NEWSLETTER - July 2012

Dear readers,

we are happy to present you the July issue of our newsletter. The articles we publish may particularly be interesting to people operating their own business. They include information regarding an extensive amendment to the act on VAT planned by the Ministry of Finance, with a vital change in determining the tax point.  
The subject of the amendment to the act on VAT will be further developed in the following issues of the newsletter.
In the current issue we describe the draft amendment to the act on the National Labour inspectorate. I provides for new powers of the labour inspectors which aim at eliminating employment under civil law contract where, in fact, the parties are in an employment relationship.
The July issue of our newsletter also discusses the employer’s duties regarding the employment of foreigners which result from the new act on the effects of employing foreigners illegally staying on the territory of the Republic of Poland.
As usual, we have prepared a few interesting court rulings. This month we discuss the ruling of the Supreme Court on the contract for specified work and, in particular, the moment which should be regarded as the fulfillment of this type of contract by the contractor, as well as a judgment by the Supreme Administrative Court which stated that in certain cases the amount of recovered compensation may be subject to VAT.
We wish you a pleasant read.
WBW team

Amendment to the act on VAT

The Ministry of Finance has prepared a draft amendment to the act on VAT. The proposed amendment, which implements several EU directives (including the directives 2010/45/UE, 2008/8/EU, 2006/112/EU), is to come into effect on 1 January 2013.

One of the most vital changes introduced by the amendment pertains to the tax point date. Under the currently binding act, the rule (subject to numerous exceptions) is that the tax point occurs at the moment of releasing goods or performing services, and if such activities are to be confirmed with an invoice – at the moment of issuing the invoice, however within 7 days of the date following the release of goods or performance of services. This rule is to be changed under the amended act. Pursuant to art. 19a, the tax point occurs at the end of the month during which goods have been released or services have been performed.  

In the opinion of the authors of the draft amendment, this change should simplify transaction settlement with regard to VAT in compliance with the systemic construction of this tax. Furthermore, determining the tax point date at the end of a month realizes the objectives of the said directive 2006/112/EC – recognizing the obligation to pay tax within the tax period during which a given activity was performed.
The new regulation also amends art. 31a of the act on VAT which states that if an amount constituting a tax base is denominated in a foreign currency, its conversion into PLN is made at the exchange rate for a given currency announced by the National Bank of Poland on the last business day preceding the tax point date. The amendment provides for a possibility to calculate the tax base against the exchange rate announced by the European Central Bank, which is supposed to be an advanced solution converging the Polish law and the regulations of certain EU member states.    

Taking the above-mentioned changes into account, one can arrive at a conclusion that in situations where goods or services are denominated in EUR, the issue of a VAT invoice will only be possible at the end of a given month because only then one will be able to determine the amount of the tax base. In practice, this can cause various problems, especially when the invoice has been issued to a person with whom the entrepreneur is not in a permanent business contact.

The draft amendment is now under interministerial consultations so there is hope that appropriate changes will be introduced in order to avoid the above-mentioned problem.
The matter of the amendment to the act on VAT will be further discussed in the coming issues of this newsletter.

Jerzy Kozerski, lawyer


Draft amendment to the act on the National Labour Inspectorate

A draft amendment to the act on the National Labour Inspectorate has been filed with the Polish parliament. The amendment provides for reinforcing the powers of labour inspectors with new instruments which aim at eliminating employment under civil law contract where, in fact, the parties are in an employment relationship.

In accordance with the provisions of the Labour Code, by entering into an employment relationship the employee undertakes to perform a certain type of work for the benefit of the employer and under its supervision, and in the place and time determined by the employer, whereas the employer undertakes to employ the employee against remuneration. Moreover, even if the contract concluded by the parties has a different name (e.g. contract of mandate, contract for services) but it meets the conditions stated above, it is still regarded as an employment contract. In is not permissible to substitute an employment contract with a civil law contract.     

However, it is a common practice to circumvent the provisions of labour law and hire employees under civil law contracts, which are referred to (depending on the point of view) as flexible forms of employment or junk contracts. In order to eliminate such situations, in accordance with the Code of Civil Procedure, both employees and labour inspectors have the right to bring a legal action in order to establish an employment relationship. This type of proceeding is heard by the labour court.  

Nevertheless, the authors of the amendment think that it is not enough. Therefore, the draft amendment to the act on the National Labour Inspectorate provides labour inspectors with new powers which enable them to order an employer to substitute a civil law contract with an employment contract if the relationship binding the two parties is in fact the employment relationship as defined by the Labour Code. An employer could appeal against the inspector’s decision to the Regional Labour Inspector and then complain against it to the administrative court.

