Split Payment in Europe
Italy was the country in the European Union (EU) to introduce mandatory split payment: starting on Jan. 1, 2015, split payment applied to payments made to public authorities. The scope of Italy’s measure subsequently extended to companies controlled by central and local public authorities and companies listed on the Milan Stock Exchange.
Split payment will become mandatory in Poland starting on Nov. 1, 2019. It will apply to certain B2B supplies (e.g. electronics, metal, scrap, fuel, construction services) above PLN 15,000 (USD 3,800). Most of the eligible transactions are currently covered by the reverse charge mechanism, which moves the responsibility for the reporting of a VAT transaction from the seller to the buyer. Split payment will apply to both residents and non-residents; non-resident suppliers will have to open a bank account in Poland to be able to receive split payments.
Any introduction of new measures is frequently accompanied by new penalties. This is also the case in Poland. The supplier will be liable for 100% of the tax due if the words “split payment” are not included on the invoice. If a customer fails to split the payment despite the legal obligation to do so, a penalty of 100% of the tax shown on the invoice or up to 720 times the daily rate will apply. Additionally, the costs of the goods purchased will not be deductible for corporate income tax purposes.
Split payment may be implemented upon authorization by the European Commission (EC). Both Poland and Italy were granted such authorizations. Romania also applied for permission. However, the EC objected to the proposed Romanian system because it raised concerns regarding its proportionality and compatibility with EU law.
What the Future Holds for Split Payment
Will split payment spread across Europe? Not very likely. The EC considered this measure as a potential general means to combat VAT fraud but came to a negative conclusion. In a 2017 report, it found no strong evidence that the benefits would outweigh the costs. Some countries (e.g. the Netherlands) have explicitly rejected split payment in favour of other anti-fraud policy measures.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.