Introduction as of 1.07.2018. Split Payment (hereinafter: "SP"), as an alternative to paying by traditional transfer, raised many doubts among entrepreneurs. Some of them I tried to dispel in THIS ARTICLE, and in factoring in THIS ARTICLE The fact that the Split Payment Method (hereinafter: "MPP") is a solution that reduces liquidity for entrepreneurs is not debatable and mobilizes companies to seek solutions to mitigate the effects of MPP. One of the many problems arising under the new regulations is the question of whether it is permissible to impose an order to pay contractors by traditional transfer (i.e., prohibition of payment through SP).
1 Voluntary MPP
Article 108a(1) of the VAT Law implies that MPP is voluntary. The method of payment by the purchaser of goods/services for a VAT invoice is therefore up to the purchaser, who can pay either by traditional transfer or by SP transfer. The issuer of the invoice (the recipient of the transfer) does not have any influence on this issue here post - when the transfer arrives - he cannot reject it, because the payment will be effective. However, he can take other actions beforehand - in particular, introduce a contractual prohibition or clauses on the VAT invoice.
2 Contractual prohibition of payment through SP
The contract, or a contractual provision in the master agreement (e.g., cooperation/sales/supply) may normalize this issue differently. In particular, the vendor has the option to stipulate in the contract the form of accepting payment. It can also order payment for issued invoices in the form of traditional transfer while reserving to the contractor a contractual penalty for payment in the form of SP. The question arises - will such a provision be effective and will it not contradict the principle of freedom of contract?
The Fiscal Service has confirmed the permissibility of exempting the use of MPP by companies under contractual agreements (Response of the Ministry of Finance No. PT8.054.8.2018 dated 31.01.2018 to parliamentary interpellation No. 18445). The MF was also tempted to remark that "the buyer in such a situation should be fully aware of what it is agreeing to and what it is giving up if it turns out that the supplier may turn out to be a dishonest taxpayer. For the buyer, the vendor's refusal to settle the transaction using MPP should become the first signal that, for some reason, the vendor is preventing the buyer from taking advantage of the transaction security afforded by MPP."
Thus, the MF considered the provision excluding payment bypassing the SP as legally permissible. I stand by the position that the above does not solve the problem at all. This is due, on the one hand, to the informal nature of the expression of the position (the response to the MP's interpretation is not binding on either the Fiscal or the courts), and secondly, to the fact that the Fiscal expressed its position from the point of view of the provisions of the VAT Act, and such contractual regulations are also subject to evaluation from the point of view of the Civil Code.
3. will payment by split payment transfer against a contractual prohibition be effective?
In my opinion payment in the form of SP (contrary to the contractual provision) will be effective against the seller. After all, the admissibility of payment by the SP follows from the provisions of the MPP, such a method of payment is also in accordance with the provisions of the Civil Code, so the seller will not have the option of not taking payment or stating that the payment is ineffective. Only if the contract/invoice explicitly stipulates a different method of payment (e.g., cash/traditional transfer) can one hypothetically consider whether the seller has the right not to accept payment. However, it should be assumed that Companies will not take on the risk of making SP transfer refunds. In addition to the technical problems associated with this, such an action will be very disadvantageous in terms of image, not to mention the fact that it may even be an 'invitation' for an audit by the tax authorities.
4. What is the penalty for paying by split payment transfer in violation of the contractual prohibition?
If the issuer of the invoice did not return the payment then it should be assumed that he accepted the payment and settled it. Payment in such a manner will therefore constitute performance of an obligation, although doing so in an improper manner - inconsistent with the contract. In this situation, it is up to the creditor to decide whether and what he will do about such a situation.
a. No contractual penalty
In the absence of liquidated damages, the creditor's situation is not simple. To enforce the debtor's liability for damages, he would have to prove the loss and its amount. Thus, he would have to prove before the Court that he suffered a loss of a specific amount as a result of receiving the SP transfer from the debtor. This is difficult, but feasible. Using a simple example - the creditor received a transfer from the SP for PLN 1,230,000 gross, of which PLN 1,000,000 went to the current account, and PLN 230,000 went to the SP's account (VAT account). The amount of PLN 230,000 had lain in a non-interest bearing VAT account for 3 months, only then was it able to be released. The entrepreneur had funds in the current account bearing interest at the rate of 2%. If he had received the funds by an ordinary transfer, the funds in the account would have generated PLN 1,150 in interest representing lost profits. Theoretically, the creditor can sue the debtor for payment of this amount. However, as you can see, the losses here are not significant to risk severing economic ties, and just suing your counterparty for such amounts seems questionable. In addition, the above example is simple and clear, and such occur quite rarely.
