VAT settlement of delivery with assembly in Poland
Background
It is quiet often between the business parties that the supplier of goods not only delivers them but also installs / assemblies them. In consequence a question that arises is how such transaction should be settled on the grounds of VAT regulations? Should it be settled as supply of goods or intra-community acquisition of goods (in case the goods are moved between EU-countries)? Maybe installation / assembly should be settled as a separate service?
The matter gets even more complex when the buyer and seller often agree to pay for such transactions in instalments, e.g. part of price is paid just after the signing of a contract, another part is paid after the delivery of the goods takes place and final payment is made after the goods are installed / assembled.
Term of “delivery with assembly”
The provisions of the Polish VAT Act do not define terms such as “installation” or “assembly”. However the Article 22 (1) (2) of the Polish VAT Act (see also Article 36 of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, hereinafter referred to as “the VAT Directive”) which regards the place of the supply of goods lays down that “goods which are installed or assembled, with or without a test run, by a person accomplishing the supply thereof or an entity acting for said person - the place in which goods are installed or assembled; simple activities which enable the operation of goods installed or assembled in accordance with the purpose thereof are not considered as the installation or assembly”.
In consequence the term “simple activities” should be understand as activities allowing functioning of the specific good, that can be done by the buyer in his own scope. As a result terms “installation” or “assembly” can be defined as such activities that require special knowledge and skills, which first of all are possessed by the seller of the installed / assembled goods. This statement was confirmed by the Polish tax authorities e.g. in a tax ruling No. IPPP3/443-913/14-2/KT dated 09.12.2014.
Bearing in mind the above if the goods are not only delivered but also installed / assembled by the supplier and installation / assembly is an activity which requires special knowledge and skills from the supplier, then such transactions for the VAT purposes should be treated as delivery with assembly.
On the other hand, if the instalment / assembly is to be classified as a “simple activity” the transaction should be settled as a supply of goods or as an intra-community acquisition of goods (in case the goods are moved between the EU-countries).
Moment of settlement of delivery with assembly
Article 7 (1) of the Polish VAT Act defines the supply of goods in the following manner, that it “shall mean the transfer of the owner's right to dispose of goods” (see also Article 14 of the VAT Directive).
In accordance with the general rule from the Article 19a (1) of the Polish VAT Act (see Article 63 of the VAT Directive) “the tax obligation arises at the time when goods or services are supplied”. However Article 19a (8) of the Polish VAT Act stipulates an regarding e.g. down payments – “if, before goods are supplied or services provided, the part or whole of the payment is received, in particular: an advance payment, a payment on account (…) the obligation to pay arises upon the receipt of said payment with regard to the amount received” (see also Article 65 of the VAT Directive).
It should be underlined that the Polish provisions regarding the supply of goods also apply to the delivery with assembly. As a result, all payments that the seller receives up to the actual delivery with assembly (till the moment of the transfer of the right to dispose of the goods as an owner from a seller to a buyer) are to be settled as down payments. After execution of the delivery with assembly, a VAT liability arises in relation to the entire delivery. The seller must then tax the entire remaining amount of the transaction (delivery with assembly), which was not settled as down payments until the actual delivery with assembly.
Example:
ABC Sp.z o.o. (a Polish VAT taxpayer) buys from XYZ GmbH special electric engines, along with installation, to its warehouse in Poland. Parties agree to make 4 payments: 30% after the concluding of a contract, 30% before the delivery of goods will take place, 30% after the installation (completion of installation is a moment of the transfer of the right to dispose of the goods as an owner from the seller to the buyer), 10% after all the tests are completed.
Bearing in mind the above first two payments should be settled as down payments. However after the installation is completed (the delivery with assembly is executed) a VAT liability arises in relation to the entire delivery, in consequence the seller must tax the remaining 40% of the amount resulting from the contract, which was not settled yet.
The above mentioned practice was confirmed by the Polish tax authorities in many issued tax rulings e.g. No. 0112-KDIL1-3.4012.636.2018.2.KS dated 11.12.2018 or No. 0114-KDIP1-2.4012.197.2019.2.MC dated 22.07.2019.
Paweł Krzeski
