The mechanism of the so-called split payment, is another of the announced novelties relating to VAT. This system currently operates in several countries, including Italy, Turkey and the Czech Republic. Due to the changes in the law, enterprises may be subject to greater control by tax authorities. At the same time, taxpayers will be able to reduce their liability and be protected against certain tax sanctions.

What is the split payment?

The justification for introducing such a mechanism is the tax loophole in VAT, which seems obvious in light of the current activities of the Ministry of Finance. The Chapter 1a of the VAT Act, added to Section XI, is to specify the principles of its operation. The split payment will apply to buyers who have received an invoice with the indicated tax amount.

The split payment mechanism works in such a way that the buyer will transfer the net amount to the seller's standard account, while the equivalent of the tax on goods and services will be paid to another account - the seller's VAT account. The money on this special account will belong to the seller but access to it will be limited.

However, it is worth remembering that the split payment mechanism applies only to transactions made between business entities, that is in B2B (company-company) relations. Split payment does not apply to transactions that take place between enterprises and individual clients, i.e. B2C. At the beginning, the split payment mechanism is to be a voluntary solution for the buyer, although it can not be ruled out that, if approval is granted by the European Commission, it will become obligatory in later years.

Split payment mechanism - what are the benefits for entrepreneurs?

In order to encourage taxpayers to use the split payment mechanism, the provisions provide for certain benefits for them. The first of these is a reduction in the amount of their tax liability (as referred to in Article 108d (1) of the draft of the amended Act). This will be possible if the payment of the tax liability is made in full from the VAT account on a date earlier than the one specified for the payment of the tax. In such a situation, the amount of the tax liability may be reduced by an amount calculated according to the following formula:

S= Z* r * (n/360)

where:

S - is the amount by which the amount of the payment of the tax liability is reduced, rounded to the nearest zloty;
Z - is the amount of the tax liability, consistent with the tax declaration before the reduction of this liability;
r- is the NBP reference rate, in effect on the business days before the date of tax payment;
n - is the number of days from the date on which the transfer was requested (with the exception of the deadline date for payment of the tax, only inclusive of that day). (Polski tekst dla mnie niezrozumialy).

The numerical analysis of examples, however, leads to the conclusion that the incentive is rather symbolic in character.

Another advantage for entrepreneurs is to be the fact that they will not to have to apply art. 56b of the Tax Ordinance, i.e. the increased interest rate, to any arrears which arose as a result of a submitted tax declaration with the amount of input tax established. This amount must result in 95% from invoices paid using the split payment mechanism.

The final date of the entry into force of the new regulations is not yet known.

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