Advance payment: No possibility of extending the deadline for applying the 0% rate

The six-month armed conflict in Ukraine changed not only the European Union’s approach to energy and food policy, but also revealed the lack of specific legal solutions in the field of tax issues.

At the beginning of March this year – an application was submitted to the Director of the National Revenue Administration so-called KIS for an individual tax ruling (signature 0111-KDIB3-3.4012.118.2022.4.PK) on the taxation of the advance payment for unrealized exports of goods to Ukraine.

In the case at hand, the Polish taxpayer concluded an agreement with a Ukrainian contractor for an individual order of aluminum products. The recipient has made an advance payment for the future service. Polish taxpayer according to the date of receipt of the advance payment, included it in the VAT settlement for December 2021 with a 0% VAT rate.

Due to the circumstances of the independent force majeure – war and the lack of contact and any information from the Ukrainian recipient, and thus the inability to make the export or information about the possible date of its implementation, the taxpayer asked the director of KIS with questions about:

  • Possibility to extend the period of application of the 0% VAT rate and,
  • Correction of the VAT rate from 0% to 23% in relation to the prepayment amount after the statutory deadline of 6 months.

Pursuant to Article 41 par. 9a of the VAT Act, in the event that the taxpayer has received all or part of the payment before the delivery of goods, the 0% tax rate on the export of goods applies to the received payment, provided that the goods are exported within 6 months from the end of the month in which the taxpayer received the payment.

Article 41 par. 9b  allows for the extension of the deadline for the application of the 0% advance payment on exports, provided that the subsequent export is dictated by the specificity of such deliveries, the confirmed terms of delivery and the date of exportation of the goods is specified.

In this case, the concept of the “specificity of delivery” itself is questionable, which may refer to, for example, both the technological process and the situation of a given market.

However, the director of the National Revenue Administration takes the position that the so-called external factors such as logistical problems or force majeure – in the case of the Polish taxpayer, the war in the buyer’s country cannot be treated as the basis for extending the six-month period of applying the 0% VAT rate in advance for exports.

However, the interpretation indicated that in the case at hand, in the case of failure to export goods as a result of withdrawal from the contract, it should be concluded that the advance payment for exports is not related to a taxable activity and should be treated as compensation. In such a situation, the taxpayer should correct the settlement by completely excluding the advance payment.

If it is necessary to review the export transactions in your company, please contact with our VAT experts:

Anna Szafraniec
CEE VAT Compliance Director

Małgorzata Kasińska
VAT Consultant

Category: VAT

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