Operator to help settle VAT on deposit refund system (DRS)

At the end of July, a further version of the draft amendment to the DRS legislation also addressed tax issues. Although it takes into account a significant part of the postulates made by future participants of the system, the solutions proposed in it as to the settlement of VAT in the bail system opens new fields for discussion.

One of the most frequently made demands on the design of the DRS was that deposit  be extended to all stages of the beverage trade. This has been amended, and the deposit is to be charged at all stages of beverage distribution, both before and as part of the sale to the end user. At the same time, an obligation has been placed on the introducers to pass on the deposits received to the operators. Retailers will also account for the deposits collected to the operator (as before), but no such obligation has been imposed on wholesalers and distributors. Receipt of deposit funds will be important for operators in relation to the imposition of new settlement obligations as a VAT payer.

VAT-free packaging

Among the tax changes, the non-taxation of VAT on deposits was also a frequent request, which is to be added in the new wording of Article 29a(11a) of the VAT Act. This provision is to explicitly indicate that the deposit collected for packaging covered by the deposit system will not be included in the VAT taxable base. Thus, deposits collected on the sale of beverages in reusable glass bottles (up to 1.5 l.), PET bottles (up to 3 l.) and metal cans (up to 1 l.) will not be included in the calculation of VAT on the sale of beverages. This regulation should be applied to all stages of beverage distribution, so that introducers, wholesalers and retailers should not charge VAT on deposit amounts received for the sale of beverages in packaging covered by the deposit system.

However, it should be borne in mind that returnable packaging not covered by the deposit scheme (e.g. pallets, crates, barrels, kegs, gas bottles) will continue to be accounted for according to the existing rules – if the packaging is not returned within the contractual period or 60 days of issue, the vendor will tax the amount of the deposit retained.

Settlement by the tax remitter

However, the annual settlement of the balance of marketed and returned packaging has not been abandoned. Still, if there are more of the former, the beverage producer will declare additional tax on this account in the VAT return for January of the following year. The amount of the difference so determined will be considered as the gross amount – already including the VAT amount to be paid.

With regard to the settlement of the new tax on unreturned packaging (which, in my view, is not strictly VAT), two significant changes have been introduced.

The first is that it covers not only reusable glass bottles, but all packaging to be returned through the deposit system. The introducer will therefore calculate the balance not only of glass bottles, but also of PET bottles and metal cans. The immediate conclusion is that the new way of calculating the tax will involve an increase in the tax burden for introducers.

The second change concerns giving the operator the specific function of an intermediary in settling the tax on unreturned packaging. The new regulation of Article 17b of the VAT Act is to provide that operators that have concluded agreements with introducers of beverage packaging products will be the tax remitters  of the tax on deposits from unreturned packaging. Tax remitters are to calculate and pay the tax by the end of January of the following year. In turn, introducers are to declare and pay the difference by the deadline for filing the VAT return for January of the following year – i.e. by the 25th of February.

From the justification of the bill, it appears that in the end, the introducers are to be responsible for settling the tax on unreturned packaging, which will make it necessary for the introducers to verify the calculations and records kept by the operators. This raises the question of how to shape the rules of cooperation in this regard. In addition, a practical problem for introducers may be the lack of guidance from the Ministry of Finance and the new rules regarding the PPS indicating how to show their settlement in the January VAT return.

The rule that, if the number of returned packages exceeds the number of marketed packages, no refund of tax will be possible, but only the settlement of the negative balance in subsequent years, is still in place.

Duplication of records

Furthermore, irrespective of the records required by the packaging legislation, introducers and operators will be obliged to keep electronic records of packaging for tax purposes. In this context, such an obligation seems superfluous, as there will be a duplication of records and the data necessary to verify tax settlements should be obtained by the tax authorities from the introducers and operators.

Thus, briefly summarising the tax changes in the amendment to UD45, it can be pointed out that some of the proposals are right and reasonable (no taxation of the VAT deposit at the stage of collection) and many of them require clarification or amendment (settlement by the payer, additional records).