Comprehensive service and the reverse charge - tax settlement
Entrepreneurs who sell goods as part of their business very often also provide other services, such as assembly at the customer's premises. The correct qualification of the subject of sale is important due to the method of tax settlement of the transaction. Originally, it was difficult for taxpayers to determine whether or not they should apply the reverse charge. The replacement by the legislator of the reverse charge mechanism with the new split payment mechanism did not simplify the settlements. When providing services, entrepreneurs must bear in mind that the transaction may be covered by the split payment mechanism. Therefore, the question arises whether the services of delivery of goods with assembly should be treated as one - the so-called comprehensive service?
What is one-stop service?
The legislator did not provide an unambiguous definition of a comprehensive service. However, the jurisprudence of courts and numerous tax interpretations issued show that a comprehensive service is a set of benefits (two or more) that are so closely related to each other that separating them into individual elements and treating them as two separate ones would be artificial. In addition, the comprehensive service consists of one main service and auxiliary services, which together contribute to the fulfillment of the customer's order. Pursuant to the judgment of the CJEU of February 25, 1999, ref. No. C-349/96, which is also cited in currently issued tax rulings and court judgments, "a service should be considered ancillary to the underlying service if it is not an end in itself for the client, but is a means to better use the service. essential ".
If the subject of sale is a comprehensive service, regardless of the variety of services included in it, e.g. delivery of goods with assembly, the transaction should be taxed at the VAT rate corresponding to the main service.
When should the split payment mechanism be used?
The split payment mechanism, otherwise known as split payment, is nothing more than a method of paying for a VAT invoice. The buyer makes the payment by bank transfer using a special transfer message. Importantly, this method of payment is possible only if the seller is an active VAT payer who issues an invoice for a taxable transaction. The legislator introduced two types of split payment - voluntary and obligatory. The obligation to use the split payment mechanism arises when two conditions are met:
the subject of sale is listed in Annex 15 to the VAT Act;
the gross value of the invoice exceeds PLN 15,000.
Comprehensive service and the split payment mechanism
If the main performance of the sold performance of goods and services is the performance of a service, check whether it is listed in Annex 15 to the VAT Act. As part of the service provided, entrepreneurs often use the services of subcontractors and consume various types of goods and materials. There may be a situation where the sold comprehensive service is not listed in Annex 15 to the VAT Act, while the goods purchased for its implementation by the seller were subject to mandatory split payment. In this case, you should not analyze the components of a comprehensive service as deeply, because split payment will not apply.
When the main provision under the comprehensive service is the fact of providing a service that is not listed in Annex 15 to the VAT Act, then despite the purchase of goods and services - in order to provide this service - covered by the mandatory split payment, this mechanism is not mandatory.
The above procedure has been confirmed in many tax interpretations, incl. in the interpretation of the Director of the National Tax Information of November 18, 2020, ref. no. 0112-KDIL1-2.4012.430.2020.1.PG, in which we read: "As it appears from the circumstances of the case, the Applicant provides comprehensive services under the contract concluded with the contractor, which includes the goods listed in Annex 15 to the Act. Moreover, according to the application, the Applicant does not sell computers and other machines for automatic data processing, but provides comprehensive services consisting in the supply and installation of a control system for material flow systems, which includes these devices. (...) as indicated by the Applicant, invoices are issued only for the provision of a service that is not listed in Annex 15 to the Act.
Therefore, taking the above information into account, it should be stated that since the comprehensive service provided by the Applicant consisting in the supply and installation of a control system for the material flow system is not listed in Annex 15 to the Act, it is not subject to the obligation to apply the split payment mechanism " .
The same position was taken by the Director of the National Tax Information in the individual interpretation of 17 July 2020, ref. No. 0114-KDIP1-1.4012.278.2020.2.MM, in which we read that: "The applicant provides one comprehensive service, under which - as the case description shows - he purchases goods and services subject to the mandatory split payment mechanism.
It should be noted here that the obligation to absolutely apply the split payment mechanism introduced by the provisions in force from November 1, 2019 only to specific goods and services enumerated in Annex 15 to the Act. (...)
In connection with the above, since the subject of sale by the Applicant is / will be a comprehensive service, classified in the PKWiU 73.1 section "advertising services", which is not listed in Annex 15 to the Act, it should be stated that there is / will not be an obligation resulting from joke. 106e paragraph. 1 point 18a of the Act, ie the Applicant's obligation to include the words “split payment mechanism” on invoices documenting the provision of a comprehensive advertising service ”.
How to include in the invoice the object of sale that is a comprehensive service?
