Will 2023 be a good time to join the VAT Group?

From the very beginning of 2023, Poland will allow a group of entities bound by financial, economic and organisational links to be registered as a one taxpayer, i.e. the VAT group. It may be a suitable solution to eliminate output VAT in the intra-group transactions, but the complexity of regulations regarding input VAT deduction and an obligation to keep special registers may cause significant problems for (unexpectedly many) VAT groups.

Needless to say that creating a VAT group has an enormous impact of the VAT settlements of its members. First of all, once the group is created, transactions between the group members became outside the scope of the VAT, so they are not taxable (internal transactions). Output VAT becomes chargeable only on external transactions, i.e. on supplies of goods or services to entities other than members, made both B2B or B2C. Consequently, only the leader of VAT group files VAT returns (in Poland in the form of SAF-T file called JPK) which is a “collective” return. Such change of the VAT status of group members may have a positive impact on their cash flow resulting from internal transactions.

However, Polish regulation set forth a very complicated system (or even a labyrinth) of input VAT deduction rules applicable for VAT groups. Similarly to general rules, at first purchases should be allocated to taxable or exempted activities of the whole group or to a specific member. Then an individual pro-rata of a specific member is applicable, but if it is not possible to allocate activities to VAT group members, a group pro-rata should be applied. The same rules apply to non-taxable activities interfering the right to deduct input VAT (e.g. acting as public bodies).

Creating a VAT group also entails an obligation to keep a special register of internal transactions, which from July 2023 should be sent each month to tax authorities in a form of a SAF-T. What is also worth mentioning, during the period when a VAT group is a taxable person and after it loses that status, the members of the VAT group are jointly and severally liable for its VAT obligations.

Although creating a VAT group may in some situations bring many benefits, it requires to prepare for this process or even to calculate what are potential gains for some specific businesses. Nevertheless, it is expected that after few pioneers successfully struggle to function and survive as the VAT group for some time and a practice of VAT settlement for grouping is established, VAT group may become an interesting opportunity that allows to effectively manage VAT settlements in the group of related parties established in Poland.