NEWSLETTER
July 2016
Table of content
TOPICS OF THE MONTH 2
The VAT rate for prepared meals - a general tax ruling of the Minister of Finance dated 24 June
2016., [ref. PT1.050.3.2016.156]. 2
European Council introduces consolidated rules regarding taxation of vouchers 3
Tax relief for research and development 4
RECENT TAX RULINGS 6
Parking the company’s car near employee’s premises does not exclude full deduction of input VAT 6
The upfront payment does not result in one taxable income 6
Banks may block the accounts 6
Lower tax rate for small enterprises 6
Disclaimer 6
2
Topics of the month
The VAT rate for prepared meals - a general tax ruling of the Minister of Finance dated 24 June 2016., [ref. PT1.050.3.2016.156].
According to the general tax ruling [ref. PT1.050.3.2016.156] issued by Minister of Finance on 24 June 2016 supply of prepared meals in catering facilities cannot be a taxed 5% VAT.
The tax ruling indicates that regardless of the qualifications of the activity, whether it is the supply of goods or services, it is crucial to properly classify the specific goods or services according to Polish Classification of Goods and Services [PKWiU] – providing that the VAT regulations refer to PKWiU. Whereas recognition of classification done by manufacturer or service provider may not breach the principles of construction and logic of PKWiU. If in doubt, the seller may submit the request to statistical authorities for recognition of the respective grouping of PKWiU.
In the opinion of Minister of Finance, in order to recognize whether the activity is included in the PKWiU classification 10.85 “Prepared meals and dishes" or in 56 “Services related to the board", it is crucial to establish if the offered products are fully cooked and served as a meal ready for immediate consumption, or are not ready for immediate consumption – e.g.
frozen or vacuum - packed and labeled for the purpose of sale.
According to approach of the Minister of Finance the meals sold by various catering facilities designated for immediate consumption, cannot benefit from 5% VAT rate. In general such products are taxed 8% rate of VAT under § 3. 1 point 1 in connection with the item 7 of the Attachment to the Regulation on VAT rates, subject to the exceptions indicated in this position of the Attachment, to which the basic 23% VAT applies.
Analysis of this approach leads to the conclusion that the VAT rate in the catering industry does not depend on recognition whether it is supply of goods or restaurant services but on the classification according to PKWiU.
The current approach presented in general tax ruling is rather surprising, as so far, in tax rulings issued, different legal interpretation dominated, according to which it was substantial to differentiate a sale of goods from a sale of services, and that approach was in line with judgments of European Court of Justice e.g. Joined Cases C-497/09, C-499/09, C-501/09 i C-502/09 of 10 March 2011. The ECJ judgment indicates that:
1. Articles 5 and 6 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by
3 Council Directive 92/111/EEC of 14 December 1992, must be interpreted as meaning that:
the supply of food or meals freshly prepared for immediate consumption from snack stalls or mobile snack bars or in cinema foyers is a supply of goods within the meaning of Article 5 if a qualitative examination of the entire transaction shows that the elements of supply of services preceding and accompanying the supply of the food are not predominant;
except cases in which a party catering service does no more than deliver standard meals without any additional elements of supply of services, or in which other special circumstances show that the supply of the food represents the predominant element of a transaction, the activities of a party catering service are supplies of services within the meaning of Article 6.
European Council introduces consolidated rules regarding taxation of vouchers
Due to fact that the current regulations of the VAT Directive do not ensure coherence in the tax classification of transactions involving vouchers, causing a divergence of interpretation across the EU, the European Council on 27 June 2016 adopted an amendment to the existing VAT Directive. The European Commission yet in 2012 has attempted to determine new rules for the taxation of vouchers. The works of the European Commission on this issue have been associated with numerous doubts of taxpayers from different EU countries. The taxpayers did not always know how to settle the VAT on the vouchers, if it was issued in one Member State and executed in another.
The amended regulations of the VAT Directive will include new definitions of the voucher, i.e.: the voucher of one purpose and a voucher for various purposes. In general, the voucher will be a document that entitles a specific person to make a specific purchase of goods or services. Obtaining the voucher of one purpose will require from the beneficiary to know what purchase he is authorized to. While the voucher for various purposes will be any other document, that is, for example, a voucher for a certain amount to use in the store. In this case, the taxpayer itself decides what goods or services is to purchase.
According to the new rules for both types of vouchers they will be settled in a different manner from the VAT point of view. In the case of the one purpose voucher it will be treated as a prepayment (advance payment) for a particular purchase. So, if the issuer will issue a voucher e.g. for the purchase of specific goods, the transaction will be regarded as a supply of goods and will include VAT at the rate applicable to the goods or services for which the voucher was issued. The subsequent release of the goods or provision of services will not necessitate the calculation of VAT.
4 In the case of the voucher for various purposes, VAT must be settled only at the time of completion of the transaction. Obligation of VAT settlement will concern only the actual transfer of goods or services received in exchange of the voucher. However each preceding transfer of the voucher is not taxable (an opposite principle to voucher of one purpose).
Therefore, before the customer decides on a specific purchase, there will be no taxable supply of goods or services, as it will not be possible to determine what amount of VAT should be calculated.
