In business transactions, there is a common practice of trade (“invoicing”) between several entities, where goods are transported directly from the first to the last.
The provisions of the Polish VAT Act provide for simplification for triangular transactions – under a special procedure (Article 135).
Bearing in mind the above-mentioned regulations, it should be pointed out that a triangular transaction will occur in a situation where:
- three different VAT payers are involved in the transaction;
- each taxpayer is registered in another EU member state;
- all participants are registered for intra-Community transactions;
- it is assumed that the supply of goods is made between the first and second taxable persons and the second and the last;
- the supply is for the same goods;
- as a result of the transaction, the goods are handed over by the first participant directly to the last taxpayer in the sequence;
- the goods are dispatched or transported by or on behalf of the first or second taxable person;
- the transport of goods takes place from the territory of one EU Member State to the territory of another EU country.
Importantly, each of these entities participating in the supply chain must be identified for the purposes of intra-Community transactions in one of the EU countries.
The main simplification of settlements is the fact that a domestic supply from the second taxpayer in the chain to the last is subject to the mechanism of self-assessment of tax by the buyer, who treats it as an intra-Community acquisition of goods. The application of this procedure allows for the conclusion that ICA has been taxed in the country where the shipment of goods ends, which exempts the other participant in the transaction from the obligation to tax ICA in the country that assigned it an EU VAT number.
In order to apply the indicated simplification, the following conditions must be met:
- the supply to the last VAT taxpayer must be directly preceded by an intra-Community acquisition of goods from the second VAT taxpayer;
- the second taxpayer making a supply to the last taxpayer in the chain cannot have its registered office in the Member State where the transport or shipment ends;
- the second taxable person in the chain applies to the first and last taxable person the same identification number for VAT purposes as was assigned to him by a Member State other than the one in which the transport or dispatch begins or ends;
- the last taxpayer in line uses the identification number for VAT purposes of the Member State where the transport or shipment ends (e.g. Poland);
- the last VAT taxpayer in the chain was indicated by the second VAT taxpayer as obliged to settle VAT on the supply of goods carried out under the simplified procedure.
Due to the simplification, the Polish taxpayer, as the third entity participating in the intra-Community triangular transaction covered by the said transaction, is obliged to:
- settle the tax on the supply that will constitute an intra-Community acquisition in the tax return submitted to him, on the basis of self-assessment;
- include in the records kept, in addition to the data listed in Article 109(3) of the Act, the turnover (excluding the amount of tax) on account of the supply made to him and the amount of tax attributable to this supply, as well as the name and address of the second taxpayer of value added tax;
- prepare a summary statement on the intra-Community acquisition.
What if the other entity fails to fulfil its obligations, in particular with regard to marking the invoice?
From the perspective of Polish regulations (Article 136 sec. 1 of the Polish VAT Act), it follows that the second entity in the chain should include the following information in order to be able to apply the simplified procedure:
- the annotation “VAT: EC invoice simplified pursuant to Articles 135-138 of the VAT Act” or “VAT: EC invoice simplified pursuant to Article 141 of Directive 2006/112/EC”;
- a statement that the tax on the supply will be settled by the last taxpayer in the chain of value added tax;
- the number referred to in Article 97 sec. 10 of the Polish VAT Act, which is used by him for the first and last taxpayer of value added tax;
- the identification number used for the purposes of value added tax of the last taxable person in the sequence.
In this context, the judgment of the Court of Justice of the European Union of 8 December 2022 (file ref. C-247/21) is crucial, stating that: “Article 42(a) of Directive 2006/112 on the common system of value added tax, as amended by Directive 2010/45, in conjunction with Article 197(1)(c) of Directive 2006/112, should be interpreted as meaning that that, in the context of a triangular transaction, the final purchaser is not validly designated as the person liable to pay value added tax (VAT) if the invoice issued by the indirect purchaser does not contain the reference to ‘reverse charge’ referred to in Article 226(11a) of Directive 2006/112.’
In other words, according to the CJEU, in a situation where we have received an invoice from the second entity in the chain without an annotation that the last taxpayer in the chain is obliged to settle this transaction, it is not possible to apply the simplification applicable to a triangular transaction.
Importantly, the CJEU indicated in its position that if the original invoice lacks the above-mentioned annotation, it is not possible to add it later by correcting the invoice.
Taking the above into account, as far as the method of settling such a transaction is concerned, in principle, from the perspective of the second taxpayer in the chain, without applying the simplified procedure, he should register for VAT in Poland and make a domestic supply of goods to the Polish taxpayer. However, in order to unequivocally answer this doubt, it would be necessary to analyse the internal regulations in force in the country of the second taxpayer in the chain, i.e. to determine how these regulations regulate the issue of placing the annotation in question.
From the perspective of a Polish taxpayer, however, it is possible to consider settling such a transaction by settling due/input VAT – in accordance with Article 17 sec. 1 point 5 of the Polish VAT Act, i.e. a supply for which the buyer is a taxpayer. At the same time, it is worth signaling the lack of this to the contractor and informing them how Polish regulations approach this issue.
