The Point at Which the VAT Liability Arises – Rules and Exceptions

The point at which the VAT liability arises is one of the key issues in tax practice, having a direct impact on the deadline for reporting output tax in the return and on the company’s financial accounts. Correctly determining this date is crucial to both a company’s tax security and its financial liquidity. The provisions of the Goods and Services Tax Act (the VAT Act) set out different rules for determining this point in time, depending on the type of transaction, the nature of the supply and the status of the parties. In this article, I present a detailed analysis of the general and specific rules, provide practical examples, and discuss the most common interpretative challenges in the light of current case law and the positions of the tax authorities.

The essence of the VAT liability

The VAT liability arises at the moment when the taxpayer becomes obliged to account for the tax due in respect of the supply of goods or the provision of a service. In accordance with Article 19a(1) of the VAT Act, as a general rule, the tax liability arises at the time of the supply of goods or the provision of a service. This means that it is crucial to correctly determine the moment at which the right to dispose of the goods as owner is transferred or the provision of services is completed – irrespective of the date on which the invoice is issued or payment is received.

General principle – supply of goods and provision of services

In practice, the moment of supply of goods is deemed to be the moment when actual control over the goods is transferred to the purchaser, in accordance with the interpretation of the Court of Justice of the European Union (C-320/88) and national tax authorities. For example, in the case of mail-order sales, the transfer of the right to dispose of the goods takes place at the moment the consignment is handed over to the carrier, unless different terms have been agreed in the contract (e.g. INCOTERMS).

In the case of services, the tax liability arises upon completion of all activities constituting the service, which is most often confirmed by the signing of an acceptance certificate or the approval of a final report. Example: if a trader provides a comprehensive maintenance service to a client and the contract provides for final acceptance upon completion of all work, it is the date of acceptance that constitutes the moment when the tax liability arises.

Receipt of payment prior to the supply of goods or the provision of a service

Significant modifications to the general rule apply where, prior to the supply of goods or the provision of a service, the supplier receives all or part of the payment (an advance payment, prepayment or deposit). In such cases, in accordance with Section 19a(8) of the VAT Act, the tax liability arises upon receipt of the funds – to the extent that they relate to a future, specifically defined supply.

Exceptions apply, amongst other things, to the supply of energy, letting, tenancy, leasing, and the provision of telecommunications and security services. Receipt of an advance payment in these sectors does not give rise to a tax liability – other specific rules apply, which I discuss in detail below.

Continuous services and supplies – settlement periods

In the case of services or supplies provided on a continuous basis (e.g. tenancies, subscriptions, technical support services), the Act provides for specific arrangements. Pursuant to Article 19a(3) and (4) of the VAT Act:

• If successive payment or settlement dates have been agreed, the service or supply is deemed to have been performed at the end of each accounting period.
• If the supply lasts for more than one year and no payment or settlement dates fall within that year, the tax liability arises at the end of each tax year.

Example: a trader provides IT support services under an annual subscription, with monthly payments. The tax liability arises at the end of each month, regardless of when the invoice was issued or when payment was made.

Special rules for determining when the tax liability arises

Tax liability arising upon the issue of an invoice

In certain sectors (Article 19a(5)(3) and (4) of the VAT Act), the date of invoice issuance is decisive, provided the invoice was issued within the prescribed time limit:

• construction and construction-assembly services,
• the supply of printed books, newspapers and magazines (with exceptions),
• telecommunications services, rental, tenancy, leasing, personal and property security, ongoing legal and administrative services, and media distribution.

If the invoice is not issued by the deadline, the tax liability arises upon the expiry of that deadline, and where no deadline has been specified – upon the expiry of the payment deadline.

Example: a trader provides a property rental service, setting a monthly billing period and a payment deadline of the 10th day of the month. The invoice should be issued no later than the expiry of the payment deadline. If the invoice is issued before that deadline, it is the date of the invoice that determines when the tax liability arises.

