Settlement of import of services - how to settle an invoice correction?

Service-Tax

When running a business, taxpayers both buy and sell their services not only in our country, but also abroad. The VAT Act does not regulate the documentation of the import of services, i.e. the purchase of services outside the country. The above also applies to corrective documents related to the import of services. In such a situation, the settlement of the import of services on the basis of a correcting invoice should look like?

What is subject to VAT?

Pursuant to Art. 5 sec. 1 of the Act of March 11, 2004 on tax on goods and services (i.e. Journal of Laws of 2017, item 1221 as amended) - hereinafter referred to as the "VAT Act" - taxation with tax on goods and services, hereinafter referred to as "tax", are subject to:

  • delivery of goods for consideration and provision of services for consideration within the territory of the country;

  • export of goods;

  • import of goods into the territory of the country;

  • intra-Community acquisition of goods for consideration within the territory of the country;

  • intra-Community supply of goods.

As is clear from the above provision, the VAT Act includes the so-called the principle of territoriality. Pursuant to this principle, goods and services tax is subject to, inter alia, paid services, but only if the place of their provision (determined on the basis of the provisions of the Act) is the territory of the country.

Liquidation of internal invoices when importing services

The provisions of the VAT Act from January 1, 2014 do not require the use of an internal invoice (Article 106 of the VAT Act has been repealed) or any other document, and do not indicate specific documents that would replace an internal invoice. Considering the above, the legislator allows freedom in documenting the import of services, which means that calculations can also be made on the original invoice received when importing services. It is therefore possible to issue a document corresponding to the former internal invoice or to resign from issuing any documents resembling an internal invoice - it is important to properly apply the VAT settlement mechanism. At this point, it should be remembered that it is obligatory to keep records that will contain the data necessary to determine the subject and tax base, the amount of tax due, the amount of input tax reducing the amount of tax due and the amount of tax to be paid to the tax office or refunded from this office, and other data used for the correct preparation of the tax declaration. Despite the lack of the need to issue an internal invoice to settle the import of services, the data contained in the records must be sufficient to perform the settlement of the import of services and show this transaction in the tax declaration.

In which month should I settle the correction invoice?

We will use an example to explain the issue.

Example 1.

The company deals with international transport. In connection with the services performed, it purchases many services outside the country, e.g. rental services for semi-trailers for tractor units. Purchases are made from foreign entities and documented by these companies with invoices. It happens that a company receives correcting invoices from foreign contractors, and the correction is caused by a new circumstance, e.g. a post-transaction discount granted. The Polish company does not issue the so-called internal invoices, settles the import of services on invoices received from a foreign contractor.

At the outset, it should be remembered that the regulations do not specify the period in which to settle corrective invoices for purchases from foreign contractors. The above also applies to corrective documents regarding the earlier import of the service.

It should be assumed that in a situation where the correcting invoice is the result of an error, it should be settled backwards, i.e. in the period when the original invoice was settled. However, if the corrective invoice documents a new circumstance (e.g. granting a discount), it should be settled on an ongoing basis, i.e. in the period in which the economic event occurred (granting the discount and receiving the correcting invoice).

Thus, in our case, the taxpayer should settle the received invoice for the import of services in the month in which he received the correcting invoice.

The above is confirmed by the interpretation of the Tax Information Director of August 11, 2017, number 0111-KDIB3-3.4012.42.2017.1.LG:

The applicant is of the opinion that in the case of receiving a corrective invoice from the supplier, if the reason for the correction is a new circumstance that occurred after the invoice was issued, he should show the correction in the records and in the tax declaration submitted for the settlement period in which he receives the correcting invoice. This is a situation where, at the time of issuing the original invoice, there were no indications of possible errors in the original invoice. Thus, there is no need to include such a correction invoice in the settlement period in which the original invoice was settled.

At this point, however, it should be noted that with regard to the right to correct input tax "in plus" it should be taken into account that the conditions set out in Art. 88 of the Act.

As a result, in the present case, in the situation of receiving a correcting invoice regarding new circumstances (unknown at the time of issuing the invoice documenting the delivery of the goods or the purchase of the service) "in plus" and "in minus" from the supplier of the goods, the Applicant shows an adjustment, respectively, on the side of both the tax due and accrued in the records and in the tax declaration submitted for the tax period in which such a correcting invoice was received.

Settlement of import of services - how to calculate the correction invoice?

Based on Article. 31a paragraph. 1 of the VAT Act, if the amounts used to determine the tax base are specified in a foreign currency, conversion into zlotys is made according to the average exchange rate of a given foreign currency announced by the National Bank of Poland on the last working day preceding the date of the tax obligation. The taxpayer may choose the method of converting these amounts into zlotys according to the last exchange rate published by the European Central Bank on the last day preceding the day when the tax obligation arises; in that case, currencies other than the euro shall be converted using each's exchange rate against the euro.

Pursuant to Art. 31a paragraph. 2 of the VAT Act, if the taxpayer issues an invoice before the tax obligation arises, and the amounts used to determine the tax base are specified on this invoice in a foreign currency, conversion into zlotys is made according to the average exchange rate of a given foreign currency announced by the National Bank of Poland on the last day working day preceding the date of issuing the invoice. The provision of paragraph 1, second sentence, shall apply accordingly.

Taking into account the above provisions of the Act, it should be considered that the amounts from the correcting invoice for the import of services are converted as follows:

  • in the case of a correction invoice, the cause of which is an error, the conversion of the value from the correction invoice issued in a foreign currency should be made according to the average exchange rate of a given foreign currency announced by the National Bank of Poland on the last working day preceding the date of the tax obligation or according to the last exchange rate published by the European Central Bank as of the last day preceding the day when the tax obligation arises;

  • in the case of issuing a correcting invoice due to new circumstances unknown at the time of issuing the original invoice, the currency rate from the day preceding the date of issuing the correction invoice should be applied.