Obligation to pay in VAT when performing continuous services

In general, continuous services are considered as performed on the lapse of the period to which payments or clearings will apply. The notice of ‘continuous services’ is not defined in VAT regulations. In practice, however, it is assumed that they are services performed constantly, for a longer period of time.

Moment when the obligation to pay arises

As a rule, the obligation to pay arises on the moment when goods or services are supplied. With regard to partially received services, a service is also deemed as provided, with respect to a part of the service for which the payment has been determined.

Whereas, as specified in Art. 19a clause 3 of the VAT Act, a service for which, with regard to its supply, subsequent clearing or payment deadlines are specified, is deemed as provided upon the lapse of every period to which said clearings or payments refer, until the time when the supply of said service is completed.

Then, a service supplied continuously for a period longer than one year, for which, with regard to its supply in a given year clearing or payment dates do not elapse, is deemed as provided upon the lapse of every fiscal year until the time when the supply of said service is completed.

In those cases, the legislator assumed a conventional moment of the obligation to pay arising, due to difficulties connected with determining the exact date when those services are performed (since they are performed perpetually). Determining this moment is not influenced by the date of issuing the invoice. In this case, the decisive factor is the lapse of the assumed tax period, to which payments or clearings stemming from the concluded agreement, refer.

Therefore, services of continuous character should be considered to have been performed on the last day of each period, to which the payments or clearings refer or, respectively, 31st December of each fiscal year, until their performance ceases.

So then, if the taxpayer provides services of continuous character (they are performed constantly, repeatedly, systematically) and they are cleared in consecutive tax periods, (e.g. monthly, quarterly), then Art. 19a clause 3 of the VAT Act will apply.

Attention should be paid to the individual interpretation of the Head of the Tax Chamber in Katowice of 24th March, 2014, No. IBPP2/443-191/14/ICz.

In this interpretation, the authority, among others, drew attention to one very important issue. Namely, to the determining of the date of service performed constantly. The head indicated that the VAT Act does not define the moment of ‘performing the service’ and in no way does it specify what criteria should be used in order to determine it. Therefore, the character of the service should be decisive to determine that it was actually performed. And it is the parties to a civil-law agreement that decide on the character and date of performing a service (unless this moment is specified by an applicable provision of law, which regulates the rules of performing a given type of services). Citing provisions of the Civil Code, the head assumed that parties concluding an agreement, may arrange the legal relationship according to their will, just as long as its content or purpose is not contrary to the characteristics (nature) of the relationship, the statute or the principles of community coexistence. This means that the parties are free to shape the agreement according to their discretion, within the limits set by applicable provisions of law, including tax law. Therefore, in the case subject to analysis by the tax authority, it was determined that the moment of performing the service consisting in granting an open-end licence, with agreed payment deadlines after its granting, is the date when this licence is granted. This date also indicates the date when the obligation to pay arises.

However, it should be underlined that for services such as: lease, rent, provision of utilities, etc., the legislator specified a special moment when the obligation to pay arises – it arises upon the issuance of the invoice. Therefore, the abovementioned rules of the obligation to pay arising do not apply to those services.

Advance payment for continuous services

According to Art. 19a clause 8 of the VAT Act, if, before services are provided (in case of continuous services it is the end of the tax period), the part or whole of the payment is received, in particular: an advance payment, a payment on account, deposit, an instalment, the obligation to pay arises upon the receipt of said payment with regard to the amount received (example 2). A similar situation will occur, if the purchaser of the service pays for more than one month in advance, then the obligation to pay will arise upon the receipt of payment for the services (example 3).

One should also draw attention to the situation, where the purchaser of the service is in delay with payment. This fact shall not influence the moment when the obligation to pay arises, since it will arise at the end of the tax period, e.g. the month (example 4).

Issuance of invoices

In general, invoices shall be issued not later than on the 15th day of the month following the month in which goods were supplied or services provided. Art. 106i of the VAT Act specifies that, generally, invoices shall be issued not earlier than on the 30th day before services are provided (or 30 days before the whole or part of the payment is received before services are provided). This limitation does not apply to, among other, issuing invoices for services cleared in tax periods (Art. 106i clause 8). However, a condition here is that the tax period, to which the invoice refers, is stated on the invoice. Therefore, by way of example, if the invoice was issued on 20 May, 2014 stating that the date of performing the service is 30th June, than this invoice should, generally, contain information on which tax period it refers to shows information concerning.

Source: Gazeta Podatkowa of 30^th June, 2014