VAT is subject to, among others: paid delivery of goods and paid provision of services within the territory of the country. The transfer of the right to dispose of the goods as owner is considered to be a supply of goods. On the other hand, the provision of services is understood as any performance for the benefit of a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods.
Importantly, VAT may also apply to the free supply of goods (we omit this issue, as it does not apply to the discussed situation) or free provision of services.
Let us recall that pursuant to Art. 8 sec. 2 of the VAT Act, the provision of services free of charge has been “equated” with the provision of services for consideration (i.e. with an activity subject to VAT) when:
- use of goods constituting part of the taxpayer’s enterprise for purposes other than the taxpayer’s business activity (in particular for personal purposes of, among others, the taxpayer, his employees, including former employees, partners, etc.) – if the taxpayer was entitled, in whole or in part, the right to deduct input VAT on the purchase (import or manufacture) of these goods or their components,
- free provision of services for the personal purposes of the taxpayer, his employees (including former employees), partners, etc. or other free provision of services for purposes other than the taxpayer’s business activity (note! in some interpretations of individual tax authorities a position is presented, although it does not follow from the provisions, that also in this case the obligation to show output VAT depends on whether the taxpayer was entitled to deduct VAT on the purchase of these services – see, for example, the individual interpretation of the Director of the National Information System of 29 July 2022, No. 0111-KDIB3-1.4012 .160.2022.1.IK).
The need to prove the output VAT on a free service depends primarily on whether the service is provided for the purposes of the taxpayer’s business activity or for other purposes.
The VAT Act does not specify what is meant by “free provision of services for purposes other than the taxpayer’s business activity”. In practice, it is assumed that:
- services not related to running a business (provided for purposes other than business activity) are all services the provision of which took place without connection with the taxpayer’s business activity,
- services related to running a business are those services that are provided free of charge in connection with the needs of the taxpayer’s economic activity, the needs related to the functioning of the business.
This is the result of, for example, the individual interpretation of the Director of KIS of October 21, 2022, No. 0111-KDIB3-3.4012.393.2022.1.MPU. As further stated in this interpretation:
“(…) in order to determine whether a specific gratuitous provision of services is subject to taxation under the quoted provision (Article 8(2)(2) of the VAT Act – editor’s note), it is important to determine the purpose of such a provision. If the gratuitous service is part of the purpose of the business activity, then the condition for recognizing such gratuitous activity as the provision of taxable services for consideration will not be met. Such a statement, however, depends on the specific circumstances of a given case.
(…) It should be emphasized that the provision of Art. 8 sec. 2 point 2 of the Act (on VAT – editor’s note) applies only to those free services that meet the condition listed therein, i.e. it applies to those free services that serve purposes other than the taxpayer’s business activity. If the above condition is not met, there can be no question of treating a service provided free of charge as a paid service and including it in the scope of VAT. (…)”
It is also worth mentioning that the Director of KIS, in an individual interpretation of July 29, 2022, No. 0111-KDIB3-1.4012.160.2022.1.IK, indicated that when assessing whether a given service serves the taxpayer’s business, it should be examined whether it is necessary for this purpose and whose benefit is predominant. If the benefit of the taxpayer is higher than the benefit of the other party, the benefit is not subject to VAT. In addition, according to the tax authority:
“(…) services performed for the purposes of economic activity should be considered to be those that are related to the needs of this activity. However, those activities whose performance is purposeful to achieve or improve the effects of this activity are related to economic activity. This purposefulness may exist also when such a free service is not necessary to achieve the effect of economic activity, but it can objectively affect these effects. (…)”
Considering the above, in a situation where the taxpayer makes his fixed asset available to the contractor free of charge – under the contract concluded by the parties – for exclusive use for the needs of the taxpayer (the owner of this fixed asset) and obtains a benefit on this account, e.g. in the form of a lower price for products/goods/services of this contractor (if the taxpayer had not made the fixed asset available to the contractor free of charge, they would have paid a higher price), such free-of-charge provision is related to the taxpayer’s business activity. In this case, there is no obligation to show the output VAT on account of making the fixed asset available to the contractor free of charge.
Let us also note that if the contract concluded between the parties obliged the contractor to perform a specific behaviour (reciprocal performance) for the benefit of the taxpayer, then mutual provision of services by both parties to the concluded contract could take place, subject to VAT. Let us remind you that the provision of services is understood here as, among others: an obligation to refrain from performing an act or to tolerate an act or situation (see Article 8(1)(2) of the VAT Act).
Each situation of making a fixed asset available to the contractor free of charge requires – for the purpose of determining the obligation to show the output VAT – an individual assessment, taking into account the overall business activity, as well as the terms of contracts concluded between the parties.
Source: Biuletyn Informacyjny dla Służb Ekonomiczno – Finansowych No. 35 (1150) of 10/12/2022, page 16