Reverse charge carpentry services - are they subject to this mechanism?

Service-Tax

Many companies on the domestic market conduct complex activities involving the construction, assembly and disassembly of exhibition stands in Poland and around the world. The works included in the comprehensive service are works classified under different PKWiU symbols. Thus, a fundamental question arises: Carpentry services with a reverse charge - will stand construction services be subject to the reverse VAT settlement mechanism?

Reverse charge

The VAT reverse charge mechanism for certain construction services consists in the obligation of VAT settlement by the buyer of the services listed in Annex 14 to the VAT Act.

Art. 17 sec. 1 point 8 to the VAT Act indicates that for the services listed in Annex 14, a reverse charge will occur when:

  1. the service seller is a subcontractor who is a taxpayer who is not subject to VAT exemption (i.e. due to the turnover below PLN 200,000 calculated for the previous tax year) and provides services listed in items from No. 2 to No. 48 of Annex 14 to the VAT Act ,

  2. the buyer of services is an active VAT payer.

The basis is the proper identification of the PKWiU number

The key issue in determining whether a given service is covered by the reverse charge mechanism or not is to find and assign it the appropriate PKWiU number. The catalog of symbols can be found at: http://stat.gov.pl/K classifications/.

If it is difficult to find the appropriate statistical symbol, you can submit an application to the statistical office in Łódź for the assignment of the appropriate PKWiU number for the services provided by completing the application available at: http://lodz.stat.gov.pl/osrodki/osrodek-klasyfik- i-nomenclature-statistical-office-in-lodz / form /.

The most important thing is to determine the correct PKWiU symbol before the first service is performed, because if the issued sales invoice is entered into the economic circulation, it will result in the need to make corrections to the VAT declaration and VAT-27 summary information, as well as possible VAT arrears.

Diversified nature of works and proper identification of the statistical symbol of the PKWiU service

The exhibition stand construction and assembly service is characterized by many different works included in its composition and the use of many different materials. The technological process includes, among others:

  1. carpentry work, execution of walls and structures of chipboards, PKWiU 31.09.13.0,

  2. lining the floor with carpeting or other covering materials, PKWiU 43.33.10.0,

  3. electrical works, distribution of lighting and electrical installations at the stand, PKWiU 43.21.10.2,

  4. graphic works and advertising graphics, PKWiU 73.11.19.0,

  5. furnishing the stand with furniture and other free-standing equipment, PKWiU 77.39.19.0,

  6. assembly of walls and structures of individual elements of a previously constructed stand on the exhibition hall rented by the client ordering the service, PKWiU 82.30.12.0,

  7. finishing services:

  1. painting walls with wooden elements or wood-like boards, PKWiU 43.34.10.0,

  2. wallpapering, covering walls with wallpaper or advertising graphics, PKWiU 73.11.19.0,

  3. glazing of display cases, assembly of ready-made glass panes and glass walls, PKWiU 43.34.20.0,

  4. installation of multimedia devices (TV sets, sound system), PKWiU 77.29.11.0

  5. disassembly of the stand after the fair event, PKWiU 82.30.12.0

  6. stand transport, PKWiU 49.41.19.0.

It is clearly visible that some of the above types of work included in the main service can be identified in Annex 14 to the VAT Act as services covered by the reverse charge mechanism. However, ultimately, all of them are used to perform the main service, i.e. the construction and assembly of exhibition stands, classified under the PKWiU number 82.30.12.0. This service is not subject to the reverse charge, so its performance is subject to the basic VAT rate of 23%.

Reverse charge carpentry services - are they subject to this mechanism?

The basic feature of the assembly of exhibition stands is that it is carried out for a certain period of time, after which the stand is dismantled. In addition, the above-mentioned accompanying works cannot be identified (despite the assigned PKWiU symbols) as construction works, because they do not interfere with the structure of the building. In addition, electrical, painting, glazing, and flooring works are performed on free-standing elements, i.e. at the stand, and constitute partial services that cannot be individually separated from the main service (construction and assembly of the exhibition stand).

On the other hand, according to the construction law, construction works should be understood as construction, as well as works consisting in reconstruction, assembly, renovation or demolition of a building object. It should be noted that the above-mentioned activities relate primarily to these works and, in essence, constitute principal (main) works. In turn, a building object should be understood as:

  1. building with installations and technical devices,

  2. a structure constituting a technical and functional whole with installations and devices,

  3. small architecture object.

The construction, assembly and disassembly of the exhibition stand is temporary and does not have any signs of permanent interference in the structure of the building. This service, as the main and target service, is the use of materials needed to build the stand and adjusting them to the conditions in the exhibition halls. The works related to the construction and assembly of the stand do not interfere with the structure of the exhibition hall. Moreover, the stands are assembled on the area rented by the recipient of the exhibition stand construction and assembly service. Thus, the performance of various types of single electrical, painting, plastering and other works consists of one main service with which these works are inextricably linked. The main purpose of these services is the organization of fairs and exhibitions.

Therefore, services related to the organization of fairs and exhibitions are not subject to VAT reverse taxation, as they cannot be attributed to the nature of construction works identified in Annex 14 to the VAT Act.

In conclusion, the service of construction, assembly and disassembly of the exhibition stand, assuming all the above-mentioned prerequisites will not be covered by the reverse charge mechanism, but will be the service of organizing and managing fairs and exhibitions and supporting services as the main and target service, classified under the PKWiU number 82.30.12.0 and subject to the basic 23% VAT rate.

The above position is confirmed by the individual interpretation of the Director of the National Tax Information of 07/04/2017, ref. No. 3063-ILPP1-3.4512.30.2017.2.JN.