Changes to the ICS in light of the Polish SLIM VAT Package 3

On August 4, 2022, the Minister of Finance prepared a draft amendment to the VAT Act known as SLIM VAT 3. This is intended to be another modification of the regulations to simplify the application of the VAT Act. Among other things, the amendments to the regulations on the transaction of Intra-Community supply of goods (ICS) in light of the SLIM VAT 3 package have been clarified

What is Intra-Community Supply of Goods

The definition of  ntra-Community supply of goods (abbreviated as ICS) is contained in Article 13(1) of the VAT Act. According to it, it is the export of goods and the transfer of rights to dispose of the goods from the territory of Poland, to the territory of another country, counted among the countries of the European Union. The supply is between entities with a valid VAT-EU number (VAT number preceded by a country code).

Article 13 (1) of the Polish VAT Act:

1. The Intra-Community Supply of Goods referred to in Article 5 (1) point 5 shall be understood as the export of goods from the territory of the country in performance of the activities specified in Article 7 to the territory of a Member State other than the territory of the country, subject to paragraphs 2-8.

When does tax obligation arise?

According to Article 20(1-1a) of the  VAT Act, the tax obligation for ICS arises when the invoice is issued. However, no later than the 15th of the month following the month of delivery of goods. In the case of supplies made continuously for more than a month, the tax obligation ends at the end of the month.

Article 20 (1-1a) of the VAT Act:

1. In an Intra-Community Supply of Goods, the tax obligation arises upon the issuance of an invoice by the taxpayer, but no later than on the 15th day of the month following the month in which the supply was made, subject to paragraph 4.

1a. In the case of an Intra-Community Supply of Goods carried out continuously over a period of more than one month, it shall be deemed to have been made at the end of each month until the supply of such goods is completed.

Documentation of exports of goods under ICS

Article 42(3) of the Polish VAT Act specifies evidence of the Intra-Community Supply of Goods (ICS), entitling the application of the 0% VAT rate. They are, among others, shipping documents received from the carrier (CMR) responsible for the export of goods from the national territory. It must be evident in the documents that the goods were delivered to a destination in the territory of another European Union country.

No confirmation of Export of goods – currently

By the end of 2022, the taxpayer has until the deadline for filing the tax return for the tax period in question to complete the documentation proving ICS.

If we have export documentation for ICS by the declaration deadline, we can apply the 0% VAT rate in the declaration. If we do not have the above documentation-we “wait” and do not report ICS. At the time when we will not have confirmation of delivery within 2 consecutive months – we report transactions at the domestic rate corresponding to the goods. However, upon receipt of documents confirming the ICS, the taxpayer has the right to correct this transaction and apply the 0% rate. In such a case, in accordance with Article 42(12) and (12a), the taxpayer is required to report the ICS transaction in the return for the period in which the supply of goods was made.

Article 42 (12-12a) of the VAT Act:

12. If the condition referred to in paragraph 1 point 2 has not been met before the deadline for submitting the tax return for:

1) the quarterly period – the taxpayer shall not show this supply in the records referred to in Article 109 (3) for this period; the taxpayer shall show this supply in the records referred to in Article 109 (3) for the next accounting period at the rate applicable to the supply of the goods in question on the territory of the country, if before the expiration of the deadline for filing the tax return for this next accounting period he does not have the evidence referred to in paragraph 1 point 2;

2) the monthly period – the taxpayer shall not show this supply in the records referred to in Article 109(3) for this period; the taxpayer shall show this supply in the records referred to in Article 109(3) for the accounting period subsequent to the next accounting period with the rate applicable to the supply of the goods in question on the territory of the country, if, before the expiration of the deadline for filing the return, the taxpayer for this accounting period subsequent to the next accounting period does not have the evidence referred to in paragraph 1, point 2.

12a. In the cases referred to in paragraph 12, receipt of the evidence referred to in paragraph 1, point 2, shall authorize the taxpayer to show the Intra-Community Supply of Goods at the rate of 0% in the records referred to in Article 109 paragraph 3, for the accounting period in which the supply was made, and to make an adjustment to the tax return and the summary information referred to in Article 100 (1), respectively.

The above wording may raise doubts because the moment of making the supply may occur a month (or a quarter) earlier than the moment when the tax obligation arises – which arises on the day of issuing the invoice, no later than the 15th day of the month following the completion of the Intra-Community Supply of Goods.

No confirmation of Export of goods in light of SLIM VAT 3

Changes to the SLIM VAT 3 package are planned from January 01, 2023. In the package, due to a number of concerns that have arisen, it was decided to drop the reference to the delivery date. Instead, it was proposed that the taxpayer should go back with the settlement of ICS transactions to the period in which the tax liability arose (the date of the invoice or the 15th of the month following the month of the supply).

In the cases referred to in paragraph 12, receipt of the evidence referred to in paragraph 1, point 2, shall authorize the taxpayer to report the Intra-Community Supply of Goods at a 0% rate in the records referred to in Article 109 paragraph 3, for the accounting period in which the tax obligation arose on account of his making this supply, and to make an adjustment to the tax return and the summary information referred to in Article 100 (1), respectively.

Author: Klaudia Zawisza-Izdebska, VAT specialist at MDDP Outsourcing.

Sources:

Act of March 11, 2004 on Value Added Tax.

Draft Act on Amendments to the Act on Value Added Tax and the Act on the National Tax Administration