Installation of medical gas vs VAT rate in Poland as part of a comprehensive contract for the construction or reconstruction of hospital facilities.
Leszek Zielonka, Attorney-at-law, examines the subject in the context of the correct VAT rate and the obligation to reject the tender based on Art. 89 paragraph 1 point 6 of the Public Procurement Law (error in the calculation of the price) – the decision of the National Chamber of Appeal, file no. KIO 275/18.
There is no dispute about the fact that the installation of medical gas is subject to taxation rate of 8% in accordance with art. 41 par. 1 and par. 2 of the Act on tax on goods and services dated March 11, 2004 in connection with art. 146a point 2 of the Act on VAT pos. 105 of Annex No. 3. It is therefore, as in the case of delivery of medical devices, within the meaning of the Act on medical devices admitted to trading on the territory of the Republic of Poland, other than those mentioned in other items of the Annex.
Installation of medical gas vs VAT rate in Poland – which rate shall be applied by the Contractor?
The installation of medical gas and the VAT rate raises the question of what rate the contractor should apply, if the subject of the contract is not only the supply of medical gas installations. In such a case, we should distinguish three situations and the contractor should use the correct VAT rate to avoid rejection of the tender in the proceedings to select the contractor for the public procurement contract.
Installation of medical gas vs VAT rate in Poland – the subject matter of the procurement
The first situation is when the ordering party anticipates the delivery and assembly of medical gas installations. The second situation is when the contractor anticipates the supply of medical gas installations along with assembly and adaptation / renovation of premises for a new medical gas installation. The third situation is when the contractor anticipates the contract for the construction or reconstruction of hospital facilities along with the installation / modernization of medical gas installations.
Installation of medical gas vs VAT rate in Poland – definitione of complex service
At this point it should be indicated that neither Council Directive 2006/112 / EC of November 28, 2006 on the common system of value added tax (Official Journal of the European Union L 347, p. 1, as amended), nor does national legislation contain a definition of complex service. There are also no special regulation regarding the conditions for recognizing a given service as complex service.
The assessment under which circumstances related services should be treated as consolidated services is based on the case law of the Court of Justice of the European Union. It should be stipulated that although the Court has, in a number of judgements, spoken in a way that was helpful in the interpretation of provisions concerning complex services, for any decision in this matter the specificity of a specific factual situation in a given case must always be taken into account.
Based on previous judicial decisions of the Court of Justice of the European Union, each service should, in principle, be considered separate and independent (see Case C-276/09 Everything Everywhere Ltd, paragraphs 21-24 and case-law cited).
However, a transaction consisting from economic point of view of one service should not be artificially devided, so as not to impair the functionality of the VAT system. In addition, under certain circumstances, formally separate transactions that can be performed separately and therefore, that can separately lead to taxation or tax exemption, should be considered as one transaction if they are not independent from each other.
Consolidated services in the assessment of the Court of Justice of the EU
In the view of the Court of Justice of the EU, consolidated service occurs when two or more elements, or two or more transactions performed by the taxpayer are so closely related that they form an objectively one indivisible economic service, the division of which would be of artificial nature (vide: judgment of the ECJ EU in case C-572/07 RLRE Tellmer Property sro, point 17).
Installation of medical gas vs VAT rate in Poland – current regulation in force
Based on the guidelines resulting from national tax interpretations and judgments of the EU Court of Justice, following point of view can now be considered as prevailing:
- delivery of a medical device in the form of a medical gas installation meeting the conditions required by the provisions of the Act of 20 May 2010 on medical devices together with its assembly (which involves the need to perform construction and assembly works such as painting, forging, plastering, etc.), as auxiliary service in relation to the main service, being the delivery of a medical device – the preferential tax rate of 8% shall be applied, in accordance with art. 41 par. 2 in connection with pos. 105 of Annex No. 3 in connection with art. 146a item 2 of the Act [vide: individual interpretation by Director of the Tax Chamber in Katowice]
- delivery of medical equipment and the performance of works adapting the premises or renovating them (including carrying out of for example electrical, air-conditioning and insulating installations), constitute two separate services and should be taxed in such way. This means that the preferential rate shall be applied to the delivery of medical gas installations whereas the basis rate of 23% shall be applied to the construction works (if there are no other factors that allow the application of the preferential rate) [vide: judgment of the Supreme Administrative Court dated June 28th, 2011, file no. I FSK 958/10; Judgment of the National Chamber of Appeal (KIO) dated December 3rd, 2014, file no KIO 2433/14];
- services involving the implementation of medical gas installations, implemented as part of the construction or modernization (renovation) of hospital buildings and medical care facilities are subject to taxation at the basic VAT rate, i.e. 23%, in accordance with Art. 41 par. 1 in connection with art. 146a point 1 of the VAT Act [vide: Individual interpretation by the director of the Tax Chamber in Katowice];
Installation of medical gas vs VAT rate in Poland – Summary
To sum up, the problem related to the installation of medical gas vs VAT rate in Poland is of great importance in the context of the obligation to reject an tender of the Contractor who applies the incorrect VAT rate.
Therefore, contractors should be particularly careful in preparing tenders in the context of public procurement, in which there is an element of medical gas installation. At the same time, it should be pointed out that most of the Awarding Entities are not able to deduct VAT from invoices received for delivery.
Therefore, the problem indicated above should also be carefully considered by the Awarding Entities at the stage of formulating the Specification of Essential Terms of Tender documentation, in order to optimize tax operations.
Leszek Zielonka, attorney-at-law, represented the client of the law firm in Poland, Wrocław (Awarding Entity) in the proceedings before the National Chamber of Appeals in case file no. KIO 275/18.