On June 1st, Polish entrepreneurs had to face a new VAT tariffs scheme, which was bound to enter into force as early as in April. The amendment has been postponed, however, due to the COVID-19 pandemic and subsequent chaos on the market, which would be even deeper with changes tax law. Even though we were given additional time to prepare, many companies may be surprised and face problems related to the new tax reality, especially with Combined Nomenclature (in Polish: Nomenklatura Scalona). Luckily, the amendment itself contains a very handy procedure on Binding Tariff Information (Wiążąca Informacja Stawkowa, WIS). It is supposed to bring more clarity and certainty into tax reality, and apparently it shows up in Polish legal system just in time.
What is WIS exactly?
Polish tax law already allows to file for an individual interpretation on tax regulations, which in theory should protect taxpayers from paying taxes higher than as declared in the interpretation. Sadly, the protection provided by interpretations is far from perfect – tax organs tend to undermine them, arguing for example, that facts stated as basis for the interpretation were imprecise, and the interpretation should not apply in the situation in question. Those decisions are further weakened by a clause on tax avoidance. The WIS may therefore be considered an answer of lawmakers to criticism of the old proceeding.
Firstly, it must be noted that WIS applies only to VAT and it is regulated in the Act on VAT. The interpretation, on the other hand, may apply to most taxes and it regulated in the Tax Ordinance Act. The WIS relates only to VAT because of its principal position in Polish tax system and in business trading. Both proceedings are broadly similar, but they key difference lays in Article 42 of the Act on VAT: the WIS is binding tax administration with regards to entities entitled to file for WIS. As a result, protection offered by WIS is much tougher and there is no possibility to issue a tax decision contradictory to WIS in question. It will also be more difficult to undermine the WIS, especially considering the fact, that each WIS applies to a particular product or service based on its detailed description, while at the same time indicating classification of the product or service in accordance with the Combined Nomenclature, Polish Classification of Goods and Services or other applicable classification, therefore indicating a correct VAT tariff.
Both a taxpayer, identified by NIP number, as well as any other entity undertaking or planning to undertake actions related to subject of the proceeding, or buyer as laid out in Public Procurement Law – to an extent, to which VAT influences pricing of a procurement, may file for WIS. The Tariff Information is issued by the Director of National Tax Information Office (Dyrektor Krajowej Informacji Skarbowej, KIS). The KIS website, as well as e-PUAP platform offer a simple model of a document, which might be used to file for WIS both by e-PUAP profile or by traditional mail. The WIS application should include a detailed and thorough description of a single product or single service. More products or services may be described together, if they form a composite service – a set of service consisting of a primary service and other services inherently connected to the primary one, being necessary for performance of this service. The description is a key element of the application – if done properly, it will provide a solid basis for a subsequent decision. We may suggest classification which seems correct for us, but obviously this suggestion is in no way binding for the Director of KIS.
Additionally, the application should be reinforced by attachments – any kind of documents or materials helpful in the procedure. The Director of KIS has also a possibility to demand a small batch of product for necessary examination – such examination may occur particularly often in chemical or food industry. The application itself is inexpensive and costs only 40 PLN, although in case of examinations we will most likely have to bear cost of them as well. 40 PLN is a cost of a single application for a single product or service (or composite service) so if we want to check proper classification of multiple separate products, we will have to pay 40 PLN for each of them. The Director of KIS is obliged to issue his decision within 3 months, starting on the day when he receives a valid and properly paid application. Both decisions and related applications are published in a Bulletin of Public Information, so even though other decisions do not bind us, we may check how similar applications to ours are proceeded and interpreted.
What’s the catch?
The overall concept of WIS seems fantastic, but it is still far from perfect. Its legal basis is largely derived from old regulations on individual interpretations. For example, if the decision is altered or revoked, we still use Articles 14k – 14m of Tax Ordinance Act, which protect taxpayer and his actions undertaken before he received the decision on altering or revoking, and allow to use the WIS until the end of tax year, in which the WIS has been altered or revoked. Although the WIS is supposed to be a solid document for taxpayers, it may be either altered or revoked altogether, with the most important grounds for such decisions being:
- decision declared incorrect by Head of National Tax Administration,
- changes in relevant EU tax law,
- declaration of incorrect interpretation of relevant legal provision,
- declaration of incorrect judgement based on legal provision.
In the end, even though WIS is much stronger than classic interpretation, it may still be overturned.
Furthermore, there is one difference between WIS and individual interpretation, in which the old solution was actually better for taxpayers. The WIS is binding only with regards to goods and services delivered or manufactured after the WIS is received. In contrary, individual interpretations did give taxpayers a certain degree of limited retroactive protection. Currently there is no chance for such protection in case of VAT at all, as the two proceedings are not interchangeable – WIS is applicable solely in VAT cases, while individual interpretation may not be used in VAT cases at all.
Combined Nomenclature itself is in a way yet another weakness of WIS, as it is changed on a yearly basis by the European Commission. Obviously, such changes will be hardly revolutionary, but if any change does occur with respect to classification of our interest, it may lead to revoking or change of WIS based on earlier CN version.
Is it worth it in the end?
In short – the WIS is definitely worth filing for, as there is no chance for other kind of interpretation in terms of VAT anyway. The legal protection offered by the decision of the Director of KIS makes it useful even without retroactive protection, whereas virtually symbolic costs of a single WIS make it an attractive solution which may provide at least a bit more security for our business. It is particularly important in current situation, when many questions related to new classifications may arise. The Combined Nomenclature is a completely new tool both for Polish taxpayers and for Polish tax administration, so a WIS may be a useful tool in adaptation to the new system. Overall, practical impact of WIS is difficult to assess at this point, as the procedure is simply too recent. It will be essential to pay attention to subsequent behaviour of tax administration when it comes to WIS.
Author: Filip Walczak