Maciej Wilczkiewicz

Tax adviser (Poland)
Senior Associate
Phone: + 48 32 330 12 06

Mechanizm Podzielonej Płatności

The split payment mechanism will become available on 1 July 2018. It marks another battle in the Finance Ministry's war against VAT abuse. How can the split payment affect the financial liquidity of some companies?

Self assessment

The current VAT laws include no special solutions for payment of the tax included in the price of goods or services. The full liability for the VAT settlement rests on the supplier (seller) of the goods or services.

The seller calculates the tax liability for the accounting period (month or quarter) on his own. The system is based on trust and honesty in the settlement of tax liabilities.During the self assessment, the supplier deducts the input tax on his purchases from the output tax on the goods or services he sells. Then, he remits thus calculated tax amount to the tax authorities. 

Lawmakers have noticed that leaving the entire amount of the payment, including the tax, at the taxpayer's disposal often leads to abuses. Consequently, they have started working on improvements to the VAT collection system and focused on limiting the suppliers' access to the tax component of the payment. That is how the split payment mechanism has come into being to make the VAT system regulated more than ever before.

Spilt payment – how does it work?

The split payment mechanism is very simple: two payments are made to two separate accounts instead of one payment to one account as it is the case now.

The first payment (net amount) goes to any bank account specified by the seller. The second one goes to a new account called VAT account. That VAT account will store the amount of the tax. Both accounts will be interlinked but the buyer will not have to make two transfers to two accounts.

The lawmakers wanted a mechanism in which one wire transfer would send the payment to two bank accounts: the checking account and the VAT account. This is possible through the so-called dedicated wire transfer message which will split the payment.

How does the dedicated wire transfer message work?

In the dedicated wire transfer message the buyer has to specify, among other things, the amount to be transferred and the number of the invoice paid for. The system then transfers money and credits two accounts (the checking account and the VAT account) with the amounts defined in the message.

Please note that the split payment mechanism will be available for payments by wire transfer only. Moreover, it will apply only to payments between VAT taxable persons. It will not apply to payments for goods supplied by a VAT taxable person to an individual who does not run a business (and vice versa).

Fictional ownership of the VAT account

While the money on the VAT account technically belongs to the taxpayer, its availability is considerably restricted. The taxpayer will be able to handle the VAT accounts as he sees fit, but generally all he will be able to use it for is to pay the tax to the authorities or pay the VAT amount of a supplier's invoice.

The lawmakers have added an option to request a refund of the money gathered in the VAT account to a company bank account. The head of the relevant tax office has 60 days to consider such a request. This is rather long in view of the fact that the authorities receive information about business dealings by electronic means, e.g. through SAF-Ts.

Split payment vs financial liquidity

The split payment mechanism may have a negative impact on the financial liquidity of many businesses. 

The resultant concerns have triggered parliamentary questions about the liquidity risks connected with the split payments.

In reply to one such parliamentary question of February 2018 (no. 18899) the Finance Ministry has explained that the SPM's impact on financial liquidity is a very complex and individual issue which depends on multiple factors such as the structure of transactions, VAT rates on purchases and sales, payment structure, payment methods, type of business partners, or the VAT exemption on account of e.g. the turnover amount.

Thus the Ministry sends a signal that they are aware of the risks. 

Benefits of the split payment mechanism

One of the benefits for businesses, perhaps the key one, is the accelerated, 25-day time limit for VAT refund for those who have opted for the split payment. This option is a major difference compared to the standard 60-day time limit for a refund to an ordinary checking account, especially as the above-mentioned 25-day deadline cannot be extended.

The financial liquidity is supposed to be boosted by other "bonuses" from the state. With respect to the taxpayers who opt for the split payment the tax authorities will waive the joint and several liability in the case of purchases of goods listed in appendix 13 to the VAT Act. They will also refrain from assessing an additional tax liability if they find irregularities in the VAT accounts.

It is important to note that the above privileges are available to honest taxpayers only, i.e. those who do not issue any dummy invoices.

In summary, on the one hand, the new law is meant to eliminate the VAT abuse through the so-called vanishing taxpayers. This is all supposed to increase state revenues and improve transparency.

On the other hand, the concerns about the financial liquidity cannot be underestimated. 

If you have any additional questions about Split Payment in Poland, Rödl & Partner's experts are at your service.