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Monika Bartosiewicz

Steuerberaterin (Polen)
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The Minister of Finance issued on 1 April 2016 a general advance tax ruling, file no. PT3.8101.41.2015.AEW.2016.AMT.141, where he dealt with the provisions of the Value Added Tax Act (the "VAT Act") concerning the tax point in construction services or construction and assembly services.

The ruling was issued due to numerous differences in understanding of the time when the supply of such services is deemed to take place. The gap in interpretations has become even wider because of the definition of the time of supply under the VAT Act from before its amendment in January 2014, as well as the existing approach to this issue in the context of income tax laws.

When it comes to construction services or construction and assembly services, crucial for determination of the VAT tax point is the date when such services are actually performed. The Minister of Finance has explained that the time of supply would be different in the case of:

  • the construction services or construction and assembly services supplied as a whole or in stages;
  • the construction services or construction and assembly services supplied on a continuous basis.

Furthermore, the Minister of Finance has explained the role the service recipient's status plays in the identification of the tax point.

The construction services or construction and assembly services supplied as a whole or in stages

Until the end of 2013, the date when the construction (construction and assembly) service was deemed to be performed for VAT purposes was (like it is now for income tax purposes) the date when civil law formalities were fulfilled, that is, the delivery report was signed or, in the case of services supplied on FIDIC contracts terms, the letter of acceptance was issued. 

However, the said ruling now stipulates that such services are considered performed (for VAT purposes):

  • with respect to services supplied as a whole – the date when the contractor reports the readiness for acceptance to the buyer (the date when the contractor believes the work is effectively completed); 
  • with respect to services supplied in stages, provided that a price has been set for a stage (e.g. a contract requires payments after each stage of work is completed) – the date when the contractor reports the readiness of a stage of work for acceptance (the date when the contractor believes the agreed part of the services is ready to be received by the buyer).

The above means that when it comes to the construction services or construction and assembly services to be accepted as a whole or in stages, the key moment from the VAT point of view is when the contractor reports the readiness for acceptance and not the date when the buyer accepts the work. Consequently, the date of signing of the final acceptance report is irrelevant for VAT. 

Construction services or construction and assembly services supplied on a continuous

The advance tax ruling discussed in this article says that where a contract provides for continuous supplies of services (meaning services for which regular payment dates or accounting periods have been set) the services are considered performed at the end of each payment deadline or accounting period. If the services are supplied on a continuous basis for more than a year and no deadline for payment or accounting period for those services expires in one year, the services are considered to be performed at the end of each tax year, until they are finally completed (Article 19(3) of the VAT Act).

If you provide construction services or construction and assembly services and plan on structuring the payments in the above manner, it is important to remember that the Minister of Finance has emphasised the key role of the objective factors and only the auxiliary role of contractual provisions in the identification of the VAT tax point. He has further stressed that where construction services performed in one accounting period can be divided into stages, such services must not be regarded as continuous supplies. This standpoint may have a considerable impact on the tax authorities' future practices. Therefore, we recommend considerable caution in drafting construction contracts which provide for periodic payments.

Time of supply of a service and the tax point

Further in his ruling the Minister of Finance holds that the buyer's status (consumer vs a VAT taxable person) is key in determining the tax point for the construction services or construction and assembly services. 

Construction services or construction and assembly services supplied to consumers

If you supply construction services or construction and assembly services to an entity that is not registered as a VAT taxable person (a consumer), the VAT tax point is the date when the services or their part are performed, provided that a payment has been stipulated for that part (Article 19a(1)(2) and (3) of the VAT Act). 

If you receive the whole or part of the payment before you supply the construction services or construction and assembly services or their part, the tax point is the date when you receive the payment (advance) (Article 19a(8) of the VAT Act).

Construction services or construction and assembly services supplied to taxable persons registered for VAT in Poland

When it comes to the construction services or construction and assembly services supplied to taxable persons registered for VAT crucial for the identification of the tax point are the invoicing and the invoice date (Article 19a(5)(3) of the VAT Act).

Pursuant to the VAT Act, invoices should be issued up to 30 days after the services or their part, for which a payment is set, are performed and not earlier than 30 days before that date (Article 106i(3)(1) and 106i(7)(1) of the VAT Act).

Invoices for continuous supplies of services may be issued earlier than 30 days before the services are performed as long as they indicate the period they refer to (Article 106i(8) of the VAT Act).

So, if you issue an invoice within the above time limits, the tax will become chargeable on the invoice date. If you issue an invoice too late or not at all, the VAT will become chargeable on expiry of the invoicing deadline stipulated in the VAT Act.

If you receive the whole or part of the payment before you perform the whole or a part of the services, the tax will become chargeable on the date when you receive the payment.

This essentially means that when it comes to services supplied to consumers, neither the acceptance date nor the invoice date is relevant for the tax point. What matters is the date when the services are performed. As regards services supplied to VAT taxable persons, crucial is the invoice issued within the stipulated timeframes. 

In practice, the above rules mean that the key date for income tax purposes (i.e. the date when the buyer accepts the work) and the VAT tax point generally do not match in the case of construction services or construction and assembly services.

Our advisory experience tells us that the explanations provided by the Minister of Finance may significantly affect the way the tax authorities treat the date when construction services or construction and assembly services are performed for income tax purposes. We believe that you might want to consider applying for an advance tax ruling to secure your income tax accounts. As regards the VAT accounts, we recommend that you thoroughly review (at least) your contractual provisions and actual actions taken by the parties – especially the timing of invoicing of construction services or construction and assembly services. The correct identification of the VAT tax point is just as important for the buyer. This is because input VAT may be deducted in the accounting period in which the service provider is obliged to pay the tax. 

We will be glad to assist you in this regard and provide you with tax advice in Poland on CIT, PIT and VAT issues. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.

5.08.2016