Invoice correction with 23% VAT instead of reverse charge

Service-Tax

When companies purchase goods, equipment, materials and services, they receive evidence of such transactions in the form of invoices issued by the seller. Active VAT payers have the right to deduct VAT from the invoices in question. However, it sometimes happens that the seller issues an invoice with a VAT rate of 23% for things that should be taxed using the reverse charge mechanism. How should the buyer behave then? How does an invoice correction with a 23% VAT rate look in practice instead of a reverse charge?

Reverse charge

The VAT reverse charge mechanism for the supply of goods included in Annex 11 to the VAT Act is applicable when:

  1. the seller is an active VAT taxpayer, so he is not subject to VAT exemption due to lower turnover than the exemption limit up to PLN 200,000),

  2. the buyer is an active VAT payer,

  3. the goods sold are not exempt from VAT.

One should not forget about the proper assignment of the PKWiU number to a given product

The main issue in determining the obligation to cover a given product with the reverse charge mechanism is the identification and assignment of the appropriate PKWiU number.The catalog of symbols can be found on the website:

http://stat.gov.pl/K classacje/

If it is difficult to find the appropriate statistical symbol, you can submit an application to the statistical office in Łódź for assigning the appropriate PKWiU number for the goods sold by completing the application available on the website:

http://lodz.stat.gov.pl/osrodki/osrodek-klasyfik-i-nomenklatur-urzedu-statystycznej-w-lodzi/formularz/

The most important thing is to determine the correct PKWiU symbol before the sale of the first batches of goods, because if the issued sales invoice enters the economic circulation (with an incorrect VAT rate), the entrepreneur will have to take into account the need to make corrections to the VAT declaration and VAT-27 summary information, as well as possible VAT arrears.

The reverse charge VAT is settled by the buyer of the goods

The legislator clearly indicates in Art. 17 sec. 1 point 7 of the VAT Act, that in the case of a transaction concluded in circumstances to which the reverse charge mechanism applies, the buyer is responsible for settling VAT and it is the buyer who is responsible for the correct reporting of VAT on a given transaction. Of course, this does not in any way absolve the seller from correctly determining whether his merchandise should be sold at the NP rate appropriate for the reverse charge.

23% VAT rate instead of the reverse charge

In the multitude of duties and due to the difficulty of applying the reverse charge mechanism, the sellers are wrong on the invoices they issue. One of the types of such mistakes is issuing an invoice for the goods delivered to the buyer at a VAT rate of 23% instead of the NP rate appropriate for the reverse charge.

The legislator in Art. 88 sec. 3a of the VAT Act, indicated possible situations in which invoices issued by the seller or by the customs office or customs agencies - customs documents do not constitute the basis for the reduction of the output tax and the refund of the tax difference or input tax refund:

  1. the sale has been documented with invoices or corrective invoices:

  1. issued by a non-existent entity,

  1. the transaction documented with an invoice is not taxable or exempt from tax;

  2. issued invoices, corrective invoices or customs documents:

  1. state activities that have not been performed - in the part concerning these activities,

  2. provide amounts that are not in accordance with reality - in the part concerning those items for which amounts are not consistent with reality,

  3. confirm the activities to which the provisions of art. 58 and 83 of the Civil Code - in the part concerning these activities;

  1. invoices, corrective invoices issued by the buyer in accordance with separate regulations have not been accepted by the seller;

  2. invoices were issued in which the amount of tax was shown in relation to taxable activities, for which the amount of tax is not shown on the invoice - in the part relating to these activities.

It is clear from the above that the buyer receiving an invoice with added VAT instead of applying the reverse charge is not entitled to deduct VAT from the invoice in question. Therefore, the buyer of goods having an incorrect document should not show the input VAT shown on the invoice received from the seller, both in the VAT register and in the VAT declaration.

The seller is obliged to issue a corrective invoice

The supplier of goods subject to reverse charge is obliged to issue an invoice correcting the incorrect VAT rate, i.e. NP, instead of the incorrect 23% VAT rate, while the correcting invoice should reduce the value of the VAT shown to 0. In addition, the seller should include the annotation "reverse charge" on the correcting invoice.

The buyer should remember that in this situation the received correction is exceptionally not recognized in the period of its inflow to the company, and in the settlement for the period to which the sale relates, i.e. it must go back to the month in which the goods were sold (the date of sale indicated on the original invoice), as well as include and settle the VAT due in the VAT register and submit a correction of the VAT declaration for this period.

The above position is also confirmed by the individual interpretation of June 21, 2016. with reference number 1061-IPTPP3.4512.183.2016.2.MJ issued by the Director of the Tax Chamber in Łódź.

Recognition of invoice correction at the seller

The Ministry of Finance explains that if the seller issued an invoice with an incorrect rate of 23% instead of the NP rate appropriate for the reverse charge, he is obliged to enter it retroactively, and not on the date of receipt of the confirmation of receipt of the correcting invoice by the buyer, because the reason for the correction occurred at the time of issuing the invoice. Therefore, the seller should include the correction of the incorrect settlement in the month when the tax obligation arose in connection with the reverse charge that occurred from the beginning.

The above means that the seller includes the correcting invoice in the settlement for the month of delivery of these goods and shows the value of the given delivery with the NP rate appropriate for the reverse charge by making:

  1. negative operations in the VAT register of the entire transaction,

  2. positive operations with the use of a reverse charge mechanism,

  3. corrections of VAT returns including the correctly taxed transaction,

  4. corrections of VAT-27 declarations including correct information on transactions made with the use of the reverse charge mechanism in a given month.

How should the buyer show an incorrect invoice in the VAT register and in the VAT return in the absence of a correcting invoice?

Pursuant to Art. 29a paragraph. 1 of the VAT Act, the basis for VAT taxation is everything that is the payment that the supplier of goods or the service provider has received or is to receive for sale from the buyer, recipient or a third party, including received subsidies, subsidies and other payments of a similar nature having direct impact on the price of goods or services provided by the taxpayer.

In the event of receiving an invoice for the purchase of goods covered by the reverse charge mechanism with an incorrect rate of 23% VAT shown, the buyer should treat the gross amount as the taxable amount for VAT settlement on the transaction subject to the reverse charge, because the gross amount is the payment for the transaction.

Therefore, the taxpayer should calculate the output VAT on the gross amount shown on the invoice and report it both in the VAT register and in the VAT declaration. On the other hand, with regard to input VAT - it has the right to settle it according to standard rules.

The above position is also confirmed by the individual interpretation of June 10, 2016. with reference number 1061- ITPP3 / 4512-191 / 16 / MD issued by the Director of the Tax Chamber in Bydgoszcz.