Polish Deal – changes in the legislation concerning VAT-consolidated groups

by Kamila Kmiecik

22 October 2021

Draft amendments to tax laws as part of the Polish Deal overhaul regulations on tax-consolidated groups, in particular in view of the VAT Act. The new regulations are to apply from 1 July 2022.

VAT-consolidated group

The amended legislation allows joint VAT accounting to entities that meet statutory criteria. Unlike in many European countries, the planned simplified intra-group VAT accounting is a completely new legal device in the Polish tax system.

Under that amendment the group will be treated as one taxpayer for VAT purposes but the individual group entities will retain their separate organisational and legal structure. As a consequence, supplies of goods and services performed by a group entity to an independent (non-group) entity will be considered performed by the entire group. Also when it comes to transactions performed for a VAT group, they will also be considered performed for the entire entity.

What’s in it for you?

Advantages for members of a VAT group include without limitation:

1.  transactions made between members of a VAT group will be non-taxable;
2. the other members of the VAT group will be allowed to deduct the excess of input tax over output tax (in this way, if even one VAT group member entity generates an excess, the other members will be allowed to deduct it, too);
3. one aggregate JPK_VAT (SAF-T) for the entire group;
4. entities making up the VAT group will not be obliged to apply the split payment mechanism between them in intra-group transactions.

What conditions must be met?

Only taxpayers having their registered office in Poland or pursuing business activity through a branch office registered in Poland will be eligible as long as the group members have sufficient financial, economic and organisational links.

The lawmakers have described in detail the issue of the “financial, economic and organisational links” between VAT group members.

The financial link requirement will be met if:

• one of the taxpayers being a member of the VAT group holds directly over 50% of shares in the share capital or
• over 50% of the voting rights in control, decision-making or managing bodies or
• over 50% of the right to a share in the profits of each of the other taxpayers being members of that group.

When it comes to the “economic link”, it may be said to exist if the core activity of the VAT group members is of the same nature or if the types of business activities pursued by the group members are complementary and interdependent or if a member of the VAT group carries out a business activity from which the other members benefit in full or to a large extent.

“Organisational link” means that the group members should act under common direction or, fully or partially, in concert.

The above links must exist throughout the period. The entity may be a member of just one VAT group which, in turn, must not be either reduced or extended by new members. If the facts and circumstances or the legal status change so that one of the conditions is no longer met, the VAT group will lose the taxpayer status.

How to establish a VAT-consolidated group?

To establish a VAT-consolidated group, the interested entities (meeting the above criteria) must:

1. conclude an agreement to establish a VAT group;
2. appoint a VAT group representative;
3. apply for registration to and file the agreement with the tax office (competent for the group representative).

Documentation of intra-group transactions

The amended VAT Act provides group members with an option account for VAT jointly and keep simplified records. According to the bill, in intra-group transactions, there is no obligation to issue an invoice and document the sale in the traditional way. This means less paperwork and less burden on financial and accounting departments.