Comprehensive services - breakdown into components on the VAT invoice

Service-Tax

The VAT invoice should reflect the actual economic event or events. From the point of view of the tax authority and settlements made with it, the invoice must contain specific items, which in turn allows its verification and assigning a specific tax rate to a specific event. In the case of the sale of specific goods or the provision of specific services, where the tax rate is strictly defined, the indication of the tax rate does not raise any doubts. The problem arises when, in addition to selling a specific good (product), the taxpayer provides the so-called additional services, such as e.g. delivery, which are additionally payable (related services), but are nevertheless comprehensive services. So how do you document your transactions? Can a comprehensive service be broken down into individual components on a VAT invoice without the risk of recognizing that the subject of the sale were several separate services, and not one comprehensive? You will find the answer in this article!

The form and content of a VAT invoice - the most important information

As mentioned in the introduction, for this article the VAT invoice must reflect a real economic event. Pursuant to Art. 106b of the VAT Act, the taxpayer is obliged to issue an invoice documenting the sale, as well as the delivery of goods and the provision of services referred to in art. 106a point 2 of the VAT Act, made by him for the benefit of another taxpayer of tax, value added tax or a tax of a similar nature or for the benefit of a non-taxable legal person.

According to Art. 2 point 31 of the VAT Act, an invoice should be understood as a document in paper or electronic form containing the data required by the Act and regulations issued on its basis. On the other hand, an electronic invoice is understood as an invoice in electronic form issued and received in any electronic format (Article 2 point 32 of the VAT Act).

Thus, the VAT Act provides for two forms of VAT invoices: traditional (a document in paper or electronic form) and electronic. Legal (statutory) definitions are included in the VAT Act. Regardless of the form, a VAT invoice must contain certain basic elements enabling the verification of an economic event. Belong to them:

  1. date of issue;
  2. sequential number from one or more series that uniquely identifies the invoice;
  3. the first and last names or names of the taxpayer and the buyer of the goods or services and their addresses;
  4. the number by which the taxpayer is identified for tax purposes, subject to point 24 (a). and;
  5. the number by which the buyer of goods or services is identified for the purposes of tax or value added tax under which he received the goods or services, subject to point 24 (a). b;
  6. the date of the delivery or completion of the delivery of goods or the performance of the service or the date of receipt of the payment referred to in art. 106b paragraph. 1 point 4, if such date is specified and differs from the invoice issue date;
  7. name (type) of goods or services;
  8. measure and quantity (number) of delivered goods or scope of services rendered;
  9. unit price of a good or service without the tax amount (net unit price);
  10. the amount of any price rebates or reductions, including in the form of an early payment rebate, provided that they are not included in the net unit price;
  11. value of the goods delivered or services performed, covered by the transaction, excluding the tax amount (net sales value);
  12. tax rate;
  13. the sum of the net sales value, with the division into sales subject to individual tax rates and sales exempt from tax;
  14. the amount of tax on the sum of the net sales value, broken down into amounts related to individual tax rates;
  15. total amount due.

Autonomous services and comprehensive services

Pursuant to Art. 5 sec. 1 of the VAT Act, the provision of services is understood as any service for a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods. According to the individual interpretation of the Director of the National Tax Information of August 7, 2017: “As a rule, each supply for the purposes of VAT taxation should be treated as separate and independent ".

In connection with the above, a standalone service occurs when it may exist independently, and its implementation does not require the performance of auxiliary activities (services) that condition the possibility of performing the main (standalone) service. The situation is different in the case of a comprehensive (complex) service. A complex benefit consists of a combination of various activities leading to the achievement of a specific goal, e.g. the performance of the main service, which consists of various ancillary activities. On the other hand, an activity must be regarded as ancillary if it is not an end in itself, but is a means of fully realizing or exploiting the essential service.

Thus, a single activity is treated as an element of a comprehensive activity if the purpose of providing ancillary activity is determined by the main activity and cannot be performed or used without the auxiliary activity of the main activity.

Example 1.

Jan Kowalski operates in the field of wholesale of metals, i.e. casting of ready-made elements, metal sheets, and sale of steel products. As part of the sale of metallurgical products, Jan Kowalski provides additional services for their cutting, burning, and organization of transport to the customer (delivery cost).Is the sale of goods by Jan Kowalski along with additional services a comprehensive service? Can additional services exist on their own in this case? How to include additional services on the VAT invoice?

The additional services provided are not independent, but provided within a single order for the delivery of goods. For this reason, they should not be divided for tax purposes, as they constitute one comprehensive service covering several ancillary services. The fact that the additional service is recognized as a separate item on the invoice is irrelevant for the method of taxation. Additional services, not only the organization of transport, constitute an integral part of the delivery of goods carried out on an individual order.

Additional services related to the sale of goods are inextricably linked with the main performance. The customer's goal is not to purchase a delivery service or a cutting service, but to purchase a specific product. Therefore, it would be artificial to divide the transaction in question into individual elements, i.e. sale of goods, cutting service, delivery service. The main subject of the transaction is the sale of goods, while the secondary (supplementary) service is the costs associated with the delivery or cutting service.

The ancillary service is not an end in itself, but a means to fully realize or exploit the underlying service. A single activity is treated as an element of a comprehensive activity if the purpose of providing ancillary activity is determined by the main activity.

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The method of documenting the comprehensive service on the VAT invoice

In the judgment of 5 June 2019, the Supreme Administrative Court (reference number I FSK 661/17) indicated that: "If a comprehensive service consists of many services, there is nothing to prevent it from being broken down into individual components on a VAT invoice".

Treating the entire service as the main service does not exclude the indication of elements of the main service (sale of goods, transport services, cutting of these sold goods) in separate items of the VAT invoice. It is irrelevant whether the elements of the complex (main) service will be included in one invoice item as a whole or in two invoice items as delivery of goods and provision of transport services, or in separate invoices.

In this case, the invoice is a secondary document to the transaction itself. It should confirm the implementation of specific activities, and not decide on the method of their taxation. There are no obstacles for the elements of a complex service (sale of goods and transport) to be shown under separate items. This is indicated, among others, by the judgment of the Provincial Administrative Court in Bydgoszcz of November 27, 2014 (reference number I SA / Bd 969/14), in which the opinion was expressed that showing the entire service in one item would lead to an unfavorable perception of the offer on the competitive market, as the transport service would be invisible. Additionally, it should be noted that the rules of VAT settlement result from the provisions of the Act, and not from the technical aspect of issuing invoices. If the parties to the transaction agree that the value of individual elements related to a given delivery will be shown in separate items, it is irrelevant for the settlement of the tax on the comprehensive transaction.

The act of issuing a VAT invoice is of a technical nature. If the parties want to show on the VAT invoice the value of individual services, i.e. the main service and additional benefits, but related to the main service, then it is not about changing the tax base, but only about a material and technical activity, pure information about the costs of these two services, which together constitute a collective benefit.

Finally, it should be indicated, following the judgment of the Provincial Administrative Court in Bydgoszcz of November 19, 2014, file ref. I SA / Bd 969/14:

“(...) that for tax purposes the complex activities of the party, ie the sale of goods and the transport service, constitute, in principle, a uniform whole. Both of these benefits are interconnected, which means that from the economic point of view they also constitute a whole. The auxiliary service in the form of transport supplements the sale of goods, i.e. the main service. Transport without selling is not an end in itself without selling, and therefore the transport service serves the best possible performance of a sale for the benefit of the buyer of the goods. '