Diary number: 1231/2022
Date of administration: 8 May 2023
Volume: 1356
ECLI identifier: ECLI:FI:KHO:2023:41
A Oy had become insolvent, which is why the company’s restructuring procedure had been initiated by the district court’s decision. According to the restructuring program confirmed by the district court, a certain percentage of the unsecured restructuring debt was cut, however, in such a way that before the debt was cut, the creditors had the opportunity to convert this part of the restructuring debt into shares of A Oy. If the creditor did not want to convert a part of the restructuring debt into shares of A Oy and did not exercise its right to subscribe for shares of A Oy, this part of the restructuring debt was permanently cut.
In the case, it was decided whether A Oy had the obligation according to Section 118, subsection 1 of the VAT Act, to correct the reduction of the VAT included in its purchases in a situation where the creditor of the purchase debt subject to VAT did not use the right established in the company restructuring program to convert part of its receivable into company shares and part of the restructuring debt was cut off for good.
Section 78, subsection 1, point 3 of the Value Added Tax Act separately stipulated that the credit loss related to the sale declared as taxable can be deducted from the tax basis. The VAT directive did not have a corresponding provision specifically regarding bad debts. The Value Added Tax Act, on the other hand, did not have a general provision for the adjustment of the deduction corresponding to Article 184 of the VAT Directive for the buyer. Section 118 subsection 1 of the Value Added Tax Act on the obligation to adjust the reduced tax covered only the reimbursement of the buyer according to Section 78 subsection 1 points 1 and 4 of the Act, which did not include the credit loss. The provisions of the Value Added Tax Act regarding the correction of the deduction were therefore not consistent with the corresponding provisions of the VAT Directive.
When the reduction of the credit loss from the tax basis was separately provided for in Section 78, subsection 1, point 3 of the VAT Act, the corresponding item was not to be considered as an adjustment item referred to in Section 78, subsection 1, point 1 of the law, also in the taxation of the buyer who made the deduction. The adjustment of the VAT deduction made by the buyer in accordance with Section 118 subsection 1 of the Act did not become applicable. Since the provisions of the VAT Act regarding the adjustment of the deduction differed from the provisions of the directive and the obligation to adjust the deduction could not be based on the provisions of the VAT Act, the jurisprudence of the European Court of Justice and the interpretation effect of the directive could not be given decisive importance in the matter, taking into account that the authority of a member state does not have the right to invoke such a provision of the directive against an individual,
The Supreme Administrative Court held that A Oy had no obligation, based on Section 118(1) of the Value Added Tax Act, to adjust the VAT deduction it had made in a situation where the creditor of the purchase debt subject to value added tax failed to use the right established in the company restructuring program to convert part of its claim into company shares.
Preliminary decision of the Central Tax Board regarding value added taxation for the period 1 April 2022 — 31 December 2023.
Value Added Tax Act § 73 subsection 1, § 78 subsection 1 and 3 and § 118 subsection 1
Council Directive 2006/112/EC on the common value added tax system Article 90, Article 184, Article 185 and Article 186
Judgments of the Court of Justice in cases C-396/16, T -2 (EU:C:2018:109) and C-335/19, E. (EU:C:2020:829)
See and compare KHO 1997:69 and KHO 2014:190
Source: finlex.fi
