The Ministry of Finance announced that it plans to introduce the mandatory split payment mechanism in mid-2019. Currently, there is no draft national legislation available in this regard yet.
The draft of the decision indicates the widest possible scope of introduction of the obligatory split payment. It is likely that the Ministry of Finance will try to implement the decision in its entirety. Impact of the introduction of such a mechanism on the automotive industry should be comprehensively analyzed and conclusions need to be provide the Ministry with especial focus on the risks that a mandatory split payment may cause to the industry. Only for a limited time there will be an opportunity to possibly influence the final shape of these regulations as part of public consultations within the legislative process.
Key question – cash flow impact and gathering of illiquid funds on a VAT account
The obligatory split payment will, to a large extent, cover those categories of goods and services which are currently subject to a reverse charge if taxable locally. Depending on the situation of a given company, obligation to use split payment on a large scale may lead cash flow distortions and limited liquidity. Accumulation of funds on the VAT account may occur as a result. Proper modelling of this phenomenon will allow to estimate the scale of the problem and prepare counter measures.
Getting your business ready
We believe that as a first step it is necessary to determine to what extent the new regulation will affect our business. Significant doubts are related with referring to the type of a business activity (sale of parts) and not specific goods. Our experience also indicates that the PKWiU code does not always identify goods or services in a sufficiently precise way.
We suggest to roughly scale the problem (what percentage of sales / purchases will involve split payment) and verify what actions will be necessary to implement this mechanism for its scale. The company’s finances (liquidity of the company), accounting, invoicing, payment processing as well as legal aspects should all be taken into careful consideration.
Limitations of split payment method
Based on experience with how the voluntary split payment works, it should be assumed that some functional limitations of this mechanism will also appear in its mandatory variant. As an example, currently split payment method can be used only for single invoice payments (it is not possible to pay via split payment with a single payment for multiple invoices).
Once this method becomes mandatory, such limitations may cause serious problems if they will appear on a vide scale basis. It would be advisable to be prepared to face such difficulties.
Mandatory nature of split payment
The mandatory nature of the split payment will likely cause the Ministry of Finance to introduce regulations penalizing lack of application of this mechanism. At the current stage, it is not known whether there will be some specifically implemented provisions or general reference to the penal fiscal code will be utilized.
In the case of a short vacatio legis there is a real risk that the time for introducing, testing and optimizing the functioning of the mandatory split payment mechanism may not be sufficient.