Joint and several liability of debtors and the split payment system

Service-Tax

The act on tax on goods and services, apart from the joint and several liability of the buyer for the seller's tax arrears, provides for the application of this institution in a slightly different scope also as part of the change related to the split payment mechanism. Check what the joint and several liability of debtors looks like under the so-called split payment system, i.e. split payment.

Split payment system and joint and several liability of debtors

The institution of joint and several liability under the split payment mechanism is provided for in Art. 108a paragraph. 5 and 6 of the Value Added Tax Act. The wording of Art. 108a paragraph. 5 of the Act stipulates that in the event that the payment is made in the manner specified in para. 2 (through the use of the split payment mechanism) to a taxpayer other than that indicated in the invoice referred to in paragraph 1. 3 paragraph 3, the taxpayer for whom this payment was made, jointly and severally liable with the supplier of these goods or the service provider for the tax resulting from this supply of goods or the service provider, not settled by the supplier of goods or the provision of services, up to the amount corresponding to the amount received on the VAT account.

In turn, in paragraph 6 above the article indicates that joint and several liability of the taxpayer referred to in paragraph 1. 5, is excluded in the event that the taxpayer makes a payment to the VAT account of the supplier of goods or service provider indicated on the invoice referred to in paragraph 1. 3 point 3, or return the received payment to the VAT account of the taxpayer from whom the payment was received, immediately after receiving information about its receipt, in the amount corresponding to the amount received on the VAT account. In the cases referred to in the first sentence, the provision of para. 3 shall apply accordingly.

It follows from the above-mentioned legal regulations that in a situation where the buyer decides to make a payment for the invoice by using the split payment mechanism and makes it to an entity other than the one indicated in the invoice, both the entity that received the payment and the seller, which payment should receive, shall be jointly and severally liable.

It should be noted that the provisions of the general tax law and the act on tax on goods do not introduce a legal definition of joint and several liability. Therefore, the reference is justified, which is what Art. 91 of the Tax Code, to civil law. The so-called joint and several liability of debtors, as this is what it is all about, is characterized, among others, by the fact that there are at least two debtors on the side of the debt and the creditor may, at his option, demand all or part of the performance from all debtors jointly, from several of them or from each of them separately. Importantly, the satisfaction of the creditor by any of the debtors leads to the extinction of the debt of the remaining debtors and their release, while all debtors remain liable until the full satisfaction of the creditor.

Joint and several liability of debtors in split payment - different approaches

Example 1.

Company A received an invoice for the purchase of goods from company B in the amount of PLN 2,000. However, by mistake, the payment for this invoice was made by company A to taxpayer C. In this case, joint and several liability will be borne by companies B and C, while the tax creditor (tax authority) may claim the full amount of tax refund either from taxpayer B or from taxpayer C or taxpayer B and C jointly.

Important!

Joint and several liability will only apply in the event of a mistake made to another taxpayer. If the invoice is paid to a natural person, the provision will not apply.

As can be seen from the above, the subjective scope related to joint and several liability does not raise major interpretation difficulties, the legislator (tax creditor) covers both the taxpayer and the seller with this responsibility as well as any other entity that received the payment improperly. However, more doubts are related to the subject of this responsibility in the form of the act. Therefore, it requires a closer look at the regulation in question. The provision stipulates that the debtors jointly and severally are liable for the tax not settled by the supplier of goods or service provider resulting from this supply of goods or the provision of services up to the amount corresponding to the amount received on the VAT account.

Doubts are related to the use by the legislator of the phrase "tax not settled by the supplier (...) resulting from this delivery (...)". According to the dictionary meaning, settlement is the settlement of mutual receivables, liabilities between the enterprise and suppliers, debtors and creditors, employers and employees, etc. Taking the above into account, two interpretation approaches are possible. The first would mean that the tax not settled by the supplier is a tax that has not been included in the declaration and has not been paid. However, as it is easy to notice, in the situation of a surplus of input tax over the due tax, the condition of tax settlement (payment) could never be met. In this case, the taxpayer would be in a stalemate. It does not settle the tax, because the settlement results in an excess of input tax, so there is no amount to be paid, and at the same time joint and several liability is applicable to it. On the other hand, in a situation where the settlement shows the amount of the tax liability, the condition of settlement / non-settlement could be met by incurring the burden of tax by the taxpayer himself (the taxpayer would then have to finance the amount of VAT that has been transferred to the account of another taxpayer and who has not yet made the its return), however, this solution is contradicted by the further part of the provision, which states that the unsettled tax is to result from this delivery. Therefore, since the tax on this supply was mistakenly transferred to another taxpayer, it cannot be considered that any payment of the tax by the taxpayer to the seller can be considered as performance of the tax obligation, and thus release from joint and several liability. As a consequence, this means that the tax will always be considered unsettled if its payment to the VAT account does not come from the buyer.

Example 2.

Company A received an invoice for the purchase of goods from company B in the amount of PLN 2,000. However, by mistake, the payment for this invoice was made by company A to taxpayer C. In this case, joint and several liability will be borne by companies B and C. If taxpayer B includes this sale in the declaration, and the settlement shows the amount to be paid, despite the payment of tax ( financing it) by taxpayer B to the tax office, joint and several liability will come into play anyway, because the settled (paid) tax is a tax that does not result from this delivery, but constitutes a different payment.

The above approach, although justified on the basis of the linguistic interpretation, is incompatible on the basis of the systemic and teleological interpretation.

The second approach that seems more justified is the interpretation of the phrase "tax not settled by the supplier (...) resulting from this delivery (...)”, According to which only the tax that has not been transferred by the buyer to the supplier's VAT account should be considered as unsettled tax. The interpretation of this return is therefore about the non-settlement (failure to transfer to the correct VAT account) of the tax under the split payment mechanism. This way of understanding the phrase in question, and consequently applying or not jointly and severally liable, is all the more justified if we take into account the content of Art. 108a paragraph. 6 of the VAT Act, which contains exclusions of the application of this liability.

In the above-mentioned provision, the Act stipulates that joint and several liability is excluded if that taxpayer makes a payment to the VAT account of the supplier of goods or service provider indicated on the invoice in the amount corresponding to the amount received on the VAT account. Therefore, this provision allows for the exclusion of liability in cases of receiving erroneous payments. In a situation where an unauthorized entity returns the unduly received amount to the seller's taxpayer's VAT account, joint and several liability does not apply. As indicated in the explanatory memorandum to the draft act, this solution is also intended to prevent actions aimed at non-payment of tax while allowing payments in e.g. factoring schemes - provided that these payments will pass through the VAT account of the buyer, factor and factorer.