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The European Commission (EC) has responded positively to Poland's request and agreed to extend the split payment mechanism (MPP) for another three years, until 28 February 2028. The decision is a response to the application that Poland submitted last year, arguing that split payment effectively reduces losses related to tax fraud. The EC decision still needs to be approved by the EU Council.
In addition to the application for the extension of the split payment, Poland has also submitted an application for changes to Annex No. 15 to the VAT Act, which contains a list of goods and services covered by the split payment mechanism. These changes are intended to adapt the list to the classification of the Combined Nomenclature (CN). This is to be a purely technical change, so it will not affect the scope of application of split payment.
Poland attached a report to the application, which shows that the split payment mechanism has brought significant results in the fight against tax fraud. In 2018, before the introduction of mandatory split payment, the value of VAT fraud amounted to almost PLN 5.2 billion. In 2022, this amount dropped to less than PLN 1.7 billion.
In addition, as the value and number of frauds decreased, the number of proceedings conducted in these cases also decreased. In 2018, 558 VAT carousel proceedings were initiated, while in 2022 only 97. Similarly, the total number of VAT fraud proceedings decreased from 3,507 in 2018 to 2,750 in 2022.
Let us recall that the current regulations the authorisation for Poland to apply the mandatory split payment mechanism expires on 28 February 2025. More information on this topic can be found here.
The split payment mechanism basically means that the payment for goods or services made by the buyer by bank transfer does not go in full to the recipient's account, but is divided into the net amount and VAT. The net amount goes to the seller's account, and the VAT amount - to their VAT account. The seller does not have full freedom in disposing of the amount in the VAT account. Such a VAT account is created by the bank automatically, as an additional account, to each account set up in connection with the conducted business activity.
The mandatory split payment mechanism has been in force since 2019 (in 2018 it was applied on a voluntary basis) and applies to payments:
Importantly, the split payment mechanism can also be used by VAT payers who pay for transactions by transfer in foreign currencies. However, the VAT amount for a transfer in foreign currency must be expressed in złoty, which makes its determination problematic.
Taxes are a constant revolution! Regulations, case law, interpretations change in the blink of an eye. Don't be surprised - take advantage of our tax advisory services in Poland and always stay up to date!
