What are the consequences of breaching the split payment mechanism?

The split payment mechanism is the institution competent for VAT. Depending on the circumstances of a given transaction, it may be voluntary or obligatory. In the article below, we will consider the tax consequences of violating the split payment mechanism for both parties to the transaction.

What is the split payment mechanism?

At the outset, it is worth recalling what the split payment mechanism is all about. For this purpose, reference should be made to Art. 108a paragraph. 2 of the VAT Act, which states that the application of the split payment mechanism consists in:

1. the payment of the amount corresponding to all or part of the tax amount resulting from the invoice received is made to the VAT account;

2. the payment of all or part of the amount corresponding to the net sales value resulting from the invoice received is made to the bank account or to the account of the cooperative savings and credit union for which the VAT account is kept, or is settled in a different way.

As a consequence, the gross payment made for the paid delivery of goods or the paid service is separated in such a way that the net value of the remuneration is transferred to the taxpayer's settlement account, while the amount of tax due is transferred to a special VAT account used only to settle the tax liability. goods and services.

The split payment mechanism is based on the division of the remuneration amount into two bank accounts, one of which is intended solely for the payment of VAT.

Obligation to use the split payment mechanism

According to Art. 108a paragraph. 1 of the VAT Act, taxpayers who received an invoice with the indicated tax amount may use the split payment mechanism when paying the amount due under this invoice.

In this respect, it points out that the provision uses the term "may", which means that in this case the application of the split payment mechanism is optional and the taxpayer receiving the invoice may or may not pay the amounts due in this way.

However, it should be noted that the split payment mechanism is not always voluntary.

In the light of Art. 108a paragraph. 1a of the VAT Act, when making payments for the purchased goods or services listed in Annex 15 to the Act, documented by an invoice in which the total amount receivable exceeds PLN 15,000 or its equivalent expressed in a foreign currency, taxpayers are required to apply the split payment mechanism. For the conversion of amounts expressed in foreign currencies into zlotys, the rules of conversion of amounts used to determine the tax base are applied.

As a result, when the above conditions are met, the application of the split payment mechanism becomes an obligation, the violation of which is associated with specific tax consequences.

The obligation to use the split payment mechanism arises if three conditions are met jointly, i.e. an invoice:

• will be issued for the total amount due (gross amount) in excess of PLN 15,000 or its equivalent;

• will document the delivery of goods or the provision of services referred to in Annex 15 to the Act,

• activities will be performed for the taxpayer.

Effects of breach of the split payment mechanism

In the case of the obligatory split payment mechanism, the invoice issued by the seller includes the words "split payment mechanism".

In addition, the provisions indicate that the taxpayer obliged to issue the invoice referred to in art. 106e paragraph. 1 point 18a, must accept payment of the amount due under this invoice using the split payment mechanism.

Bearing in mind the effects of a breach of the split payment mechanism, first of all, one should refer to the provisions on the effects of an incorrect invoice issuance, ie without the annotation "split payment mechanism".

According to Art. 106e paragraph. 12 of the VAT Act, if it is found that the taxpayer issued an invoice without the annotation "split payment mechanism", the head of the tax office or the head of the customs and tax office determines an additional tax liability in the amount of 30% of the tax amount for the supply of goods or services listed in Annex 15 to the Act, shown on this invoice.

The wording of such a provision indicates that the taxpayer is liable for the violation of the split payment mechanism in the form of the need to pay an additional tax liability under VAT.

There are two exceptions to the above liability.

First of all, no additional tax liability is established in relation to natural persons who are liable for the same act for a fiscal offense or for a fiscal offense.

Secondly, the additional tax liability is not established if the payment of the amount corresponding to the tax amount for the supply of goods or services listed in Annex 15 to the Act, indicated on the invoice, was made using the split payment mechanism. In this case, even if the seller does not include the annotation "split payment mechanism" on the invoice, and the remuneration is still paid using this procedure, the seller will not be taxed on this account.

A seller who is obliged to use the split payment mechanism and does not include the annotation "split payment mechanism" on the invoice issued on this account, is exposed to an additional tax liability. However, the VAT Act provides for an exception to this rule.

Consequences of violation of the split payment mechanism for the buyer of goods and services

It should be remembered that not only the seller, but also the buyer, may suffer from violation of the split payment mechanism, i.e. liability for failure to comply with the obligatory split payment mechanism.

In this regard, let us indicate the content of Art. 108a paragraph. 7 of the VAT Act, which clearly indicates that if it is found that the taxpayer made the payment in violation of the SPM, the head of the tax office or the head of the customs and tax office establishes an additional tax liability in the amount corresponding to 30% of the tax amount for the purchased goods or services listed in Annex 15 to the Act, shown on the invoice to which the payment relates.

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Thus, similarly as in the case of the seller, the buyer is also exposed to an additional tax liability in a situation where the payment has not been made using the split payment mechanism.

Also then, there are two exceptions, the occurrence of which means that no additional tax liability arises. This will be the case when:

• a natural person is liable for the same act for a fiscal offense or for a fiscal offense;

• the supplier or service provider settled the entire amount of tax resulting from the invoice that was paid in violation of the SPM.

If the recipient of the invoice does not comply with the split payment mechanism and makes the payment without this procedure, then he is exposed to additional tax liability under VAT. This obligation does not arise if the seller pays the entire amount of tax due on this invoice to the tax office.

Moving on to the summary, we can therefore indicate that the effects of violating the split payment mechanism may affect both parties to the transaction, i.e. both the seller and the buyer. The VAT Act provides for some exceptions in this regard, which should be remembered.