VAT liability arises for loans when waiving exemption. How to define the moment of service provision?

In the case under analysis, the company, as an active VAT taxpayer in the course of its business activity, provides, inter alia, financial services in the form of granting loans. The company intends to apply uniform settlement principles to its loan agreements – the adopted settlement period for loans will be the calendar year, interest will be calculated on an annual basis and will be payable at the end of each calendar year on the basis of an invoice issued by the company (with the possibility of earlier payment).

The Company is considering waiving the exemption in respect of loan services provided to taxpayers. However, a doubt has arisen as to how to account for VAT on, inter alia, loan agreements concluded before 2022 and continued after 1 January 2022 (i.e. after the change in the regulations).

According to the company, the moment when the tax obligation arises for financial services in respect of which the taxpayer resigns from the exemption should be determined based on the general principles expressed in the provision of Article 19a(1) of the VAT Act, i.e. at the moment when the supply of goods or performance of the service is made. In further provisions, i.e. Article 19a(2) and Article 19a(3) of the VAT Act, the legislator specifies in more detail how the notion of performance of a service should be understood.

The company indicated that for the provided services of granting loans it will accept consecutive payment and settlement dates.

Consequently, in the company’s opinion, the provision of Article 19a(3) of the VAT Act will apply to determine the moment of performance of the services provided by it in the indicated model. Pursuant to this provision, a service for which, in connection with its provision, consecutive payment or settlement dates are set, is deemed to be performed at the end of each period to which such payments or settlements relate, until the service is completed. A service provided on a continuous basis over a period of more than one year, for which, in relation to its provision in a given year, no payment or settlement dates expire, shall be deemed to be provided at the end of each tax year until the provision of that service is completed.

The Company will apply uniform rules of accounting for its lending services, i.e. the payment and settlement period assumed in the agreements will be the calendar year, interest (remuneration) will be calculated on an annual basis and the Company will issue invoices at the end of each calendar year. 

Consequently, in the Company’s opinion, it should be assumed that after the waiver of the exemption for, inter alia, loan services provided by the taxpayer, the tax obligation will arise at the end of each subsequent calendar year for the entire period of provision of these services. In the case of an earlier payment, i.e. before the end of a given calendar year, the tax obligation will arise on the date of receipt of such payment.

The director of the KIS agreed with the company’s position presented in this way.

This is an important signal for taxpayers and the financial market. Until now, it was known that the tax obligation under VAT for financial services (the provision of loans), with the resignation of the subjective exemption, arises under general rules. Uncertainties in this respect concerned when this de facto provision of services takes place, i.e. at the time of granting the loan or e.g. at its maturity, i.e. at the end of the period for which the loan was granted. Therefore, the confirmation of the taxpayer’s position by the Head of the Tax Chamber that the services of granting, inter alia, a loan, after resignation from the VAT exemption, may be subject to VAT at the time of service provision, i.e. at the end of each subsequent calendar year for the entire period of provision of these services, and in the case of an earlier payment, i.e. before the end of a given calendar year, at the date of receipt of this payment, is positive news and a hope for consolidation of the authorities’ interpretative standpoint in this respect,” notes Łukasz Woźniak, VAT Manager at Thedy & Partners.

There is also a clear conclusion from the interpretation that, as a consequence, loan agreements which were concluded before 1 January 2022 and whose settlement is continued in the new legal state, i.e. after the introduction of changes starting from 1 January 2022, in the event that the company resigns from the exemption under Article 43(22) of the VAT Act – from the moment of resignation from the exemption, they will be treated as taxed activities – also notes Łukasz Woźniak, VAT Manager at Thedy & Partners.