VAT Groups – joint VAT settlement by several entities possible from January 1, 2023

The group VAT settlement system was provided for in the VAT Directive. According to the Directive, each Member State may consider entities with their registered office in its territory, which, while legally independent, are closely linked financially, economically, and organizationally, as a single taxpayer.

This solution, currently functioning in 19 EU countries, will also be available in Poland from January 1, 2023. 

Polish entities that decide to implement the VAT group will be able to derive a number of benefits, including ensuring tax neutrality in relation to transactions carried out between companies belonging to the group, increasing financial liquidity, and reducing obligations related to monthly submission of the JPK file and documenting transactions carried out within the group’s structures.

Conditions for establishing a VAT group

VAT groups can be established by taxpayers with their registered office in Poland or taxpayers operating in Poland through a branch located in Poland. Additionally, it is required that there are financial, economic, and organizational links between the entities forming such a group.

Financial links mean that one of the taxpayers holds more than 50% of shares (stocks) in the share capital or more than 50% of voting rights in the supervisory, management, or controlling bodies, or more than 50% of the right to participate in profits, of each of the other entities that are members of this group.

Economic links exist in situations where:

1. The main activity of the group members has the same character, or
2. The types of activities of individual group members complement and are interdependent, or
3. A member of the VAT group conducts activities from which other members of the VAT group benefit.

Organizational links exist if the entities are under common management or organize their activities in agreement.

Similar to tax capital groups (so-called PGK) operating for the purpose of joint income tax settlements, entities forming part of a VAT group are obliged to conclude an agreement on its establishment for a minimum period of 3 years. Such an agreement should specify, among other things, the name of the VAT group, along with the designation “VAT group” or “VG,” as well as the representative of the VAT group, i.e., the entity representing the VAT group in the scope of its obligations. The VAT group representative registers it for VAT purposes (and VAT-UE, if necessary), applying to the head of the tax office for the assignment of a tax identification number (NIP) for the group.

VAT settlement in the VAT group

Upon obtaining taxpayer status, the VAT group will be obliged to jointly settle VAT and submit a single collective JPK file with a declaration, which will include settlements with entities other than those in the group. The entity responsible for fulfilling this obligation will be the representative of the group.

Invoices are issued by the VAT group and contain identifying data, including the name and NIP appropriate for it. Transactions conducted within the group are not subject to taxation. Therefore, such transactions should not be documented by invoices but by accounting notes. They are also not shown in declarations submitted by the VAT group. However, intra-group transactions will be subject to separate electronic records.

Advantages and disadvantages of joint settlement

Among the most significant benefits of implementing a VAT group are:

1. Non-taxation of transactions carried out between group members.
2. Simplification of documentary and administrative obligations by minimizing the number of:
   • Invoices issued (no invoices for intra-group transactions),
   • JPK submissions (submitting one collective JPK by the VAT group).
3. Increased financial liquidity.
4. Abolition of the split payment mechanism for transactions conducted within the group.

The most significant disadvantage of functioning in a VAT group is the risk of liability, which in this case is joint and several. During the period of the VAT group’s taxpayer status and after its loss, the group members are jointly and severally liable for the VAT obligations of the VAT group.

Tax explanations

The provisions on VAT groups were originally supposed to come into force on July 1, 2022, but this deadline was postponed to January 1, 2023.

To meet the expectations of taxpayers even before the provisions came into force, on October 11, 2022, the Ministry of Finance published “Tax Explanations regarding VAT groups,” addressing a number of doubts concerning the creation and functioning of this new type of taxpayer. However, practice will show to what extent the applicable regulations and explanations to them will prove to be clear.

If you are interested in implementing the discussed solution, we encourage you to contact us, offering comprehensive tax advice and support at every stage of activities related to the establishment and operation of a VAT group.