Alternatively, you can simply terminate the contract with the contractor by paying the SP transfer (in accordance with the contractual notice periods) or cease cooperation. However, who will allow themselves to choose their contractors in this way? This is a non-market solution.
b. Contractual penalty
Will the reserved contractual penalty prove effective? There is no single right answer to this question, as the regulations are new and no line of case law of common courts in this regard has yet been formed. Making a payment in the form of SP in contravention of the contractual provision should be treated as improper performance of the obligation - the performance will be fulfilled, but the creditor's interest will not be satisfied in a manner resulting from the content of the obligation (since the content of the obligation is also shaped by the provision of the contract ordering payment by traditional transfer).
Personally, I take the position that the contractual penalty will be effective as long as the payment in the form of SP in accordance with the regulations is optional (and currently it is) and provided that: (1) the contractual penalty is not grossly excessive, (2) there is a rational justification for its introduction. Therefore, when constructing a contractual penalty, it should be done in a balanced and careful manner. Most importantly, in the case of liquidated damages, the creditor is not required to prove the damage he suffered by receiving a traditional transfer, the mere fact that a contractual obligation was breached is enough.
5. one-sided disclaimer on the invoice
In my opinion, a unilateral reservation by the seller on the invoice to prohibit split payment will not be effective, unless it is confirmed in the contract or general terms of sale - properly introduced or modified. Doubts may only arise when the invoice is an offer, or has been accepted (signed) by the buyer - then it may gain the force equal to a contractual provision.
6. discounts for payment by traditional transfer
It seems that a safer way to achieve a similar effect (i.e., receiving payment for invoices issued by traditional transfer) is to reverse this thought process - i.e., rewarding instead of punishing. Thus, discounts can be given to buyers for payment by traditional transfer (in the form of a discount - a follow-up discount). This is because in this way the invoice issuer buys itself better liquidity by offering the buyer, for example, a 1-3% discount. An additional plus is that this form of motivation was not crossed out by the Ministry of Finance in its response to the interpellation quoted at the outset.
7. what factoring companies can do
Do factoring companies have the ability to take steps to increase the number of payments received in the form of traditional transfers? As much as possible. There are many such opportunities. Starting with lower fees in the fee schedule for counterparty repayments by traditional transfer, to lowering other fees, to introducing a system of discounts, to reserving other internal regulations. In other words - it seems that the best solution will be to motivate the factor to make the debtor take care of this form of payment by giving him an incentive in this regard. The factor then shifts the burden of persuasion to the factor.
8 Concluding remarks
The first accounting period after MPP has not yet passed, so each business will have to answer for itself whether MPP has disrupted liquidity enough to start "buying" payment from counterparties by traditional transfers or modifying contractual templates. Due to the short duration of the legislation, the problem is not yet so significant, but the coming months will show how the market will react - especially whether the largest corporations will start paying through MPP - then for the release of funds from the VAT account, this could trigger a wave of payments by SP in the market.
In the case of large entities, it is undoubtedly necessary to make a decision on how to respond to MPP, which requires a detailed legal and financial analysis, as well as obtaining an individual interpretation when the entrepreneur intends to interfere with MPP, e.g. by introducing a modification of the general terms and conditions of sale. It goes without saying that the decision in this regard is part of the company's compliance system, and often the decision in this regard will flow from the head office.
However, it should not be forgotten that aggressively fighting MPP also involves certain risks. Going by the Fiscal's position:
- an entity that strenuously tries to exclude MPP may be a suspect entity from the point of view of accounting for VAT to the state budget;
- Taxpayers who do not use their VAT account may be typed more often for tax audits.
So is it worth the risk? Each taxpayer will have to answer this question for himself.
Undoubtedly, the security of any movement can be strengthened by using individual interpretations.
