As of 2018, Poland has a split payment mechanism (MPP), or so-called split payment. It is one of the ways to tighten the tax system and reduce the VAT gap. The mechanism is still considered a relatively new solution. In Europe, it has so far been introduced in only a few countries. On what principles does it function in Poland? When is its application mandatory? And when is it voluntary? You will read about all this in this article.

The draft amendment to the Law on Value Added Tax, which includes provisions introducing the split payment mechanism in Poland (Articles 108a-108f), was already adopted by the government in September 2017. After a year, the changes came into force. In the meantime, the details of the solution have been modified several times. The latest modifications, in response to the situation of the economy during the COVID-19 pandemic, are effective from the beginning of 2021.

Split payment - how it works

The basic idea of the split payment mechanism is that the payment for goods or services is divided into two parts, each of which goes to a different account. The principal part, corresponding to the net amount, goes directly to the seller's standard account. On the other hand, the sum equal to VAT goes into a special account. The money accumulated there can be used by the owner only for strictly defined types of transactions.

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In Poland, VAT accounts are created automatically, as an additional account, when setting up a company account.

Who can use MPP

According to current Polish regulations, you can use the split payment mechanism only if you are a VAT taxpayer and pay by bank transfer an invoice that lists the amount of this tax. However, split payment is not obligatory for every such transaction. Such an obligation arises only in strictly defined circumstances.

Mandatory split payment

In order for a transaction to have to be carried out using the IRP, two conditions must be met together. First, there must be sensitive goods or services on the invoice (all from Appendix 15 of the Law on Goods and Services Tax). And second, the total amount due exceeds PLN 15 thousand gross or the equivalent in foreign currency. The issuer of an invoice meeting these conditions must label it with the term "split payment mechanism."

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Among the sensitive articles and services listed in the law's appendix are primarily:

• Steel, copper, aluminum, precious metals and products made from them,
• Coal and solid fuels from coal,
• liquid fuels,
• Electronic devices and their parts, including cell phones, computers, cameras, printers and their inks and toners, processors, hard drives, batteries,
• motor vehicle parts,
• recyclables and waste,
• Greenhouse gas emission allowances and services related to their transfer,
• all construction services.

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You must remember that it is enough for one of the items on an invoice of more than PLN 15,000 gross to belong to the sensitive group for the obligation to apply MPP to arise. However, it is then up to you whether you use this mechanism to pay for the entire invoice or only for sensitive items and services.

Voluntary split payment

You can also use the split payment mechanism for all other invoices paid by transfer (if, of course, you fall into the group of entrepreneurs described above).

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However, your counterparty may stipulate that he does not want MPP applied. This obliges you to transfer the gross amount to his account. Of course, this stipulation loses its effect when the transaction meets the requirements of mandatory split payment.

Making payments with MPP

You can make a payment in the split payment mechanism only with the help of the transfer form available in the company accounts called "transfer message". In it you need to specify:

• the amount of tax to be transferred to the VAT account
• gross amount covered by split payment
• invoice number
• Supplier's TIN

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If you have received more invoices from a contractor, you can pay them using split payment with one transfer. Then, instead of the number, you enter the period from which the invoices come. This period cannot be longer than one month. This way you can also pay an advance payment - then instead of the invoice number you enter "advance payment".

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Remember that making a transfer using MPP is possible only between company accounts of registered VAT payers. All of them are on the so-called "white list". With the help of a search engine, you can quickly and easily verify whether your counterparty's account number appears on it and whether it is correct. Of course, to perform such a transaction, your account number must also be in the above register.

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When completing the transfer you provide only one account number appearing on the invoice. It is the bank that automatically divides the transferred funds and posts them to the main account and the VAT account, respectively. At the same time, if there are any funds in your VAT account assigned to the account from which you make the transfer, they will be used to cover the tax amount indicated in the transfer message. If there are no funds in the VAT account, the entire amount will be transferred from the main account.

Deposits and withdrawals from the VAT account

The regulations strictly define what funds can be credited to your VAT account and what you can use the money for. See the table below for details.

In a situation where you will not be able to use the funds from the VAT account to settle with the tax, Social Security or pay customs duties, you have the right to apply to the tax office for the release of funds.

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You can submit your application online or at the relevant tax office. It does not have to be for the entire funds, you determine the amount you want to release yourself. The application is free of charge, and a decision will be made within a maximum of 60 days.

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The authority can refuse to release funds in principle only if you are in arrears with VAT or "there is a reasonable fear that VAT obligations will not be fulfilled." It is also possible to decide to release less than the amount you requested. In both of these cases, you have the right to appeal the decision.

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The tax office will inform you of the positive decision and the bank, which will transfer the amount indicated in the decision immediately to your main account. From then on, you will be able to use the funds for any purpose.