Tackling the VAT gap in Poland
Poland is introducing a split payment mechanism for VAT transaction settlements to prevent tax fraud.
Poland’s split payment tool, introduced on 1 July 2018, aims to tighten the VAT system by preventing the occurrence of fraud at the transaction stage, to ensure greater stability of tax revenues and stop tax evasion through moving money abroad.
Unlike in some other countries such as Italy, the use of the split payment mechanism will not be limited to certain transactions or business sectors. The Polish regulations stipulate that it should be applied voluntarily by the purchaser of goods or services. It will apply only to transactions made between VAT taxpayers, i.e. business to business transactions.
Purchasers applying the split payment mechanism will not be responsible for dividing payments – this will be done by the bank via two channels. The payment of the net amount will be made to the supplier’s normal bank account, and the payment of the tax will be made to a special VAT account.
To implement the new system, banks will automatically set up special VAT accounts connected to standard business banks accounts. The VAT accounts will belong directly to the business, but use of the funds collected will be restricted. The taxpayer will only be able to use the funds gathered on the VAT account to:
- Pay the tax due to the tax office.
- Pay contractors the VAT sum on an invoice.
- Transfer the money to their standard bank account – but only with the prior consent of the head of the tax office.
In order to encourage taxpayers to use the split payment mechanism some incentives have been introduced, including a reduction in the VAT to be paid and faster VAT refunds.
The new regulations will only apply to Polish bank accounts, and special VAT accounts will be in Polish currency (PLN) only.
It’s expected that entities with government connections as well as state-owned companies will be the first to apply the mechanism.