SLIM VAT 2 – changes from October 1st, 2021

SLIM VAT 2 is the second amendment introducing a package of changes improving the quality of VAT regulations in Poland. The amendment was made, among others, in response to the judgments of the Court of Justice of the European Union (C-335/19 and C-895/19), which proved that Polish law is, at the time of the ruling, inconsistent with EU regulations.

Although the SLIM VAT 2 was officially published on September 6th, 2021, the effective dates for new regulations were set depending on the subject field. Generally, the amendment comes into force on October 1st. However, there are some minor exceptions: regulations effective from September 7th (which we wrote about here) and from January 1st, 2022.

This article will guide you through the most important SLIM VAT 2 provisions.

Relief for “bad debts”

As for the context: On October 15th, 2020, the ruling of the Court of Justice of the European Union was published on the non-compliance with EU regulations of the conditions of the so-called bad debt relief (judgment of October 15th, 2020, case C-335/19). As a consequence, SLIM VAT 2 law introduces specific and related changes, such as:

• enabling the application of said relief in situations where a debtor is a natural person or a taxpayer exempt from VAT;
• deadline extension for the relief: to three years, counting from the end of the tax year in which the invoice was issued (previously it was two years);
• at the time of application of the provision, the entity subjected to the relief can be in the course of:
  • restructuring,
  • bankruptcy proceedings at the national level,
  • liquidation,
  • the declaration of consumer bankruptcy.

VAT deduction

Starting from October 1st, the taxpayer will be able to deduct the VAT amount with the help of tax adjustment (correction) of past settlements. The mechanism is to include an expense to be deducted in the tax return for the period in which the right to deduct VAT arose, and for one of the three subsequent accounting periods after the tax period in which this right arose. Note, in the case of the so-called small taxpayer (Article 99 (2) and (3)): for one of the two following tax periods, no later than five years from the beginning of the year in which the right to reduce the amount of tax due arose.

SLIM VAT 2 changes for real estate sellers

In terms of obligations related to the real estate trading, taxpayers were so far obliged to submit declarations on the choice of VAT taxation of real estate at the latest before the date of delivery of the building, structure, or part thereof. The recipient of such a declaration was the head of the Tax Office competent for the buyer.

The SLIM VAT 2 amendment introduces an additional possibility of submitting such a declaration in the notarial deed itself. A statement must be consistent between the seller and the buyer. Therefore, SLIM VAT 2 abolishes the obligation for additional submission of a document in the form of a declaration on the choice of VAT taxation. The entry in the notarial deed may be the only and legitimate basis for the choice.

Chain transactions

A chain transaction is the sale of goods characterized by:

• participation in the transaction of more than two entities, most often in 1-2-3 pattern,
• utilizing the form of transport in the specified order: from the first (1) to the last (3), omitting the intermediary entity.

At the beginning of this year, the first edition of SLIM VAT introduced a provision regulating chain transactions. Art. 7 sec. 8 of the VAT law stated that if several entities deliver the same goods in such a way that the first of them deliver the goods directly to the last buyer, it is considered that the goods were delivered by each of the entities participating in these activities.

The amendment to SLIM VAT 2 goes a step further. It introduces the obligation to clearly define which delivery will be assigned the shipment or transport of goods when in a chain transaction it is not the buyer or the intermediary entity that organizes the transport. The regulation will apply to the export or intra-community delivery of goods. Accordingly, if the shipment will be arranged by the first buyer, the shipment will also be arranged by the first in the chain of transactions. If the transport of goods is organized by the last buyer, the shipment will also be organized by the last buyer.

VAT accounts

The VAT account also received several new regulations that organize the activities available to taxpayers:

• possibility of transferring funds between VAT accounts that are kept in separate banks;
• changes in split payment method (MPP) – the possibility of releasing funds transferred from a closed VAT account to the so-called technical account;
• the possibility of paying contributions to KRUS directly from the VAT account (be wary that this change will enter into force from January 1st, 2022).
• chance to release the funds from the VAT account even when the taxpayer has tax arrears. Provided that those arrears are secured by a postponement or installments plan decision by the head of the tax office.

SLIM VAT 2 changes, other significant

• VAT-26 – the deadline for submitting the information on motor vehicles used exclusively for the taxpayer’s business activities will be extended. New deadline: by the 25th day of the month following the month in which the first expenditure relating to such a vehicle was made. Previously in force was a period of seven days from the date of the first expenditure related to the vehicle.
• Changes in the definitions of “member country” and “territory of the European Union” resulting from Brexit. The new definitions delete the United Kingdom of Great Britain and also define Northern Ireland as an EU territory just within the transition period.

Legal basis

Law of August 11th, 2021, amending the Law on Tax on Goods and Services and the Law – Banking Law (Journal of Laws of 2021, item 1626), published in the Journal of Laws, on September 6th, 2021.