Indirect Tax News - October 2019

Split payment mechanism: Will foreign companies registered in Poland for VAT have to open a Polish bank account?

A number of new regulations force Polish taxpayers to make payments to their contractors’ bank accounts that are recorded on the so-called ‘white list’ with the tax authorities. The white list, which contains information about taxpayers, has been introduced to, among other things, allow parties to verify whether counterparties are VAT registered. Also, a broad scope of services is now covered by the obligatory split payment mechanism. These changes affect foreign companies registered in Poland for VAT purposes.

White list of taxpayers

The regulations introducing a white list of VAT payers came into force on 1 September  2019. The white list includes the data necessary for verification of counterparties and for due diligence compliance. The list contains data about entrepreneurs and businesses, for example, the company name or first name and surname of individuals, their tax identification number, and the number of their current bank account or account opened at the Polish Credit Union (SKOK). From 1 January 2020, taxpayers will be obliged to pay all invoices over PLN 15,000 to accounts set out in the list. (Until 31 December 2019 taxpayers can choose whether to make payments to accounts specified in the list.) The requirement to make payments to the bank account provided by a counterparty in the list will apply only to purchases of goods and services from entrepreneurs registered in Poland as active VAT payers. In effect, this means that VAT payers must have a specific type of bank account.

Payments made to bank accounts other than those indicated in the list will be treated as follows:

  • They will not be recognised as tax deductible expenses; and
  • If the seller fails to pay VAT due on such transactions, the buyer and seller face potential joint and several liability for the tax arrears.

If a taxpayer makes a payment to an account not included in the list but applies the split payment mechanism, the taxpayer will avoid the joint and several liability for the seller's VAT arrears.

In practice, all VAT payers should check whether all their bank accounts are on file with the tax office and should update their data. Taxpayers should also verify whether bank accounts to which they are making transfers are included in the white list.

The new regulations have raised many practical questions so the Ministry of Finance has promised to publish guidance and noted the need for amendments in response to reported problems, such as the lack of regulation of credit card or PayPal payments.

The first days of operation of the list confirmed the difficulties of many companies trading with foreign entities, for example, the number of digits in the bank account number. In Poland, the account number comprises 26 digits, while elsewhere in the world the length of the account number is unlimited. Currently, the list cannot accommodate account numbers that are longer or shorter than 26 digits.  

The problems with the list impacts foreign companies registered in Poland for VAT purposes if they do not have an account with a Polish bank. In practice, it may turn out that such companies will be forced to open an account with a Polish bank and to report the account to the tax office. As at today, it is not known whether foreign bank accounts, even those reported to the Polish tax authorities, will be verified within the Information System of the Reconciliation Chamber (STIR) and added to the white list. According to press reports, the Ministry of Finance is of the opinion that foreign bank accounts reported to the tax office will be disclosed in the white list of VAT payers. However, the Ministry of Finance has not taken any official position regarding this issue yet.

Split payment

The idea behind the split payment mechanism is that when a payer subject to the mechanism pays for a good or service, they must, in effect, make two remissions: they pay the net value to the seller and the VAT amount to a special VAT subaccount set up in a bank. (In practice, this is done through one bank transfer that is automatically split between two accounts: a basic account and a special VAT sub-account related to the basic account).

Starting from 1 November 2019, the mandatory split payment mechanism will be introduced and will cover 150 groups of goods and services in the case of transactions in excess of PLN 15,000. The mandatory split payment will apply to sectors such as construction works, steel, scrap, electronic equipment, gold, non-ferrous metals, fuels, and plastics.

Foreign entities that the split payment mechanism applies to are required to open a Polish bank account with a VAT subaccount affiliated with that account. Taxpayers without a seat or fixed establishment in Poland may apply for a refund of the costs of opening an account required for the purpose of mandatory application of the split payment mechanism.

It should also be pointed out that Polish taxpayers can choose to use the split payment mechanism even if they are not required to do so because there are a number of benefits related to doing so. Indeed, we expect more-and-more Polish taxpayers to avail themselves of the split payment mechanism, given that they can benefit from the fact that those using the mechanism are exempt from joint and several liability, as mentioned above, and from, for example, the reduction of VAT liability applicable to payments to the tax authorities made before the statutory deadline via a transfer from a VAT sub-account.  

Emilia Wolnowska