Bailiffs - how to tax them?

Service-Tax

The article aims to present the way in which the activities performed by the bailiff are subject to VAT. We will try to answer the question of whether the changes related to the taxation of bailiffs' activities will result in an increase in prices. At the beginning, we will remind you what the bailiff does and what activities he performs. In the following, we will describe the bailiffs' battle with the Ministry of Finance, which ended with a resolution of the Supreme Administrative Court. Then we will explain how, in our opinion, bailiffs should be taxed with value added tax. Finally, we will indicate when the VAT obligation arises on bailiffs' activities.

Bailiff activities

Pursuant to the provisions of the Act on court bailiffs and enforcement - a court bailiff is a public official operating at the court, performing enforcement activities in civil cases, as well as other activities transferred on the basis of separate provisions. The bailiff performs the above activities in person, except for cases specified in the law, and on his own account. The bailiff collects enforcement fees for conducting enforcement and for other activities to which he is legally empowered. The bailiff is therefore primarily involved in the enforcement of claims, for which he charges enforcement fees.

VAT taxpayer status

Establishing the status of court bailiffs in the light of the provisions of the Act of March 11, 2004 on tax on goods and services (consolidated text, Journal of Laws of 2016, item 710, as amended), hereinafter referred to as the VAT Act, until recently, many interpretative doubts. Court bailiffs argued that they could not be considered VAT payers under Art. 15 sec. 1 of the VAT Act, as they do not conduct business activity. They considered themselves entities governed by public law (performing the activities of a public authority body).

In the light of Art. 15 sec. 6 of the VAT Act shall not be considered a taxpayer of public authorities and offices servicing these bodies in the scope of tasks imposed by separate provisions of law, for the implementation of which they have been established, with the exception of activities performed on the basis of concluded civil law contracts.

The above position was inconsistent with the general interpretation number PT1.050.1.2015.LJU.19 issued by the Minister of Finance on June 9, 2015, on the taxation of goods and services tax on activities performed by court bailiffs (Journal of Laws of the Minister of Finance of on June 15, 2015, item 41).

In the interpretation of June 9, 2015, it was stated that the activities performed by bailiffs, in particular enforcement, should be considered subject to tax on goods and services as a provision of services for remuneration - the exemption referred to in Art. 15 sec. 6 of the VAT Act. This means that in relation to all activities performed by court bailiffs, they have obligations appropriate to the taxpayers of this tax.

The above dispute was resolved by a resolution of the Supreme Administrative Court of March 6, 2017, file ref. act I FSP 8/16, in which we read:

Art. 15 sec. 1 in conjunction from paragraph 2, and art. 15 sec. 6 of the Act of March 11, 2004 on tax on goods and services (Journal of Laws of 2016, item 710, as amended).

Taking into account the above content of the resolution, it should be clearly stated that when performing enforcement activities, the bailiff acts as a VAT payer.

Example 1.

In the judgment, the court found that our contractor owes us PLN 20,000 for the delivered goods. In connection with this verdict, we asked the court bailiff to enforce this amount. He undertook bailiff actions, but he failed to recover the receivables due to the contractor's insolvency. The bailiff issued an invoice for the activities performed with a rate of 23%.

In the light of the above-mentioned resolution, it should be considered that the bailiff rightly issued an invoice with the amount of VAT. The tax rate is also beyond doubt. Bailiff activities are not listed in the act as taxed with preferential rates.

The tax base

In the following, we will try to explain what constitutes the tax base for enforcement activities. At the outset, it should be emphasized that the resolution does not determine what is the basis for taxation of enforcement activities performed by bailiffs. Pursuant to Art. 29a paragraph. 1 of the VAT Act, the taxable amount is everything that is the payment that the supplier of goods or the service provider has received or is to receive from the buyer, service recipient or third party, including received subsidies, subsidies and other surcharges of a similar nature, direct impact on the price of goods or services provided by the taxpayer, less the amount of tax. Of 6 points 1 and 2 of the quoted article specifies that the tax base includes taxes, duties, fees and other charges of a similar nature, with the exception of the tax amount (understood as tax on goods and services), as well as additional costs, such as commissions, packaging costs , transport and insurance charged by the supplier or service provider from the buyer or recipient. In its resolution, the National Council of Bailiffs held the position that bailiffs are entitled to increase the amount of the enforcement fee by the amount of VAT. The above position contradicted the explanations of the Ministry of Finance, in which the authority believed that in the case of enforcement fees charged by bailiffs, the so-called method "in a hundred". Thus, VAT is already included in the enforcement fee. The Supreme Court in the resolution of July 7, 2016, file ref. no. III CZP 34/16, held that the court bailiff, while specifying the amount of the costs of the enforcement proceedings, may not increase the enforcement fee, determined pursuant to Art. 49 sec. 1 and 2 of the Act of August 29, 1997 on court bailiffs and enforcement (consolidated text, Journal of Laws of 2015, item 790, as amended), on the rate of tax on goods and services. The above solution is not favorable for bailiffs, but the opposite solution would, in turn, be unfavorable for debtors, as it would significantly increase the costs of enforcement.

