Provision of construction workers and the reverse charge

Service-Tax

The reverse charge mechanism is an exception to the general rule, according to which VAT is settled by the seller who supplies the goods or provides the service. Construction companies that provide construction services as subcontractors are subject to the reverse charge mechanism since 1 January 2017. On the other hand, should the provision of construction workers also be accounted for on the basis of a reverse charge? We explain!

Reverse charge - mechanism of action

In the light of Art. 17 sec. 1 point 8 of the Value Added Tax Act, in the wording in force from 1 January 2017, taxpayers also include legal persons, organizational units without legal personality and natural persons purchasing the services listed in Annex 14 to the Act, if the following are met jointly conditions:

  1. the service provider is the taxpayer referred to in art. 15, where the sale is not exempt from tax pursuant to art. 113 paragraph. 1 and 9,

  2. the service recipient is the taxpayer referred to in art. 15, registered as an active VAT taxpayer.

Pursuant to the provision of Art. 17 sec. 1h of the Act, in the case of services listed in item 2-48 of Annex 14 to the Act, the provision of para. 1 point 8 shall apply if the service provider provides these services as a subcontractor.

Pursuant to Art. 17 sec. 2 of the Act, in the cases specified in par. 1 points 4, 5, 7 and 8, the service provider or the supplier of goods does not settle the tax due.

Taking into account the above legal provisions, it should be noted that Art. 17 sec. 1 point 8 of the Act introduces a mechanism consisting in shifting the obligation to settle VAT on the taxpayer to whom the construction service is provided, listed in Annex 14 to the Act in item 2-48, if the service provider is a taxpayer referred to in article 2. 15, where the sale is not exempt from tax pursuant to art. 113 paragraph. 1 and 9, while the recipient is the taxpayer referred to in article 2. 15, registered as an active VAT taxpayer. Whereby, pursuant to Art. 17 sec. 1h of the Act, this mechanism applies if the service provider provides these services as a subcontractor. At the same time, it should be noted that for each of the services listed in item 2-48 of Annex 14 to the Act, the symbol of the PKWiU statistical classification is also given, which indicates that only specific services classified under a given symbol require tax settlement on the basis of a reverse charge.

In light of the above, the buyer of construction services listed in item 2-48 of Annex 14 to the Act, provided by the subcontractor, becomes responsible for VAT settlements on these services.

On the other hand, transactions relating to the provision of construction services listed in Annex 14 to the Act, carried out by the contractor (general contractor) directly for the investor (e.g. a construction developer) are subject to taxation according to general rules, i.e. VAT is settled by the contractor ( general contractor), and the investor receives an invoice for the amount due for the services provided, including VAT. In this case, the reverse load mechanism is not applicable.

Providing construction workers and classification to PKWiU

Pursuant to Art. 5 sec. 1 point 1 of the Act of March 11, 2004 on tax on goods and services (i.e. Journal of Laws of 2011, No. 177, item 1054, as amended), hereinafter referred to as the VAT Act, tax on goods and services is subject to delivery of goods against payment and provision of services against payment within the territory of the country.

Pursuant to Art. 5a above the act, the goods or services being the subject of the activities referred to in Art. 5, listed in the classifications issued on the basis of the provisions on official statistics, are identified with the help of these classifications, if for these goods or services the provisions of the Act or the regulations issued on its basis provide statistical symbols.

The classification referred to in the provisions of the Act in the period from January 1, 2011 is the Polish Classification of Products and Services, implemented by the Regulation of the Council of Ministers of October 29, 2008 on the Polish Classification of Products and Services PKWiU (Journal of Laws No. No. 207, item 1293, as amended).

Therefore, the most important element allowing to determine the correct tax rate or how to tax the delivered delivery is to correctly classify the goods according to the Polish Classification of Products and Services.

It should be noted that the competent tax authorities are not competent to classify a given good or service into the appropriate group or to verify the indicated classification.

In the light of the Announcement of the President of the Central Statistical Office of January 24, 2005 on the procedure for providing information on classification standards (Journal of Laws of the Central Statistical Office No. services), goods, fixed assets and construction works according to the rules set out in individual classifications and nomenclatures, introduced by regulations of the Council of Ministers or applied directly on the basis of the provisions of the European Community, and it is burdened with possible negative consequences due to incorrect classification of goods, and in the event of difficulties in determining the appropriate grouping the type of activity, product or service, goods, fixed asset or construction object, the interested entity may apply to the Center for Interpretation of Classification Standards of the Statistical Office in Łódź, which provides information on the application of the above-mentioned classification standards. So, if the entrepreneur provides for the provision of construction workers, as a rule, he must himself make an appropriate classification of services, bearing in mind the consequences.

Providing construction workers in Poland - the reverse charge

When running a construction company, one of the most important factors guaranteeing development is the employment of specialists. In the current situation on the labor market, companies realize how difficult it is to recruit qualified staff. Considering the above, in periods when there is less work, employers, not wanting to get rid of the workforce, often make employees available to other entrepreneurs. With the example, we explain how the provision of construction workers should be accounted for.

Example 1.

The taxpayer running a construction company in the winter had fewer orders. Not wanting to dismiss employees, he made them available to another employer. Employees will perform construction and renovation works in another city in Poland. The taxpayer wonders whether in such a situation it should apply the reverse charge mechanism in connection with the provision of employees.

In the situation presented above, the taxpayer is not obliged to apply the reverse charge mechanism to the provided service. It is not listed in Annex 14 to the VAT Act. The services of providing workers on the construction site are classified according to PKWiU of 2008 in the grouping with the symbol 78.30.19.0. It covers other services related to the provision of other personnel not classified elsewhere. Thus, the taxpayer who made the employees available taxes the service at the tax rate of 23% on the invoice.

The above is confirmed by the interpretation of the Tax Information Director of July 21, 2017, number 0114-KDIP1-2.4012.259.2017.1.IG, in which we read:services of providing employees on the construction site are classified according to PKWiU under the number 78.30.19.0 - as other services related to providing other personnel, not classified elsewhere. However, in Annex 14 to the Act, the above-mentioned services related to the provision of other personnel, not elsewhere classified. Therefore, since the services provided by the Applicant do not constitute services listed by the legislator in Annex 14 to the Act as those to which the reverse charge mechanism applies, the conditions under Art. 17 sec. 1 point 8 of the Act.

Provision of construction workers in Germany - the reverse charge

We will use an example to illustrate the situation.

Example 2.

The taxpayer made his construction workers available to a German construction company. In such a situation, he does not know how to settle the above service. It is performed for the benefit of a taxpayer who is neither established nor operating in Poland.

Pursuant to Art. 28b paragraph. 1 of the VAT Act, the place of providing services in the case of providing services to the taxpayer is the place where the taxpayer who is the recipient of the service has its registered office, subject to paragraph 2-4 and art. 28e real estate services - place of performance, art. 28f the place of provision of passenger transport services sec. 1 and 1a, art. 28 g services related to cultural, artistic, sports, scientific and other activities - the place of providing paragraph. 1, art. 28i place of provision of restaurant and catering services, art. 28j short-term rental transport of sec. 1 and 2 and article. 28n place of provision of tourism services.

A taxpayer, when issuing an invoice to a German contractor for services provided related to the provision of other personnel, does not tax it with VAT.

Thus, in our case, the place of taxation of the service is the territory of Germany. In the light of German regulations, services related to the provision of other personnel by a Polish taxpayer will be subject to the reverse taxation mechanism.