Amendments to the Act on Value Added Tax become effective 1 January 2021. One of the most important upcoming changes is the possibility to correct the tax base and related VAT for uncollectible receivables. This change is the result of implementation of Article 90 (1) of the VAT Directive and various Court of Justice of the European Union (CJEU) cases (such as C-246/16 Di Maura).
In the case of local supplies of goods and services, the supplier is generally obliged to pay VAT on the delivered goods and services. If the customer does not pay for the goods/service and the receivable from the customer becomes uncollectible, beginning 1 January 2021 the supplier will be able to correct the tax base and claim a refund of VAT applicable to the uncollectible receivable.
Uncollectible receivables are things like receivables recovered in execution proceedings and in bankruptcy proceedings, receivables from customers who were officially deleted from the Commercial Register, receivables outstanding at the time a customer dies, and so on.
Receivables, or parts of receivables, of up to EUR 300 including VAT, shall be deemed unenforceable after 12 months from the due date of the receivable(s) if the supplier proves that he or she has performed any act aimed at obtaining payment of the receivable.
A taxpayer’s right to make a correction to its tax base with respect to uncollectible receivables expires after three years from the last day of the deadline for filing a VAT return for the tax period in which the goods or services were delivered. The three-year period for correcting the tax base does not expire if certain conditions are met, in other words, the three-year period is interrupted for the given period, for example, from the beginning of the bankruptcy proceedings until the cessation of the bankruptcy proceedings due to lack of assets, and so on.
It should be noted, however, that the tax base cannot be corrected with respect to uncollectable amounts in case of a special relationship (a connection) between the supplier and the customer (for example, where the parties are related).