tax authorities.


No VAT recovery for fruits, juices or even eye glasses for your employees
Magdalena Szczepańska, Patryk Gaszyński
Rzeczpospolita

The article discusses recovery of VAT charged on employer’s purchases of various things for its employees, such as fruits, bread & pastries, juices or cold cuts. According to tax authorities, such purchases do not involve expenses that would be associated with taxable transactions, which means that the employer is not entitled to deduct VAT charged on them. They claim that supplies of such products to employees are intended merely for their personal needs. The article mentions also other purchases made by employers for their employees.


Travel benefits for mobile staff still an open issue
Ewelina Buczkowska, Maja Dajczak
Rzeczpospolita

The article discusses the taxation of benefits for travelling employees (e.g. accommodation, transportation). There is no doubt that they do not represent income for employees on business trips or for mobile staff. However, both tax authorities and courts distinguish also a third group of employees that are neither mobile staff nor employees on business trips. In effect, such employees may be held to earn additional income represented by travel expenses paid for them by their employers.

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