Introduction of changes in the area of correction of the tax base in the VAT Act
A new section 25a has been added to the Slovak VAT Act, which allows taxpayers to claim VAT paid to the state on some unpaid customer invoices. This regulation is a positive change in the VAT Act.
The taxpayer is entitled to a reduction of the tax base only from irredeemable receivables. If the taxpayer reduces the value added tax, he is generally obliged to inform his customer. The customer is obliged to adjust the VAT in the tax period in which he detects, that his supplier has adjusted the VAT. Irredeemable receivables are, for instance:
- A receivable with a nominal value of up to EUR 300, including VAT, 12 months after its maturity, and the payer must be able to prove, that he has performed any act, that aims to obtain payment of the receivable,
- A receivable against a customer, who has died,
- A receivable that is in the execution and has not been satisfied within 12 months from the begin of the execution proceedings,
- A receivable that is in the bankruptcy proceedings…
On the other side, the taxpayer cannot make a reduction in VAT, e.g., if the customer and the supplier are connected persons.
The deadline for correcting the tax base expires after 3 years from the deadline for filing the tax return. The law also provides situation, when the time limit does not expire, for example in the case of bankruptcy proceedings. Correction of the tax base is possible even if the receivable arose before the effectiveness of the law.
Irredeemable receivables have to be view separately from the point of view of the Income Tax Act and from the point of view of VAT. The institute of the correction of the tax base does not correspond with the adjustment of the tax base for income tax purposes. It may be the case, that the same irredeemable receivable cannot be recognized for VAT purposes to correct the tax base, but from the point of view of income tax, the write-off of the receivable will be a tax-deductible expense.
For more detailed information, read our series of article about this topic in Slovak language:
Contribution by Kristína Habarová of EMINEO PARTNERS