Provision of loans by VAT payers

Service-Tax

Granting cash loans by entrepreneurs is a frequent operation performed in the course of economic activity. The loan agreement is concluded with both other entrepreneurs and natural persons who do not conduct business activity. Due to the fact that granting loans by VAT payers is a common phenomenon, it is worth considering whether such an activity is subject to VAT.

Lending is a service

Pursuant to the provisions of the VAT Act, tax on goods and services is subject to, inter alia, paid services in the territory of the country. The provision of services should be understood as any performance which does not constitute a supply of goods. The provision refers to the provision of services against payment, so in order to consider a given service as such, there must be a legal relationship between the service provider and the recipient. Moreover, the aforementioned legal relationship on the basis of which the service is performed must provide a direct benefit to the service provider.

Granting loans in return for interest is a benefit to another entity consisting in transferring to the borrower the ownership of a certain amount of money, which the borrower undertakes to pay back in the same amount. Granting loans as part of business activities is therefore a type of paid service subject to VAT, because interest on the conclusion of the contract should be treated as remuneration received for the loan granted.

It is worth emphasizing at this point that concluding a loan agreement without specifying the interest payable does not constitute an activity subject to the provisions of the VAT Act, because only the provision of services for remuneration gives rise to the obligation to pay the tax. This position is confirmed in the individual interpretation of October 23, 2015, no. IBPP2 / 4512-778 / 15 / EK of the Director of the Tax Chamber in Katowice, which reads:

Granting loans by a taxpayer of value added tax meets the conditions for recognizing these activities as taxable, regardless of the frequency and purpose of granting them, or the status of the buyer. Granting loans by an entity conducting business activity, in connection with its conduct, can be identified and included in the professional level of the entity, and therefore considered as giving rise to obligations in the tax on goods and services.

VAT exemption for granting loans

Despite the fact that granting loans is an activity subject to tax on goods and services as the provision of services for consideration, the legislator provided for in Art. 43 sec. 1 point 38 of the Act, tax exemption for the services of granting loans or cash loans and intermediation services in the provision of loans or cash loans, as well as the management of loans or cash loans by a lender or lender.

Tax obligation and granting loans

Although the very act of granting a loan benefits from the objective exemption regulated in the VAT Act, the taxpayer is, however, obliged to determine the tax base, the moment of the obligation and the place of the provision of the service.

First of all, it should be noted that the legislator introduced a special solution with regard to the moment when the tax obligation arises. Well, according to Art. 19a paragraph. 5 point 1 lit. e) in the case of the provision of tax-exempt services, including the granting of loans, the tax obligation arises upon receipt of all or part of the payment for this service. It follows, therefore, that for the proper determination of the moment when the tax obligation arises, the moment of receipt of interest is crucial. This is also confirmed by the Director of the Tax Chamber in the individual interpretation No.IPPP / 443-553 / 14-3 / ISZ issued on 17 July 2014:

Therefore, the tax obligation in the tax on goods and services for granting loans by the Applicant will arise each time the Company receives the payment, i.e. interest and commission due in connection with the conclusion of the loan agreement, in the amount corresponding to the amount of such receivables received, pursuant to Art. 19a paragraph. 5 point 1 lit. e of the act '.

Under VAT legislation, the taxable amount is whatever is the payment that the service provider is expected to receive for the sale. In our case, the payment for the loan is interest, so the amount will be the tax base. However, the amount of the loan granted does not constitute a payment within the meaning of VAT regulations.

The service of granting loans where it is provided to another VAT payer is taxed at the place where the recipient of the loan is established. Where the loan is being granted to a person who is not a taxable person, the place of supply shall be the place where the supplier is established. This is the general rule of the VAT Act. However, with regard to the place of performance, there is also a special solution described in Art. 28l of the act. Well, if the buyer of the service is a non-taxable person whose place of residence is outside the European Union, then the place of taxation is the place of residence of this non-taxable person.

Example 1.

On May 1, 2016, the Polish VAT payer granted a loan to the French taxpayer in the amount of PLN 20,000. The parties agreed the interest at PLN 2,000. The French taxpayer paid off the loan in full with interest on July 1. Therefore, the tax obligation arose on July 1, the tax base is PLN 2,000, while the place of taxation is the territory of France.

Example 2.

On January 15, 2016, the Polish VAT taxpayer granted a loan to a Berlin resident in the amount of PLN 5,000. The interest was set at PLN 1,000. The German citizen repaid the loan with interest due in two installments - on February 2 in the amount of PLN 4,000 (including interest in the amount of PLN 600) and on March 6 in the amount of PLN 2,000 (including interest in PLN 400). The tax obligation arose on February 2 and March 6, the tax base is PLN 600 and PLN 400 respectively, the place of taxation is the territory of Poland. Pursuant to Polish regulations, this service is exempt from tax (Article 43 (1) (38)).

Example 3.

On October 2, the Polish VAT taxpayer granted a loan of PLN 40,000 to a resident of Moscow. The interest rate was set at PLN 7,000. The Russian citizen repaid the entire loan with interest on October 27. The tax obligation arose on October 27, the tax base is PLN 7,000, and the place of taxation is the territory of Russia.

Invoice documenting the granting of loans

Although Polish VAT regulations exempt the act of granting a loan from VAT, the entrepreneur may be required to issue an invoice on this account. In general, the taxpayer is not required to issue an invoice for services that are exempt from tax pursuant to Art. 43 (1) of the VAT Act. Nevertheless, according to Art. 106b paragraph. 3 point 2, at the request of the buyer of the service, the entrepreneur is obliged to issue an invoice. The condition is that the request is made within 3 months from the end of the month in which the service was performed or the whole or part of the payment was received. The information that should appear on such an invoice is specified in the invoice regulation. Pursuant to § 3 point 2 of the Regulation, the invoice documenting the provision of the service by granting loans includes the date of issue, the sequential number of the invoice, the name of the taxpayer and buyer, the name of the service and the amount to which the document relates.

Example 4.

On April 20, 2016, the Polish VAT payer granted another taxpayer a loan of PLN 10,000. The amount of interest was set at PLN 3,000. The entire amount was settled on April 27. The customer requested an invoice on August 2. Due to the fact that the request was submitted after 3 months from the end of the month in which the service was performed and the entire payment was received, the VAT payer is not required to issue an invoice.

Example 5.

On April 20, 2016, the Polish VAT payer granted another taxpayer a loan of PLN 10,000. The amount of interest was set at PLN 3,000. The entire amount was settled on June 3. The customer requested an invoice on August 2. Due to the fact that the request was made within 3 months from the end of the month in which the entire payment was received, the VAT taxpayer is obliged to issue an invoice.