Rental of construction machinery and equipment with and without service and reverse charge

Service-Tax

Starting from January 1, 2017. there was a revolution in the amendments to the VAT Act. The obligation to tax certain construction services with the use of the reverse charge mechanism has been added, in accordance with Annex 14 to the VAT Act. Along with the inclusion of services under this mechanism, a number of questions and doubts arose regarding the qualification of specific construction services under the appropriate PKWiU number, because the correct classification of the service depends on the correctness of its taxation. What is the tax structure of the rental of construction machinery and equipment according to the amended regulations?

Reverse charge in services

The use of the reverse charge mechanism is associated with the following:

  1. the service provider (from Annex 14 to the VAT Act) provides them to the recipient
    and issues an invoice showing the final amount without adding the amount of VAT.
    On the other hand, on the invoice, instead of the VAT rate, it uses the signs "-" or "OO", and additionally, it obligatorily adds the annotation "reverse charge" on the issued invoice,

  2. the recipient of services (from Annex 14 to the VAT Act), regardless of the month of receipt of the invoice, is obliged to add the VAT due to the amount indicated on the invoice and must indicate the transaction in the VAT register on the sales side in the month of the service.
    It is worth noting that the recipient also has the right in the settlement for the month in which he entered a given transaction of purchasing a service subject to a reverse charge in the VAT register on the sales side (VAT due) to deduct it by showing it in the VAT register of purchase.

As of November 1, 2019, the reverse charge mechanism in domestic transactions will be abolished and replaced with a split payment. Therefore, Annexes 11 and 14 will also be repealed in favor of Annex 15 to the VAT Act. More information in the article: Mandatory split payment - from November 2019? How to Prepare?

Under what conditions will there be a reverse charge on services?

Pursuant to Art. 17 sec. 1 point 8 of the VAT Act, in relation to the services listed in Annex 14, a reverse charge will occur in a situation where:

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

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

It should be noted that the general contractor is obliged to issue a VAT invoice for sales with the domestic VAT rate, i.e. in the same way as for standard domestic transactions not taking into account the reverse charge. Therefore, the general contractor, when issuing an invoice, will add the appropriate VAT rate to the value of the services it provides.

However, for the initiation of a reverse charge as part of the provision of services listed in Annex 14 to the VAT Act, one of the parties involved in the transaction must be a subcontractor, because he will be obliged to issue a sales invoice for the service provided to the general contractor or another subcontractor without adding tax VAT due.

In addition to the above, it is the subcontractor providing services covered by the reverse charge mechanism and under the above conditions will be obliged to submit monthly (if such transactions occur in a given month) to the competent national tax office summary information.
in the form of the VAT-27 form, which will include all sales transactions of services subject to the reverse charge. This information should be submitted by the 25th day of the month following the month of sale of the above services.

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Rental of construction machinery and equipment with or without an operator

As it turned out, at the beginning of 2017. a number of problems related to reverse charge have accumulated
in construction services. It is no different in the case of renting construction machinery and equipment.

In Annex 14 to the VAT Act, it is in vain to look for the rental service of construction machinery and equipment, therefore, when analyzing these services, it is necessary to identify the given rental in the first place; if:

  1. it is the rental and lease of construction and civil engineering machinery and equipment, because without service this type of rental is classified under the number PKWiU 77.32.10.0, which is indicated by numerous taxpayers' practices included in the individual interpretation of August 17, 2016. Director of the Tax Chamber in Bydgoszcz, ref. No. ITPP1 / 4512-377 / 16 / AJ, or the individual interpretation of January 14, 2016. Director of the Tax Chamber in Łódź, ref. No. IPTPB1 / 4511-763 / 15-3 / MH,

  2. it is the rental and lease of construction machinery and equipment along with the operator's service, because then such a service should be classified under the number PKWiU 43.99.90.0, which is confirmed by the Statistical Office in a letter of August 17, 2016, the decision of which was included in the individual interpretation of December 1, 2016. . Director of the Tax Chamber in Katowice, ref. No. 2461-IBPP2.4512.777.2016.1.BW.
    It should be pointed out that in Annex 14 to the VAT Act, containing the list of services subject to reverse charge, there are services classified under the number PKWiU 43.99.90.0 as works related to the performance of other specialized construction works, not classified elsewhere.

It is worth noting that in the explanations of PKWiU under the number 43.99.90.0 there are:

  1. works related to the erection of industrial chimneys,

  2. works related to lining furnaces with refractory linings etc.,

  3. works related to the construction of outdoor swimming pools,

  4. works related to the construction of decorative fireplaces,

  5. works related to the outdoor cleaning of buildings with steam, sand blasting and similar methods,

  6. rental of cranes and other construction equipment, including service, that are not intended for specific construction services,

  7. other specialized construction services, not elsewhere classified.

However, the following services are excluded from this group:

  1. rental of construction equipment with service, which equipment is intended for specific construction services classified in the appropriate groupings of section F (i.e. PKWiU 41 to 43),

  2. renting and leasing of unattended construction machinery and equipment, see 77.32.10.0

However, the explanations of PKWiU at number 77.32.10.0 include rental and lease services:

  1. construction machinery and equipment, as well as civil and water engineering, without operator,

  2. construction and earthmoving tractors, road graders, excavators, rollers, bulldozers, loaders, scaffolding and platforms without erection and dismantling, construction barracks, etc.

Moreover, this group does not include:

  1. rental and lease of construction and civil engineering machinery and equipment, with service, classified in the appropriate groupings in Section F.

Rental of construction machinery and equipment - when with a reverse charge and when with a 23% VAT rate

In connection with the above findings, supported by the above-mentioned jurisprudence:

  1. under PKWiU 43.99.90.0 as "Works related to the performance of other specialized construction works, not elsewhere classified" includes services for the rental of construction machinery and equipment with operator service. These services should be taxed under the reverse charge mechanism.

This is confirmed by the position of the Director of the National Tax Information contained in the individual ruling of June 22, 2017. with reference number 0114-KDIP1-2.4012.45.2017.2.KT

  1. as part of PKWiU 77.32.10.0 - rental and lease of construction machinery and equipment as well as civil and water engineering without operator, it includes rental services of construction machinery and equipment without operator support, which should be taxed with the standard VAT rate of 23%. In this case, the reverse charge mechanism will not apply.

This is confirmed by the position of the Director of the National Tax Information contained in the individual ruling of May 9, 2017. with reference number 0112-KDIL1-3.4012.51.2017.1.AP.

Watch out for another exception, where the issue of the appropriate VAT treatment of a given transaction is of great importance:

  1. from the PKWiU 43.99.20.0 group, the scaffolding rental services without their assembly and disassembly, which are located under PKWiU 77.32.10.0, were excluded. This means that these services will be taxed at a VAT rate of 23%,

  2. if the scaffolding rental services would also apply to their assembly and disassembly, then they should be covered by the reverse charge mechanism.

This is confirmed by the position of the Director of the National Tax Information contained in the individual ruling of April 11, 2017. with reference number 3063-ILPP1-2.4512.37.2017.2.JO.