In a group it is better, or what benefits VAT groups bring to taxpayers

What is a VAT group?

A VAT group is defined as a taxpayer comprising a group of entities linked financially, economically and organisationally, which enter into an agreement to form a VAT group. It follows from this definition that all entities forming the VAT group will be treated as a single VAT taxpayer by the tax authorities and by trading partners outside the group. The supply of goods and provision of services by a member of a VAT group to an entity outside that VAT group is deemed to have been made by that VAT group. Conversely, the supply of goods and provision of services to a member of a VAT group by an entity outside that VAT group is deemed to have been made to that VAT group.

Who can form a VAT group

A VAT group may be formed by taxpayers:

• established within the country;
• not having their registered office within the country, to the extent that they carry out economic activity within the country through a branch situated within the country.

The Act also defines what is meant by financial, economic and organisational links.

A financial link exists where one of the taxpayers who is a member of a VAT group holds, directly, more than 50% of the shares in the share capital or more than 50% of the voting rights in the supervisory, decision-making or management bodies, or more than 50% of the right to a share in the profits, of each of the other taxpayers who are members of that group.

In turn, taxpayers are considered to be economically linked if:

• the main business activities of the VAT group members are of the same nature, or
• the types of business carried out by the members of the VAT group are complementary and interdependent, or
• a member of the VAT group carries out activities which are wholly or largely for the benefit of other members of the VAT group.

An organisational link, on the other hand, exists where taxpayers:

• legally or in fact, directly or indirectly, are under common management, or
• organise their activities wholly or partly in concert.

Entities wishing to form a VAT group must demonstrate all of the above links collectively (i.e. all of the above links must exist between the entities). At the same time, these links must be of a permanent and continuous nature, i.e. they must persist throughout the entire period during which the VAT group holds taxpayer status.

During the period in which the VAT group is in force, the group may not be expanded to include new members nor reduced by the removal of any of the members forming the group. At the same time, a VAT group may not be a member of another VAT group.

Entities wishing to form a VAT group are not required to hold the status of a Tax Capital Group for CIT purposes.

Benefits for entities forming a VAT group

The primary benefit of a VAT group is the preservation of full VAT neutrality for transactions between its members (i.e. the supply of goods or provision of services), and thus the absence of any requirement to add VAT to settlements for such intra-group transactions, no obligation to document them using invoices, apply the split payment mechanism, verify them using a white list, etc. At the same time, given that the VAT group (rather than the entities forming it) is the taxpayer, a single consolidated JPK is submitted with the return, instead of JPKs submitted separately for each entity in the group.

A VAT group also has a positive impact on cash flows within the group, particularly with regard to input VAT deductions. For example, if the group consists of entities where one regularly reports a surplus of input VAT over output VAT due for refund (typically, the refund takes 60 days), whilst the other entity, conversely, shows a surplus of output VAT over input VAT (i.e. VAT payable), the VAT group will enable such entities to settle the tax more effectively on a ‘net’ basis by utilising the input VAT surplus of the first entity without having to wait for a tax refund.

Another definite advantage of VAT groups is that VAT settlements between group entities are no longer subject to scrutiny by the tax authorities, which will streamline tax risk management.

What you need to be aware of when in a VAT group

Given that a VAT group operates as a single taxpayer, there are several aspects to bear in mind, namely the joint and several liability of VAT group members for the group’s obligations, the problematic calculation of VAT proportions (applicable to entities using a coefficient for settlement), and the obligations relating to the recording of intra-group transactions.

The last of the above aspects deserves particular attention, especially in light of the changes implemented under the so-called Polish Order 2.0. In accordance with these changes, members of a VAT group are required to keep a monthly electronic record of transactions carried out within the group. Such records should then be submitted to the relevant tax office by the 25th day of the month following each subsequent month.

Summary

The introduction of VAT groups into Polish tax law is certainly a step forward, particularly as this solution has already proven successful in other European Union member states. This solution is an important tool for groups of related entities, enabling them to optimise intra-group settlements by improving cash flow, reducing documentation, simplifying tax returns, achieving tax savings and managing tax risk more effectively. At the same time, the process of implementing a VAT group is undoubtedly a complex one and a challenge for taxpayers, generating new opportunities but also certain risks. For these reasons, it is essential to plan the effective implementation of a VAT group appropriately, not only from a tax perspective but also in terms of the organisation of business processes and intra-group processes.