Spouses who are separate VAT payers and the VAT settlement

Service-Tax

It happens that both the husband and wife run separate business activities and are therefore VAT payers. There may be transactions between their companies. The spouses who are separate VAT taxpayers then have doubts as to whether it will not have negative effects on the basis of VAT, in particular whether VAT can be deducted from invoices issued by the spouse.

Spouses who are separate VAT payers - transactions between companies

A question that raises doubts in the situation of transactions between spouses is the possibility of deducting VAT from an invoice issued from a spouse for services rendered or supplies of goods.

The basic principles of deducting input tax have been formulated in Art. 86 sec. 1 of the VAT Act. Pursuant to this provision, to the extent that goods and services are used to perform taxable activities, there is a right to reduce the amount of tax due by the amount of input tax.

Under Art. 86 sec. 2 point 1 of the VAT Act, the amount of input tax is the sum of the tax amounts resulting from the invoices received by the taxpayer on account of:

  • purchase of goods and services,

  • make all or part of the payment before purchasing the goods or providing the service.

It follows from the above provisions that the right to reduce the amount of tax due by the amount of input tax is granted when certain conditions are met, i.e. the deduction is made by the taxpayer of value added tax and when the goods and services on which the tax was charged are used for taxable activities, i.e. those which result in the determination of the tax due (creation of a tax liability).

Therefore, the above rule excludes the possibility of reducing the amount of output tax by the amount of input tax related to goods and services that are not used for taxable activities, i.e. in the case of their use for activities exempt from VAT and not subject to this tax.

In the case of spouses, each of them, performing independently activities subject to tax on goods and services, is a separate taxpayer of this tax. Therefore, transactions between them as persons conducting separate economic activity constitute a supply of goods or services, which activities are subject to tax on goods and services on general principles.

Therefore, it should be considered that in a situation where the services will be used only for taxable activities, the spouse will have the right to deduct VAT from the invoice issued by the spouse.

Example 1.

Mr. Jan set up a business. His wife is an accountant. He entrusted her with keeping the books of his company, for which an invoice is issued. The price for the service is at the market level. In such a situation, there are no obstacles to deduct VAT from the invoice.

Also, the tax authorities do not question such a right, an example of which is the letter from the Director of the Tax Chamber in Łódź, no.IPTPP4 / 443-331 / 13-6 / BM of August 30, 2013, in which we read:

"(...) The applicant - if he registers as an active VAT taxpayer - will be able to reduce the VAT due on sales by the input tax resulting from the invoices for the purchase of services from the spouse, because the purchased services will be used only for taxable activities, provided that they do not occur the exclusions referred to in Art. 88 of the Act. In connection with the above, the invoices issued by the spouse regarding the purchase of agricultural services, the Applicant should show and settle in his purchase records, within the farm (...) ”.

A similar position was presented by the Director of the Tax Chamber in Łódź in a letter of April 24, 2012, No.IPPP2 / 443-128 / 12-2 / IG, of September 24, 2012, in which we read:

“(…) At the time of delivery of goods or services, the spouse should issue a VAT invoice to the spouse and tax the transaction in the same way as any other activity subject to value added tax. Fixed assets, office equipment, basic and auxiliary materials and commercial goods being the subject of the purchase made by the Applicant from the spouse, in the light of the provisions of the family and guardianship code, are undoubtedly the joint property of the spouses (in the light of the provisions of the VAT Act). and services, these are goods that the Applicant has acquired in connection with the taxable business activity conducted by him, and uses them for this purpose.

Thus, the Applicant had the right to reduce the amount of tax due by the amount of input tax from invoices issued by the spouse, because the description of the facts does not indicate that the exclusions contained in Art. 88 of the Act (...) ”.

Family ties

Note the wording of Art. 32 of the VAT Act, which provides for a sanction in the form of estimating the tax base in a situation where transactions are made between entities related to family ties, if it turns out that this relationship influenced the determination of remuneration for the supply of goods or services. This will be the case when there is a family relationship between the buyer and the person supplying the goods or the service provider (whereby family ties are understood as marriage and kinship or affinity up to the second degree), and also when the remuneration is:

  1. lower than the market value, and the buyer of goods or services does not have the full right to reduce the amount of tax due by the amount of input tax,

  2. lower than the market value, and the supplier of goods or the service provider does not have the full right to reduce the amount of tax due by the amount of the input tax and the supply of goods or services are tax-exempt,

  3. higher than the market value, and the supplier of goods or service provider does not have the full right to reduce the amount of tax due by the amount of input tax

- the tax authority determines the tax base in accordance with the market value, if it turns out that this relationship influenced the determination of the remuneration for the supply of goods or services.

Therefore, the market price should be used when pricing services or supplies of goods between spouses.