Described solutions apply only to vouchers, which entitles to obtain goods or services and will not be applied to a vouchers entitling the holder to discounts on the purchase of goods or services.
The new rules will apply for Member States from 1 January 2019 provided that they relate only to vouchers issued after December 31, 2018.
Tax relief for research and development
The mass media frequently quote statements of economic experts about the need to increase innovation in the Polish economy in the coming years. This objective is to be achieved, in part, by changes made to the tax laws (both CIT and PIT). On 1 January 2016 the Act on Changes to Some Regulations Connected with Supporting Innovation introduced new solutions to encourage entrepreneurs to increase their activity in the field of creation and use of new technologies.
The previous law aimed at encouraging innovation in the Polish economy (so-called new technology tax credit) proved unsuccessful.
The new regulations took on the shape of the so-called research and development relief (R&D relief). They allow the taxpayers to expense research and development costs. The Former regulations (new technology tax credit) did not recognize costs of research as tax deductible.
Currently, according to the provisions of Article 18d of the Corporate Income Tax Act the following expenses for research and development are R&D relief:
Remunerations and premiums financed by the employer, if these costs relate to staff employed in order to carry out research and development activities
Purchases of materials directly related to conducting R&D activities
Expert advice, opinions, consultancy services and similar services, as well as the results of scientific research, provided or performed on a contractual basis by scientific institutions for the purpose of conducted R&D activities
Costs related to the use of scientific and research equipment utilized exclusively in conducting R&D activities
5
Depreciation of fixed and intangible assets used in conducting R&D activities, except for passenger cars, facilities and buildings being separate ownership.
However, the amount of eligible costs has been limited. The limits for specific types of expenses are:
– 30% for remunerations and premiums regardless the company’s size – 20% for other expenses in micro, small and medium enterprises – 10% for other expenses in large enterprises
In practice, this means that taxpayers conducting R&D activities can additionally, depending on the company’s size and the nature of expenditures incurred for this activity, deduct 10% to 30% of eligible costs from the tax base. In other words, the percentage of eligible expenses related to conducting R&D activities will be treated as deductible costs twice.
If the taxpayer’s income is less than the deductible amount the deductions are made for three consecutive tax years. Taxpayers who intend to apply R&D related deductions, are obliged to keep separate records of the costs of research and development activities.
Entities which in the fiscal year carried out business activity in special economic zones, may not apply for the tax credit. The eligible costs cannot be deducted if they were reimbursed to the taxpayer in any form.
It is worth mentioning that tax incentives may be applied not only by entities carrying out R&D activities, but also by companies investing in such entities. According to Article 14 par.
1 of the Act, revenues from the disposition of shares in entities conducting R&D activities are exempt from corporate income tax. This exemption applies to shares acquired in the years 2016 and 2017 by a limited company or by a limited joint-stock partnership.
To take advantage of exemption, the taxpayer is obliged to meet the following criteria:
The company whose shares are sold is a tax resident of European Union or European Economic Area state
The disposing company holds no less than 10% of the shares in the disposed entity, shares were owned directly and continuously for a period of at least two years, and in this period the disposed entity:
o Did not have the status of controlled foreign company o Did not produce goods subject to excise duty
o Did not conduct trading activity o Carried out R&D activities.
o Taking into consideration how beneficial these incentives may be, one can only hope that they will be used more widely than the technology tax credit.
6
Recent tax rulings
Parking the company’s car near employee’s premises does not exclude full deduction of input VAT
The administrative court in Wroclaw overruled the tax ruling of Minister of Finance which stated that in case of parking the company’s car near employee’s premises results in limited (50%) of deduction of input VAT. In the court’s opinion, parking the company’s car near the employee’s premises is not enough to state that a car is used for private purposes (file no. I Sa/Wr 191/16).
The upfront payment does not result in one taxable income
The Supreme Administrative Court settled a dispute concerning a method of reporting a taxable income arising from a long-term contract. In the case at stake (related to archiving services), both parties agreed that the archiving will be settled monthly for five years.
According to the Supreme Administrative Court, in such a case, a contractor is entitled to report taxable income monthly, despite the fact that payment was made in advance for the whole five-year’s period.
Banks may block the accounts
Banks, manager of the investment funds, insurers and other financial institutions call their clients to submit FATCA statements, as they are obliged to gather information specified in the tax law of the USA. Consequently, in case of clients who did not fulfil the said obligation, their accounts may be blocked.
Lower tax rate for small enterprises
Corporate income tax payers not exceeding the income threshold of EUR 1.2 M will benefit the lower tax rate, as it is stipulated in the Bill of the amendment of CIT Act. According to the Minister of Finance, the new regulations on the 15% tax rate will be applicable for over 90% of tax payers.
Disclaimer
KR Group reserves that the presented newsletter cannot be considered for tax or legal advisory services.
7 KR Group is an independent, fast-growing accounting and auditing group with an international
reach. Our head office is located in Warsaw.
For over sixteen years we have been providing professional services in accounting, tax, audit, legal advice, payroll and human resources.
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in the region, we can help with the complex registration procedures, or assist in acquiring an existing company. This means that you can instead focus from the very outset on managing your
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