Payment to an escrow account - the need to submit a form ZAW NR

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Taxpayers should make payments to accounts appearing on the white list. In the case of payment to another account, they have to take into account negative consequences. Of course, they can avoid them.

Escrow account

Recall that the institution of fiduciary accounts was introduced to protect the interests of the buyer when concluding contracts for the purchase of premises. The lack of this institution meant that many apartment buyers were losing all their possessions.

Pursuant to Art. 59 of the Act of August 29, 1997 - Banking Law, the parties to the escrow account agreement are the bank and the account holder (trustee). Only funds entrusted to the account holder by a third party - under a separate agreement - may be deposited on the escrow account.

The idea of ​​an escrow account is therefore limited to the fact that only funds entrusted to the account holder by a third party on the basis of a separate agreement may be collected on it. It is a trust deed - the account holder is the trustee, while the third party is the trustee.

Thus, the parties to the escrow account agreement are the bank that opens and maintains the account and the account holder (trustee). The third party depositing funds into the escrow account is not a party to the agreement. However, the funds in the escrow account remain her property. The account holder is only their administrator. This state lasts until, in accordance with the provisions of the escrow account agreement, the conditions for their payment to the account holder are met. If this does not happen, the funds should be returned to the entrusting entity.

Payment to an escrow account and tax obligation for partial payments

According to the general rule expressed in Art. 19a paragraph. 1 of the VAT Act, the tax obligation arises when the goods are delivered or the service is provided, subject to paragraph 1a, 5 and 7–11, art. 14 sec. 6, art. 20 and art. 21 sec. 1.

The structure of the value added tax shows that a taxpayer who performs activities subject to VAT taxation is obliged to tax a given activity at the moment when the tax obligation arises. The above provision formulates a general rule, according to which the tax obligation arises when the goods are delivered or the service is rendered, which means that the tax becomes chargeable in the settlement for the period in which the goods were delivered or services were provided and should be settled for this period. In the light of Art. 19a paragraph. 8 of the VAT Act, if before the delivery of the goods or the performance of the service, all or part of the payment was received, in particular: prepayment, advance payment, advance payment, installment, construction or housing contribution before the establishment of a cooperative right to a dwelling or premises for other purpose, the tax obligation arises upon its receipt in relation to the received amount, subject to paragraph 5 point 4.

Thus, a tax obligation arises already at the time of partial payment.

Payment to an escrow account and tax liability

Let us recall that the bank maintaining a housing escrow account records payments and withdrawals separately for each buyer (Article 5 (2) of the Act on the Protection of the Rights of the Buyer of a Apartment or a Detached House).

Pursuant to Art. 11 above of the Act, the bank pays the developer the funds accumulated on the open housing escrow account after the completion of a given stage of the development project implementation.

Pursuant to Art. 22 sec. 1 point 8 of this Act, the developer contract contains in particular the amount and terms or conditions for the payment of cash benefits by the buyer to the developer.

However, according to Art. 27 sec. 1 of the Act on the protection of the rights of the buyer of a flat or single-family house, the transfer to the buyer of the right referred to in art. 1, is preceded by the acceptance of the apartment or single-family house by the buyer, which follows notification of the completion of the construction of a single-family house, with no objection from the competent authority or on the basis of a decision on the use permit.

The essence of an escrow account is that it is a transaction whose task is to protect the interests of the seller and the buyer. The security of the parties is achieved through the participation of a neutral entity that supervises the implementation of the contract and resolves any disputes. The seller receives information about securing funds on the account, and then fulfills his obligations. The money is paid to the seller in tranches according to the progress of the contract or once, after the buyer confirms the compliance of the goods with the order.

Thus, until the funds accumulated in the account are released, individual payments are not final, conditional and are potentially refundable. The nature of the funds accumulated on the account changes only when the conditions precedent are met and, as a consequence, they are released, and therefore when the seller may consider the funds as actually received at his disposal.

Therefore, due to the specific nature of the escrow account, the funds flowing into the escrow account cannot be classified as prepayments, advances, advances, installments listed in Art. 19a paragraph. 8 of the VAT Act (at the time of their payment, the account holder cannot dispose of them), the decisive criterion for crediting the amounts paid to the escrow account is the fact whether these funds have been placed at the disposal of the account holder in such a way that he can freely dispose of them . Only the possibility of free disposal of the funds deposited to the escrow account causes that the amounts paid in are considered as payment for the provided service or an advance payment.

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Payment to an escrow account - form ZAW NR

The taxpayer referred to in art. 15 of the Act of March 11, 2004 on tax on goods and services, which on the basis of an agreement concluded with a supplier of goods or a service provider registered for the purposes of value added tax as an active VAT taxpayer or a buyer of goods or a service recipient is obliged to collect receivables from the buyer of goods or service recipients for the supply of goods or the provision of services, confirmed by an invoice, and transferring it in whole or in part to the supplier of goods or service provider and who paid this amount by bank transfer to an account other than that concluded on the date of the transfer order in the list of entities referred to in art. 96b paragraph. 1 of the aforementioned act, he is jointly and severally liable with all his property together with the supplier of goods or service provider for his tax arrears in the part of the tax on goods and services proportionally attributable to this amount due, and separate provisions imply the obligation to make payment via a payment account (Article 117ba § 2 of the Ordinance of tax).

However, according to Art. 117ba § 3 of the Tax Ordinance, the provisions of § 1 and 2 shall not apply in the event that the taxpayer making the payment has made the payment by bank transfer to an account other than that of the date of the transfer order in the list of entities referred to in art. 96b paragraph. 1 of the VAT Act and submitted a notification of payment of the amount due to this account to the head of the tax office competent for the issuer of the invoice within three days from the date of ordering the transfer.

Thus, in the case of a payment to an account other than the one on the white list, he should submit a ZAW NR form, which will mean that he will not have to suffer negative consequences.

Payment to an escrow account that is not on the white list

Trust accounts are very often not whitelisted.

Example 1.

The taxpayer purchases an apartment for rent. He is an active VAT taxpayer. He made a payment to an escrow account which, however, is not on the white list. Should the taxpayer submit a ZAW NO. In this case?

As we have shown, an escrow account is a special account. Although it was created to protect buyers, it does not change the fact that the taxpayer makes payments to an account that is not entered in the records.

Even though the bill is exceptional, the taxpayer should submit a form ZAW NR. The above will protect him from negative consequences.

In conclusion, the taxpayer should check whether payments for goods and services are made to an account existing on the white list. In the case of payment to another account, the taxpayer should submit a ZAW NR form to the tax authority.