SLIM VAT 3 and the provisions on the CESOP implementation. What changes is the Polish Ministry of Finance preparing?

SLIM VAT 3 includes a package of solutions that - as the Polish Finance Ministry promises - will be simplifications and provide tax authorities with tools to combat VAT fraud. The draft is currently in the public consultation phase. At the same time, legislation implementing the provisions on the European Central Electronic System of Payment Information (CESOP), to which data on transactions and taxpayers are to be sent, is being processed and is still moving forward. The system is expected to be activated in 2024.

What does the SLIM VAT 3 introduce?

1. Increase the turnover limit of a small VAT taxpayer. As of January 1, 2023, the limit will be raised from €1.2 million to €2 million gross. Such entities may settle tax quarterly and use the cash method (tax obligation arises upon receipt of payment). Brokerage companies, trust fund managers and agents still have a limit of 45 thousand euros.
    
2. Changes in VAT sanctions. When imposing an additional tax liability, tax authorities will have to consider many factors, including, among others, the circumstances under which the irregularity arose, its amount. In addition, sanctions will be measured at three levels - up to 15%, up to 20% and up to 30%. The most severe sanction - 100% - is to be applied only when the taxpayer's action was related to fraud or conscious participation in fraud. Never automatically.
    
3. Clarification of which exchange rate to use when adjusting an invoice. Both with a decreasing (in minus) adjustment and with an increasing (in plus) adjustment, the exchange rate from the original invoice will be used. The situation will be different with cumulative correction invoices. The taxpayer will then apply one aggregate exchange rate to all adjusted transactions (the average exchange rate on the last business day preceding the adjustment). This change will simplify the making of discounts and price reductions.
    
4. Removal of the requirement to have an invoice when deducting VAT from intra-Community acquisition of goods (ICA). Currently, if the Polish buyer does not receive an invoice within three months, it must reduce the amount of input tax in the return. The legislator proposes that the invoice should not be a formal condition for tax deduction, so that input tax and output tax on ICT will always be accounted for in the same accounting period.
    
5. Clarification of the period for which the intra-Community supply of goods (ICS) is declared in the case where the taxpayer receives documents confirming ICS after a period of 3 months. The draft assumes granting the taxpayer the right to show/correct ICS in the settlement for the period in which the tax liability arose, which will simplify the obligation to correct this transaction. Currently, ICS is shown or corrected in the settlement for the period in which the supply was made.
    
6. The National Tax Information (Krajowa Informacja Skarbowa) will also deal with binding customs excise, tariff and origin information. The application for Binding Excise Information (WIS) will be exempt from payment, the circle of applicants will be expanded. Moreover, the content of the WIS will also be binding on addressees. Changes will also be made to the provisions regarding the validity, amendment, and expiration of WIS.
    
7. Proportion and pre-factor. Changes in settlements of entities making sales exempt from VAT. Taxpayers will not have to establish a proportion or pre-factor forecast with the tax authorities if they had a turnover lower than PLN 30 thousand. In addition, the amount allowing the proportion determined by the taxpayer to be considered 100% (when the proportion exceeds 98%) will increase to PLN 10 thousand. Adjustments for differences between the preliminary and final forecasts will also be changed.
    
8. VAT account - Split Payment (changes also in the Banking Law). First, funds accumulated in the VAT account will be able to be used to pay other taxes, e.g. trade, sugar, tonnage. Second, it will be possible to transfer VAT funds within a VAT group to its representative to settle the tax on a consolidated basis. Thirdly, an additional possibility will be introduced to release the facturer from joint and several liability. After the law enters into force, if a taxpayer changes factoring institution, the first one will be able to transfer the VAT amount directly to the new institution's account. Under the split payment mechanism, when a taxable person acquires goods or services from another taxable person, the portion of the payment to the supplier that is VAT will be deposited separately and automatically to a dedicated account of the seller (an r-VAT account), to satisfy the VAT required to be remitted to the tax agency. The net amount for the transaction is received by the seller. The amount deposited in a r-VAT account earns interest for the vendor and may be used to satisfy its VAT obligations.
    
9. The scope of the VAT exemption for investment fund management services will be expanded to include EU-based entities.
    
10. Liberalization of the conditions for faster VAT refund (15 days) for non-cash taxpayers (using online or virtual cash registers). On the one hand, the period of examination of the taxpayer's fulfillment of the conditions for the possibility of using the accelerated refund mode will be permanently reduced. Two-year preferential conditions for the use of accelerated returns are also to be introduced. They will consist of a reduction in the percentage requirements for the value of sales recorded on cash register and non-cash. In addition, procedural rules for expedited refunds in terms of deadlines and appeals of decisions will be amended.
     
11. Confirmation a possibility to waive the obligation to issue a prepayment invoice and settle in full by means of a final invoice, if the tax obligation of the prepayment and the supply/provision of services arises in the same settlement period.
     
12. Introducing the possibility of waiving the obligation to print fiscal documents (reports and non-fiscal documents) issued when using online cash registers. The taxpayer will be able to store these records electronically.
     
13. Clarification of the rules for making corrections to output tax on the supply of goods made to a traveler. If the seller makes a tax refund in cash, which will be confirmed by the signature of the traveler after the deadline for filing a tax return for a given accounting period, the taxpayer will be able to make an adjustment in the settlement for the period in which he received this document (no later than before the expiration of 10 months).
     
14. OSS, IOSS and MOSS. Introduction of provisions forming the basis for electronic correction declarations, which will be filed outside the OSS, MOSS and IOSS system (in case of expiration of 3 years after filing of the declaration or discontinuation of use of the procedures or change of the country of identification) directly in the country of consumption.
    This change will also affect the Law on Administrative Enforcement Proceedings - after the amendment, the authorities will be able to claim VAT settled in out-of-system adjustments. The principle of converting the monetary receivable resulting from the adjustment of the declaration into Polish currency (in zlotys) will be introduced.

CESOP regulation: new record-keeping obligations for payment service providers

There will be an obligation to keep quarterly records of payment recipients and cross-border payments. This information is to be sent to the tax administration, and then the states will collect the data in CESOP. Payment service providers include: credit institutions, electronic money, postal giro providers, payment service providers, among others. The obligations apply only to EU entities. The obliged provider will have to verify whether the payee is a consumer or not, and determine the location of payers and payees. The new regulations include definitions and ways to determine the above data.

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