The European Commission is likely to give the green light to the introduction of mandatory split payment in Poland for some industries. This is according to the draft derogation decision of the European Commission published on 23.01.2019.The idea is to introduce a mandatory split payment mechanism for a temporary period From 1.03.2019 to 29.02.2022. The consent was sought by the Polish authorities.
The obligation may be applied to 152 groups of goods and services. According to the draft, the mandatory split payment would cover such goods as smartphones, notebooks, tablets, game consoles, processors, hard drives, toner and inks, steel products, recyclables, waste, fuel, auto parts, construction work, coal, among others - i.e. products currently mostly subject to reverse VAT or joint and several liability.
A realistic timeframe for legislative changes and to allow businesses to adapt to the changes seems to be the turn of the second and third quarters of 2019.
Mandatory split payment for foreign contractors settling VAT in Poland would mean they would have to set up a bank account in Poland.
What does this mean for factoring companies?
- Factoring companies are already adapted to the split payment mechanism;
- For them, the above changes mean that some factoring companies will become entities that settle most or a significant portion of their invoices under MPP. One should expect increased monitoring of such entities when the new regulations are introduced;
- For, on the one hand, it must be reckoned that both the factor and the recipient may "forget" to issue and pay new invoices under MPP. Depending on how the sanctions are shaped, this forgetfulness is likely to involve joint and several liability of such entities for unaccounted-for VAT, which means that the factoring recipient may fall victim to the insolvency of the entity from which it purchases;
- On the other hand, it should be reckoned that such entities will be more exposed to fiscal control during the first period of application of the new regulations, which, in the context of their solvency and potential blocking of accounts, may interest the factor;
- Of course, it should also not be forgotten that the subject coverage of a portion of MPP goods implies an initial invoicing mess. In an extreme situation, one entity will think about invoicing on full vat, MPP, reverse charge. Without the introduction of appropriate invoice templates, it is easy to get confused. On top of this, in the first period there will be cut-off dates - one day the FV should be issued on reverse charge, and the next day already on MPP;
- It should be expected that entrepreneurs trading in multiple products, who have so far, for example, sold smartphones, tablets, keyboards and games collectively on one invoice, should now issue separate collective or individual invoices for goods covered by the MPP. For factoring companies, this means greater fragmentation of invoices;
- The companies that will be affected by the mandatory MPP in question will be blocked with part of their VAT account funds, which means they will have even greater liquidity needs - by definition, they should therefore need factoring even more.
Draft decision with annex (full list of goods and services) is available here.
More will be written when we know the real shape of the proposed regulations and the deadline for entrepreneurs to comply with the changes.
About split payment we have already written a lot. In particular, we encourage you to familiarize yourself with archived entries in this regard, including on the anticipated effects on factoring.
Do you have any more predictions about the impact of mandatory SP on some goods and services? I encourage you to share your insights in the comments.