Referring to the above, it should be stated that the tax base for services provided by court bailiffs, for which they are VAT taxpayers, will be any amounts (remuneration) received in return for the services provided, in particular the enforcement fees referred to in Art. 43-60 of the Bailiffs Act.

Important!

The amounts of expenses called "cash expenses" are not included in the tax base, as they are expenses incurred on behalf and for the benefit of the customer, which are temporarily recognized by the bailiff in the tax records kept by him. These costs are listed in detail in Art. 39 of the Act on Bailiffs and Enforcement.

Documentation of services provided by bailiffs

As a general rule, the tax liability arises when the service is performed. If the taxpayer receives all or part of the payment (advance) on his remuneration before the service is performed, the tax obligation arises upon receipt of this payment (in relation to the amount received).

The above rules do not apply to the performance of bailiffs' activities.
With regard to the activities performed by court bailiffs, for whom they act as VAT taxpayers, a specific was introduced in the secondary legislation to the VAT Act - later than resulting from the above-mentioned general rule - the moment when the tax obligation arises.

The tax obligation on enforcement activities and other activities transferred to court bailiffs on the basis of separate provisions will therefore arise upon receipt of all or part of the payment constituting the bailiff's remuneration (in relation to the amount received). If, however, before the service is performed, the bailiff receives a part of the payment (i.e. an advance payment), the tax obligation on the amount received will arise on the terms specified in the VAT Act, i.e. upon its receipt.

In practice, this means that the receipt of the advance by the bailiff causes the need to issue an advance invoice for each participant in the enforcement proceedings who paid the advance.

Example 2.

We asked the bailiff to recover the debt from our contractor. At the outset, the bailiff demanded an advance payment of PLN 2,000. In order to continue the enforcement, we made an advance payment to the bailiff on April 15, 2017. At the time of the advance payment, a VAT obligation arose. The bailiff, therefore, at the time of accepting the advance payment, should issue an invoice to us. We informed the bailiff about this obligation. The bailiff issued an invoice with VAT in the amount of 23%.

The above behavior of the bailiff in the light of the VAT Act should be considered correct. As already shown above, the tax obligation for enforcement activities performed by court bailiffs and activities delegated to their competence on the basis of separate provisions will be determined by the payment received.

According to the general rule expressed in Art. 106i paragraph. 1 and 2 of the VAT Act, the taxpayer has the time to issue an invoice by the 15th day of the month following the month in which he delivered the goods or provided the service or received payment (advance payment). Therefore, this provision does not impose an obligation to separately document with an invoice each action performed in a given month by the bailiff for the same entity. The bailiff may therefore, on one invoice, indicate to a participant in enforcement proceedings all activities performed in a given month, e.g. advances collected.

Example 3.

In April, we paid the bailiff three advances related to the ongoing enforcement. The bailiff issued one invoice for three paid advances. Did he do the right thing?

The above behavior of the bailiff is correct and consistent with the above-mentioned provisions of the VAT Act. The bailiff had the right to issue one invoice, which will document the three advances paid in April.

Summary

The above resolution of the Supreme Administrative Court dispelled doubts as to the VAT taxation of bailiffs' activities. The resolution confirmed the earlier general interpretation of the Ministry of Finance, which supports the taxation of bailiffs' activities. It also seems that the resolution of the Supreme Court confirmed that the enforcement fee may not be increased by VAT. The above solutions are beneficial for debtors
and will not result in an increase in bailiff fees.