The split payment mechanism is mandatory when at least one item listed on the sales invoice with a gross value above PLN 15,000 is included in Annex 15 to the VAT Act. Therefore, special attention should be paid to the manner of including the subject of sale on the invoice. If the subject of sale is a comprehensive service, which includes both goods and materials, it should not be artificially broken down into individual items. Such a position was presented by the Director of Fiscal Information in the individual interpretation of December 12, 2019, ref. No. 0112-KDIL2-1.4012.451.2019.1.MK, in which we read that "since the subject of sale is only a service, only this service should be indicated on the invoice as the subject of sale, while any materials or labor value (i.e. the value of individual components of a given service) may be placed outside the mandatory elements of the invoice, as additional elements, e.g. in the information part of the invoice, or in a separate document, e.g. in the cost estimate. The invoice is a formalized document intended to reflect the actual economic event that has occurred and the invoice cannot be misleading. Thus, on the invoice documenting the provision of services, goods consumed during the provision of services should not appear as the subject of sale, if they were not sold separately, but only an element of a comprehensive service. Formal elements required by Art. 106e paragraph. 1 of the Act are of evidence. Therefore, placing several different services on the invoice as the subject of sale may suggest that the subject of sale were several separate services and not one comprehensive ”.
When issuing an invoice for the sale of a comprehensive service, it should not be broken down into individual components of the service.
The separate items of goods and services included in the comprehensive service may result in the transaction being subject to the split payment mechanism, as each item listed on the invoice must be analyzed for whether it is included in Annex 15 of the VAT Act.
Mr. Aleksander is an active VAT payer and provides vehicle repair services. For the benefit of the XYZ company, he issued an invoice for the repair of company cars. To perform the service, the car parts listed in item 76 of Annex 15 to the VAT Act, and the gross value of the invoice was PLN 15,500 gross. Should Mr. Aleksander include the annotation "split payment mechanism" on the invoice?
Due to the fact that Mr. Aleksander provided a comprehensive service, where the main service was the repair of vehicles, and not the sale of car parts, the invoice should include a sales item identifying the service provided, eg "repair of vehicles with registration number ...". Mr. Aleksander should not separate used car parts as a separate sales item.Thanks to this, the transaction is not covered by split payment and Mr. Aleksander does not have to use an additional reference on the invoice.
Mr. Aleksander from example 1, who provided a comprehensive service, this time in the sales item, apart from the repair service, also listed used car parts on the invoice. Will XYZ have to pay the invoice using the mandatory split payment?
Yes, because by listing the car parts listed in Annex 15 to the VAT Act as separate items on the invoice, Mr. Aleksander did not provide a comprehensive service. The invoice documents the sale of the repair service and the sale of car parts separately. Due to the fact that car parts and accessories are listed in Annex 15 of the VAT Act, XYZ must settle the invoice using split payment.
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Delivery of goods with its assembly - delivery of goods as the main service
In a situation where the main service is a delivery of goods that is not covered by the split payment mechanism (and therefore has not been listed in Annex 15 to the VAT Act), and the assembly service (despite the fact that it was listed in Annex 15 to the VAT Act) is only auxiliary, the seller is not obliged to include the annotation "split payment mechanism" on the invoice. Therefore, when issuing the invoice, the object of sale should be shown as one item, since the complex supply (i.e. the supply of goods including assembly) should not be artificially divided for VAT purposes.
Mr. Łukasz is an active VAT taxpayer and runs the ABC company dealing in the sale of hard coal. He issued an invoice for the amount of 100,000 gross to the XYZ company. The invoice concerned the sale of coal with delivery, but as an item on the invoice, Mr. Łukasz only included "coal delivery" without the additional annotation "split payment mechanism". Should XYZ make the payment using split payment despite the lack of an annotation on the invoice?
When issuing the invoice, Mr. Łukasz incorrectly indicated the subject of sale. The description of the invoice shows that XYZ purchased a coal delivery service for PLN 100,000. However, when purchasing coal, the delivery service is an auxiliary service. Due to the fact that the main benefit in this case is the purchase of hard coal, despite the lack of an annotation on the invoice, XYZ should make the payment using split payment.
If the seller did not include the annotation "split payment mechanism" on the invoice, and the buyer has doubts as to whether the transaction is covered by the mandatory split payment, he may make the payment voluntarily, using the split payment mechanism. Thanks to this, it protects itself against possible sanctions.
In summary, the correct classification of the type of transaction is related to the correct tax settlement. The all-in-one service can be treated as a whole for VAT purposes as a supply of goods or services. In case of doubt, the seller may apply to the Classification and Nomenclature Center of the Statistical Office in Łódź for confirmation of the correct application of the PKWiU service provided. Taxpayers may also apply for an individual interpretation based on which they will correctly classify the concluded transaction. However, if the buyer of the service has doubts whether the transaction is covered by the mandatory split payment mechanism, he may voluntarily settle the invoice using split payment.