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Clearing VAT at the receipt of an advance payment

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Date07 Aug 2014
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The receipt, before goods are supplied or a service is fully performed, of the whole or part of the payment (among others – a payment on account, an advance payment, a deposit or an installment), generally results in the obligation to pay arising on the moment of its receipt with regard to the amount received. The receipt of an advance payment should, as a rule, be confirmed with an invoice.

When is an advance payment invoice issued?

Currently, the tax obligation arises at the time when goods or services are supplied. If, before goods are supplied or services provided, the part or whole of the payment is received, in particular: a payment on account, an advance payment, a deposit or an installment, the obligation to pay arises upon the receipt of said payment with regard to the amount received. This results from Art. 19a clause 8 of the VAT Act. However, it is specified that these rules do not apply to activities regarding utilities, services of lease, rent, leasing or services of similar character, protection of persons and security service, supervision and storing of property, continuous legal and office support , the service of electrical, thermal or cooling energy distribution and pipe gas.

Additionally, Art. 106b clause 1 of the VAT Act specifies in what situation should and invoice documenting a transaction of sale, be issued.

So, not in all cases the payment of an advance payment before goods are supplied or services are performed, gives rise to the obligation to pay.

When speaking of the advance payments received, it should be underlined that, apart from the above cases, not in every situation does the receipt of a part of the payment give rise to the obligation to pay in VAT. The voievodeship administrative court in Warsaw (WSA) in its judgement on 11th January, 2012, case reference No. III SA/Wa 1269/11 (enforceable judgement decided that when a taxpayer receives certain payments from the future purchaser, however they do not pertain to specific goods or services, then it may not be assumed that this is an advance payment which gives rise to an obligation to pay in VAT. According to the court, the obligation to pay arises in such a situation in accordance with general rules. The court also cited the decisions of the CJEU, among others – the judgement on 21st February, 2006, in the case C-419/02. The European court underlined that, in order for a given payment to be considered an advance payment, all circumstances connected with the performance of the service must be known. Therefore, if, on the moment when the advance payment is paid, neither the type of services nor the scope of services to be performed, is known, then such an advance payment may not give rise to the obligation to pay in VAT.

Deadline for issuing the invoice

An invoice documenting the advance payment received should be issued not later than on the 15th day of the month, following the month in which the taxpayer received it (Art. 106i clause 2 of the Act).

Similarly, as in the legal situation applicable until the end of 2013, the taxpayer is not obliged to issue invoices for the benefit of natural persons who do not conduct business activity. If such a person, however, within 3 months as of the end of the month, in which the whole or a part of the payment was received, applies for the issuing of an invoice, the seller must execute such a document. This rule does not, however, apply to activities described in Art. 19a clause 5 pt. 4 of the VAT Act.

When issue the final invoice?

If the advance payment invoice (or invoices) does not include the whole payment, then the seller, after the supplying goods or performing the, is obliged to issue a final invoice. According to Art. 106f clause 3 of the VAT Act, in such a case, in the invoice issued after goods are released or the service is performed, the total value of goods of services shall be decreased by the value of portions of payments received, and the tax amount shall be decreased by the aggregate of amounts of the tax shown in invoices for portions of payments received. This invoice shall also include numbers of invoices issued prior to the release of goods or provision of services. It is, as a rule, issued not later than at the 15th day as of the day when goods were released or services were performed.

Correction of an advance payment invoice

As mentioned earlier, the receipt of an advance payment gives rise to the obligation to pay in VAT. In practice, it happens that taxpayers, after supplying goods or performing services, as they issue the final invoice, also correct the advance payment invoice to zero. Such conduct may not be considered correct. If an advance payment was paid, then issuing a documents that ‘brings it to zero’ fails to confirm the actual course of the transaction. Regulations indicate that, in a situation where advance payment invoices do not specify the total amount to be paid, the taxpayer is obliged to issue a final invoice.

Moreover, cases in which the taxpayer should issue a correction invoice, are described in Art. 106j of the VAT Act. A corrective advance payment invoice should, therefore, be issued e.g. in a situation where the advance payment is returned.

Source: Gazeta Podatkowa of 3 July, 2014.

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