Tax liability upon receipt of payment

In certain cases, such as consignment sales, services provided at the request of the courts, or tax-exempt services (including financial and insurance services), the tax liability arises upon receipt of all or part of the payment. Similarly, a small taxpayer using the cash accounting method recognises tax due only upon payment – regardless of whether the service has been performed or the invoice issued, subject to the proviso that, in dealings with consumers, the tax liability arises no later than 180 days after the supply or performance of the service.

International transactions – intra-Community supply of goods (WDT), intra-Community acquisition of goods (WNT), import and export

1. Intra-Community supply of goods (ICS)

For intra-Community supply of goods (WDT), in accordance with Article 20(1) of the VAT Act, the tax liability arises at the time the invoice is issued, no later than the 15th day of the month following the month in which the supply took place. In the case of continuous supplies, the last day of each month is deemed to be the date of supply.

2. Intra-Community acquisition of goods (ICA)

Similarly, the date on which the VAT-registered person issues the invoice is decisive, but no later than the 15th day of the month following the month in which the supply took place.

3. Import of goods

The tax liability arises at the time the customs debt arises, and where goods are subject to special customs procedures – at the time the procedure is closed or when countervailing charges become due.

4. Export of goods and services

For the export of goods, the general rule applies – the decisive factor is the supply of the goods or receipt of payment, whichever occurs first. In the case of the export of services, the place of taxation is determined by the country of the service recipient, and no tax liability arises on the part of the Polish trader if the reverse charge mechanism is applied.

 Single-purpose and multi-purpose vouchers, re-invoicing of services

When transferring single-purpose vouchers, the tax liability arises at the time the voucher is transferred. In the case of multi-purpose vouchers, the tax liability arises at the time the service to which the voucher relates is provided. The re-invoicing of services does not give rise to a specific point at which the tax liability arises – the decisive factor is the date on which the service was performed or the invoice was issued, in accordance with the original transaction.

Practical aspects of documentation and record-keeping

Correctly identifying the moment when the tax liability arises requires careful documentation of the transaction process. The date on which the invoice is issued should correspond to the actual moment when the tax liability arises, and any advance payments, prepayments or deposits must be properly recorded in VAT registers and JPK_V7 files. In the event of a delay in issuing an invoice, it is necessary to amend the VAT return.

It is advisable to use electronic accounting systems that enable the automatic assignment of tax liability dates to individual transactions, including advance payments and periodic settlements.

The most common interpretative challenges and the outlook for case law

In practice, a number of uncertainties arise regarding services and supplies of a continuous nature. The tax authorities take a strict stance on the necessity of applying settlement periods; however, administrative courts have repeatedly held that the concept of a continuous service encompasses not only services of a general nature (utility supplies, tenancies), but also other recurring activities under long-term cooperation agreements.

“Supplies of a continuous nature should be understood as a series of successive, separate supplies made over a period longer than one month, resulting from arrangements made between the contracting parties, under which the supplier undertakes to the purchaser to supply strictly defined goods in accordance with an agreed schedule.” (Supreme Administrative Court, First Tax Chamber, Case No. 1906/15)

Another challenge is the correct treatment of advance payments. The amount received must be linked to a specific, clearly defined transaction for a tax liability to arise. Payments without a specified consideration, refundable deposits or erroneous payments do not give rise to a tax liability.

Summary

The moment when the VAT liability arises is closely linked to the type of supply, the nature of the payment and the status of the parties to the transaction. Businesses should not only have a detailed understanding of the provisions of the VAT Act, but also monitor current case law and interpretations by the tax authorities. In practice, it is essential to meticulously document and record all business transactions, as this enables VAT to be accounted for correctly and on time, whilst minimising tax risk. The complexity of the regulations and the numerous exceptions require businesses to adopt a proactive approach to tax risk management and to keep their knowledge of VAT settlements up to date.