Purchasing products from companies operating within the territory of EU member states may generate tax liabilities if the transactions are carried out within the framework of Intra-Community Acquisition of goods (ICA). What elements are taken into account in determining the tax base, and when exactly does tax liability arise? Today’s article will answer these questions and more.
ICA – what is it?
Intra-Community Acquisition of goods refers to a situation in which a business, registered for VAT in one EU member state, purchases goods from an entity registered for VAT in another EU country. ICA is follows what is known as the reverse charge mechanism, in which the obligation to charge VAT is shifted from the seller to the customer. In this way, the buyer reports and then deducts the tax on this transaction.
The basis for calculating tax under ICA is the amount that the customer is obligated to pay for the purchased product. It includes: all taxes, duties and other expenses the purchase necessitates, with the exception of VAT, as well as service charges, such as commissions, packaging, transportation and insurance costs, which are charged by the seller.
Obligation to register as a VAT-EU taxpayer
Entrepreneurs in Poland who wish to conduct Intra-Community transactions must register as VAT-EU taxpayers. This enables tax identification at the European Union level and is required for proper reporting of VAT transactions. Without this, a business should not purchase or sell goods within the EU internal market.
ICA – when does tax liability arise?
The so-called reverse charge, or reverse liability, is different from a typical sales transaction, which may be grounds for misunderstandings should the purchasing party be unfamiliar with the process.
Article 20(5) of the Directive on Value Added Tax, defines the moment when ICA tax obligation arises as the moment when the taxpayer issues an invoice, but no later than on the 15th day of the month following the month of delivery of said goods.
Accounting for ICA transactions
As of July 1, 2023, new regulations in tax law (the SLIM VAT 3 package) took effect, introducing changes in the reporting and settling of Intra-Community Acquisition transactions. Now, in order to deduct VAT, it is sufficient to report the tax due in the tax return for the period in which the tax liability became due. Thus, the invoice is no longer a necessary document for tax deduction.
According to the provisions of Article 86(2)(4)(c) of the Value Added Tax Directive, the amount of VAT that a taxpayer is entitled to deduct corresponds to the amount of VAT that is due for transactions of Intra-Community Acquisition of goods. As a rule of thumb, the taxpayer is obliged to include the VAT to be deducted in the same accounting period in which they are obliged to pay the VAT due. As a result, transactions of this kind do not affect the final VAT burden, keeping it neutral.