The Association of Labour Inspectors of the Republic of Poland commented on the above-mentioned draft amendment. The Association agreed with the suggested changes, however, it pointed out that the control over the decisions to order an employer to substitute a civil law contract with an employment contract should be exercised by specialized common court (labour courts) and not administrative courts as the latter do not have the necessary experience and competences in this type of cases.    
It should be pointed out that even if the proposed amendment is adopted by the Parliament, it is still likely to be deemed unconstitutional.

Jerzy Kozerski, lawyer


The employer’s responsibilities with regard to the employment of foreigners

In July this year, a new act on the effects of employing foreigners illegally staying on the territory of the Republic of Poland came into effect.

Under the currently binding law, a foreigner who wants to work legally on the territory of Poland needs to obtain an appropriate work permit issued by the district governor and to have the right to stay on the territory of Poland (e.g. a visa or a residence card). This rule does not apply to citizens of the European Union or countries which concluded an international treaty on the freedom of movement of persons with Poland.

The said act, which came into effect on 21 July 2012, imposes additional duties on the employer with regard to the employment of foreigners. As a result, the employer is obliged to verify whether a given foreigner possesses a valid document which makes his or her stay in Poland legal before hiring them, and to store a copy of this document together with other work records. Employers already hiring foreigners are obliged to complete the documentation by 4 September 2012.

In accordance with this regulation, failure to comply with the above-mentioned duties caries various penal sanctions, from a fine of minimum PLN 3,000 for hiring a foreigner without a document legalizing his or her stay to 3 years of imprisonment for employing a foreigner who is a victim of people-trafficking or providing employment which is exploitative in its nature. Moreover, employees hired without a document legitimizing their stay will have the right to claim their remuneration.   

It is also worth mentioning that an entrepreneur using the services of subcontractors who employ foreigners should exercise due diligence, i.e. inform their subcontractors about the effects of illegal employment of foreigners and check whether a given employee has been registered for social security. Otherwise, they may be obliged (in case of insolvency of the subcontractor) to pay outstanding remuneration and cover the costs of deportation.

Jerzy Kozerski, lawyer


Contract for specified work in the Supreme Court ruling

On 15 March 2012, the Supreme Court issued an interesting and complex ruling in the case no.  I CSK 287/11. The main object of the Supreme Court’s examination was the contract for specified task and, in particular, the moment which should be regarded as the fulfillment of this type of contract by the contractor. The moment in question brings significant consequences such as updating the ordering party’s obligations and commencing limitation periods regarding contractual claims.

The pivotal problem was to determine when the actual „delivery of the work” takes place. Under the binding law, this moment is the beginning of the limitation period for claims resulting from the contract for specified work. Courts of the first and the second instance determined that “the delivery” is tantamount to “acceptance”, i.e. the ordering party’s action. The Supreme Court was of a different opinion and it determined that it is the moment of “releasing”. i.e. the action of the contractor. Such interpretation caused that the decision of the court of the second instance was overturned and remanded.

The case was further complicated by the fact that the contractor performed the work in a defective manner. Therefore, the ordering party kept requesting the contractor to rectify the defects, which happened systematically. In this situation the question arises whether releasing a defective piece of work constitutes the fulfillment of the contract at all. The Supreme Court resolved that only in case of defects which disqualify the very substance of the work may the contract be deemed unfulfilled. In such situation there is no release (delivery) of the work and no obligation to accept it, therefore the ordering party is under no obligation to pay remuneration and no period of limitation period for contractual claims begins. If defects are not significant enough, the ordering party is entitled to statutory warrant claims for defects of the work (depending on the circumstances they may include: request to rectify the defects, request to reduce remuneration etc.).

As a side note, one should bear in mind that the above-mentioned problem results from the fact that two different words (delivery and release) mean the same activity. This leads to a situation in which the wording of the act is unclear and incomprehensible, which in turn makes it difficult to interpret and implement the law.

Jerzy Kozerski, lawyer

Compensation which in fact constitutes remuneration for performed services is subject to taxation.

On 8 May 2012, the Supreme Administrative Court passed a judgment in the case no. I FSK 1116/11 in which it resolved that in certain cases the amount of recovered compensation is subject to VAT.

In the said case regarding the erection of a sewage treatment plant, the parties came to an agreement in front of the Arbitration Court. In accordance with this agreement, one party received compensation for some necessary additional costs it had to bear in order to fulfill the contract between the parties. Hence, the question arose whether such compensation is subject to VAT.    

The tax authorities resolved that, irrespective of terminology used, the amount of money described as “compensation” is in fact remuneration for services rendered by the company. The money that the company received does not constitute compensation for damages suffered by the company as there were no circumstances, within the understanding of the provisions of the Civil Code, which would cause damage and justify the payment of compensation. The money in question is the result of services performed by the company and therefore it is subject to VAT. The Supreme Administrative Court stated that this approach is in accordance with the law.

Jerzy Kozerski, lawyer

This Newsletter is for general informational purposes only. It is not intended and shall not be treated as professional advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.

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