Table of Contents:
- Can invoices with the note “split payment mechanism” be settled by offsetting?
- Does offsetting violate the regulations regarding the white list of VAT taxpayers?
When a taxpayer “settles” a liability through offsetting, they do not violate the obligation to pay via a payment account or to make payments to an account outside the white list of VAT taxpayers. Therefore, they will not face negative consequences, such as the inability to deduct the expense as a tax-deductible cost. The same applies to the split payment regulations.
Can invoices with the note “split payment mechanism” be settled by offsetting?
Article 108a, paragraph 1d of the VAT Act stipulates that in the case of offsetting receivables, the provisions of paragraphs 1a and 1b (which establish the requirement for split payment) do not apply to the extent that the receivables are offset. Article 108a, paragraph 1d of the VAT Act was introduced on January 1, 2021. According to the justification for the amendment to the VAT Act: “(…) it is proposed to exclude the obligation to apply the split payment mechanism also in the case of other offsets, i.e., offsets made between persons who are not debtors and creditors to each other (mutual offsetting). Additionally, both offsetting receivables do not have to be due.” From January 1, 2021, the obligation to apply the split payment mechanism was also excluded for non-statutory offsets, i.e., offsets permitted under the principle of freedom of contract. This provided taxpayers with a more flexible solution that allows various market practices, such as netting.
Does offsetting violate the regulations regarding the white list of VAT taxpayers?
Article 15d, paragraph 1, point 3 of the CIT Act states that taxpayers do not include in tax-deductible costs the expense to the extent that the payment for a transaction specified in Article 19 of the Act of March 6, 2018, on Entrepreneurs’ Law, despite the invoice containing the words “split payment mechanism” in accordance with Article 106e, paragraph 1, point 18a of the VAT Act, was made without the use of the split payment mechanism specified in Article 108a, paragraph 1a of this Act.
In the past, there have been individual interpretations by the Director of KIS, who questioned the possibility of including in tax-deductible costs amounts that were settled through offsetting and that included receivables indicated on invoices containing the note “split payment mechanism.” This interpretation was unequivocally rejected by the Provincial Administrative Court (WSA) in Wrocław in its ruling of December 12, 2023, case no. I SA/Wr 596/23 (final judgment):
“The interpretative authority, when issuing an interpretation based on the application of the Party, cannot overlook the existence of the provision contained in paragraph 1d of Article 108a of the VAT Act, which – in the case of offsetting receivables to the extent that the receivables are offset – excludes the application, among others, of the provision in paragraph 1 of this article. In the challenged interpretation, neither the current nor the previous wording of paragraph 1d of this article was even cited. The DKIS (Director of the National Revenue Information) limited itself only to citing the content of the explanations related to it issued both before and after the above-described and normatively significant change in the content of paragraph 1d, doing so in a way detached both from the chronological context of the legal effects of its amendment (ultimately basing the interpretation on explanations dated before its entry into force) and from the basic rules of interpretation, including the presumption of the rationality of the legislator’s actions (the requirement to interpret legal provisions in a way that eliminates illogical and absurd interpretations). Meanwhile, as a result of this change, the legal effects previously reserved exclusively for offsetting regulated in Article 498 of the Civil Code were also extended to other cases of settling liabilities covered by VAT invoices through offsetting – without any restrictions for other forms of offsetting than those specified in the Civil Code, including netting (in accordance with the maxim: quod lege non distinguente, nec nostrum est distinguere – where the law does not distinguish, neither is it our place to distinguish).”
