Poland | Proposal to Introduce Mandatory Split Payment Mechanism from March 2019

The EU Commission has published the proposal for a council implementing decision authorising Poland to introduce a mandatory split payment mechanism for certain supplies of business-to-business (B2B) goods and services which are vulnerable to fraud.

Under this split payment mechanism, businesses will be required to open a separate “blocked VAT bank account”, into which their customers must pay the VAT amount applicable to the bought goods and services.  The money in this VAT account can only be used to pay VAT to the tax authorities and to suppliers.  The mechanism, as to be expected, would only apply to such supplies for which payment is made via electronic bank transfer.

Although an optional split payment procedure has existed in Poland since July 2018, Poland is of the view that use of the mechanism on a mandatory basis would be such an effective weapon in the battle against VAT fraud in certain high-risk areas, that this type of tax avoidance (or evasion) would be eliminated.  These sectors include steel, scrap, electronics, gold fuels and plastics and are currently generally subject to the more traditional reverse charge mechanism and joint and several liability legislation.

Poland has considered the detrimental effect that use of the split payment system would have on a business’ cash flow.  Consequently, a speedier VAT refund procedure will be introduced under which VAT refund claims will be processed within 25 days instead of the usual 60 days as is the case under the general Polish VAT recovery rules.

This new rule would expire on 28th February 2022.

Although the proposal authorises Poland to use the measure from 1st March 2019, the relevant national legislation has not yet been drafted. The Ministry of Finance has announced that it is expecting to launch the mandatory split payment mechanism in the summer of 2019.