On 16 November 2016 the Sejm (lower chamber of the Parliament) adopted a bill to amend the VAT Act and certain other statutory laws, calling for numerous changes in the VAT Act and the Criminal Fiscal Code, among other laws.
The bill has been passed to the President for signature. The proposed amendments, with very few exceptions, are intended to come into force on 1 January 2017.
Here are the most important changes provided for in the bill:
1. New penalties under the VAT Act
The bill introduces penalties for taxpayers failing to file their tax returns or pay their taxes, and for those understating their VAT debt in tax returns or inflating VAT refund amounts.
The fine for understating or inflating VAT amounts is to be 30 percent of the discrepancy, to go down to 20 percent if the taxpayer files a return or a correction to its return to remedy the irregularities following a tax audit. The fine will go up to 100 percent, however, if the inflated input tax amount was reflected in so-called blank invoices.
Under transitional provisions in the bill, the above penalties shall be imposed for offences committed in settlement periods commencing after 1 January 2017.
2. New penalties under the Criminal Fiscal Code
Here we are to see a massive hike in penalties for issuing or using fraudulent invoices or bills. Importantly, the court will now be able to sentence perpetrators guilty of such practices to prison terms of at least one year, in principle.
The bill also provides for exceptionally stringent penalties if the taxpayer commits a crime intentionally and the fraudulently invoiced amounts are substantial. Additionally, if the amount fraudulently invoiced is substantial, the court opting for the exceptionally stringent penalty will now have to sentence the perpetrator to prison.
Under the bill, quarterly VAT settlements will no longer be possible for new businesses (entitled to such settlements during the first year of their operations) and to businesses reporting turnovers in excess of 1.2m EUR. An important point to note is the transitional provision whereby this new regulation is to apply, as of 1 January 2017, also to taxpayers registered after 30 September 2016, i.e. still before the bill became law.
Curbs are to be imposed on early VAT refunds (within 25 days). Under the new regulations, refunds of this kind will be possible only if several preconditions are satisfied simultaneously. Among other things:
- The input tax amounts will have to be evidenced with invoices paid in full using the taxpayer’s bank or SKOK (Cooperative Savings and Credit Union) account.
- The aggregate amount of outstanding amounts under other invoices (that were not paid via the business account) cannot exceed PLN 15,000.
- Outstanding input tax amounts for previous settlement periods cannot exceed PLN 3,000.
- The taxpayer seeking an early VAT refund will have to be registered as an active taxpayer for at least the previous 12 months, and will have to have filed its tax returns during that time.
This amendment will have a particular impact on taxpayers setting off their mutual claims who now, in principle, will no longer be able to seek early tax refunds.
5. Expanded list of goods and services subject to the reverse charge VAT system
The bill provides for an expansion of the list of goods and services subject to the reverse charge system. As of 1 January 2017, these will also include, among other things, processors as well as construction and fit-out works carried out by subcontractors, including a broad range of services relating to these works.
6. Joint and several liability of attorneys registering VAT payers / expanded list of goods subject to joint and several liability
It is proposed to make attorneys registering VAT payers jointly and severally liable for the procedure, the attorney’s liability to be capped at PLN 500,000. The attorney is to be liable for any fraudulent actions resulting in tax arrears during the first six months following the registration of the taxpayer.
Buyers will now be jointly and severally liable for the supplier’s tax liabilities with respect to more goods, including HDDs and SSDs.
New rules for deregistering VAT payers are to be introduced. Entities will now be struck from the VAT payers register if they suspend their business activity, fail to file the required tax returns, file returns showing zero sales and zero deductible taxes, issue so-called blank invoices or are involved in tax frauds and abuses they were or should have been aware of. Also, the head of the competent tax office will have the right to refuse registration if the entity concerned does not exist or cannot be contacted.
8. Other major changes
- Abolition of VAT exemptions for auxiliary services provided in connection with financial and insurance services.
- Higher threshold of VAT exemption in cases of low sales of up to PLN 200,000 per year.
- The increased VAT rate of 23 percent is to apply until 31 December 2018.
- The right to deduct VAT for intra-Community acquisitions of goods is to be made conditional on the tax amount being taken into account in tax returns within no more than three months after the end of the month when the tax liability arose.
- Changes in the rules for providing guarantee deposits.
Given the extensive scope of the proposed amendments and the short time remaining until they are due to come into effect, we will be keeping a close eye on the legislative process to be able to alert you to the upcoming changes as early as possible. If you feel you need to review your tax situation in light of the proposed changes in legislation, do not hesitate to contact the lawyers and tax advisors at Dentons.