VAT grouping regime may apply in 2022
The Polish government wants to make the formation of VAT groups possible starting in 2022. Under the proposed VAT group rules, intragroup transactions would not be taxed and a group would be able to report VAT by filing a single return. A VAT group is treated the same way as a single taxable person registered for VAT on its own, i.e., all transactions carried out by individual group members are considered to have been carried out by the VAT group as a single taxable person. The objective of the group regime is to make it possible for financially, economically and organisationally related entities to jointly settle the VAT on goods and services. There are a number of advantages to VAT grouping, both from a financial and administrative perspective: transactions between group members are not subject to VAT, so VAT invoices do not have to be issued and there are fewer documents to be processed, the group has a single VAT registration number and only one VAT return is submitted on behalf of all companies in the group.
The proposed VAT grouping rules previously were part of draft amendments to the VAT Act, but the government decided to include them in the package of measures known as the “Polish Deal.” The Polish Deal is currently being debated in parliament, and is expected to be approved and in effect as from 1 January 2022.
VAT group concept based on EU regulations
EU regulations allow EU member states to recognise as a single taxable person for VAT purposes entities that have their place of establishment in the same member state and that, while legally independent, are closely related financially, economically and organisationally. The regulations, however, do not contain any specifics or additional guidelines as to what a VAT group regime should look like. The proposed Polish VAT group regime is modeled directly on the EU regulations and the EU VAT Directive.
Overview of the proposed VAT group regime
A VAT group may be described as a legal form of cooperation. Although each group member maintains its legal status, formation of a VAT group gives it precedence (based on the VAT Act) over legal forms provided for in civil or corporate law. Thus, once a company joins a VAT group, its existing legal form loses its significance for VAT purposes and the member becomes part of a new separate VAT taxable person—the VAT group.
The formation of a VAT group in Poland would be optional, meaning that companies would be able to decide whether they want to form a group to act as a single VAT taxpayer and each company would be able to decide whether it wants to participate in the regime or continue to settle its VAT obligations separately. However, various conditions would have to be fulfilled to set up a group:
- Membership: To become a member of a VAT group, a VAT-taxable person would have to have its place of establishment in Poland, or if there is no place of establishment in Poland, the taxable person carries out activities in Poland through a local branch.
A written agreement would be the basis for the formation of a VAT group and an application would have to be submitted to the Polish tax authorities. The agreement would need to contain the following:
- Name of the VAT group with the additional wording of “grupa VAT” or “GV”;
- Information identifying the taxable persons in the group, including information about branches of taxable persons without a place of establishment in Poland and the share capital of each of those persons;
- Information about the group’s representative appointed from its members;
- Information on the shareholders and the value of their interests in the share capital of taxable persons comprising the VAT group; and
- The period for which the VAT group is being formed, which must be at least three years.
Once an agreement is signed, the VAT group would not be able to be expanded or reduced. The VAT group would acquire the status of taxable person as of the date indicated in the agreement, but no sooner than the date it registered for VAT. If the group wishes to extend the duration of the group, the group representative would need to submit a request to the head of the relevant tax office 30 days before the expiration of the existing agreement.
- Financial, economic and organisational links: To form a VAT group, the group entities would have to be financially, economically and organisationally linked and all three links would need to be present during the entire period the VAT group is in existence:
- Financial link: The direct holding by one of the group entities of more than 50% of the shares or of the other entities.
- Economic link: The main activities of the group members are of the same nature, the activities are complementary and interdependent or one group member carries out activities that are wholly or substantially used by or for the benefit of other members of the group, which may include situations where an entity supplies goods or services directly to another group member, even if the activities of the former are not necessarily dependent on those goods or services (e.g., administrative support services).
- Organisational link: The full or partial sharing of management structures resulting in the making of decisions within the VAT group by a single entity that provides strategic leadership for the entire group.
A group will forfeit its status if it fails to fulfill any of the above conditions.
Of fundamental significance to the operation of a VAT group is the fact that supplies of goods and services made by one member of the group to another group entity would be disregarded and not subject to VAT, i.e., such transactions are tax neutral. This is an important benefit since fewer documents have to be analyzed because of the smaller number of SAF_VAT containing VAT declarations and records, no analysis of VAT deductions within the group are necessary and no internal invoices within the group are required. This would be particularly beneficial for entities that do not deduct input VAT or that deduct only a portion.
Group to be treated as supplier of goods and services to customers
Under the proposed regime, supplies of goods and services made by an entity that belongs to a VAT group to an entity that does not belong to the group would be considered to be made by the VAT group, and vice versa, i.e., supplies of goods and services made to a VAT group entity by a non-group entity would be treated as being made to the group.
The proposed rules also address supplies made by and to a branch office that is a member of a VAT group:
- Supplies of goods and services made by a branch group member to a taxable person that does not have its place of establishment in Poland or to another branch of that taxable person would be treated as being made by the VAT group to a third party.
- Supplies of goods and services to a branch that is a member of a VAT group by a taxable person that does not have its place of establishment in Poland and that formed the Polish branch, or to another branch of that taxable person located outside Poland, would be deemed to be made for the benefit of the VAT group by an entity from outside the group.
- Supplies of goods and services to a branch that is a member of a VAT group formed in another EU member state and made by a taxable person whose place of establishment is in Poland and that formed the branch would be considered to be made to the VAT group.
- Supplies of goods and services made by a branch that belongs to a VAT group formed in another EU member state to a taxable person with its place of establishment in Poland that formed the branch would be treated as being made by the VAT group.
Responsibilities of the representative
The members of a VAT group would appoint a representative to act on behalf of the group with respect to the group’s compliance obligations. The representative would submit a VAT return on behalf of the group and account for any VAT due or received any refund due. To protect the interests of the state, group entities would be jointly and severally liable for VAT liabilities of the group both during the period the group is in existence and after the group ceases to exist.
The new VAT grouping rules are expected to be in force as from 1 January 2022. Although we presume the rules will be in line with the descriptions outlined in this article, it is possible that changes may be made during the parliamentary process.