Law 222/2004 Coll. on value added tax (hereinafter “the VAT Act’) from 01.01.2021

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Article 90 OF COUNCIL DIRECTIVE 2006/112/EC of 28 November 2006 on the common system of value added tax:

Ods.1 In the event of cancellation, refusal, total or partial non-payment or, in the case of a price reduction after delivery, the tax base shall be reduced accordingly under conditions laid down by the Member States.

Section 2 In the event of total or partial non-payment, Member States may derogate from paragraph 1.

From the ESD Decision:Taxable persons may refer to Article 90 (1) of Directive 2006/112 before national courts against a Member State in order to achieve a reduction in the tax base for value added tax purposes. Although Member States may provide that the exercise of the right to a reduction of such a tax base is subject to certain conditions which, in particular, enable it to be demonstrated that, after the transaction has been completed, the taxable person has ultimately not obtained all or part of the consideration and that that person may rely on one of the cases provided for in Article 90 (1) of the VAT Directive, the measures thus adopted may not go beyond what is necessary for that demonstration.

On the basis of the ECJ Decisions (C-246/16, C-337/13) and in order to harmonise the VAT system in the EU, the VAT Act has been amended. New provisions §25a (on the supplier’s side) and §53b (on the customer’s side).

25a regulates the conditions under which the payer, who was liable to pay the tax on delivery pursuant to §69 (1) of the VAT Act (domestic supply), may comply; reduce the tax base if the customer has not paid him in whole or in part for the supply of goods or services and his claim on that supply has become irrecoverable. Warning: no correction of the tax base can be made for claims acquired by assignment, since in such a case there is no consideration for the supply of goods or services (§25a can be applied exclusively to own claims).

If there is a reason to correct the tax base pursuant to §25,

e.g. the total or partial cancellation of the delivery, or the reduction in the price of the delivery, the payer shall comply with this legislation. Procedure under §25 (1) (a) (b) the VAT Act will also be applied by the supplier who has entered his claim into restructuring, but on the basis of the confirmed restructuring plan there will be a change in his rights to the claim contained in the plan (it is assumed that the claim was identified by the administrator and included in the plan).

To §25a no transitional provision time-limiting applicability of the new legislation to irrecoverable claims incurred before the amendment is effective; the payer shall, under the new legislation, determine the moment at which the claim under §25a has become irrecoverable and, in the absence of any loss of the right to make a correction of the tax base / limitation period §25a (5) is entitled to make a correction of the tax base under this provision.

Prerequisites for default

– for the purposes of §25a VAT Act are specially modified in paragraph 1. 2 that provision; the moment on which the claim becomes irrecoverable for VAT purposes depends mainly on the way in which the creditor seeks its satisfaction /execution proceedings, insolvency proceedings/, or other circumstances independent of the conduct of the creditor/death of the debtor of the natural person, the dissolution of the debtor of the legal person/.

The law specifically regulates the moment creation of an irrecoverable low-value claim – up to 300,00 € including tax / equal treatment, the outstanding balance of the claim on the initially higher amount of the claim/; if the payer demonstrates that he has made any action seeking recovery of the claim / including a reminder or a call for payment/, the claim shall become irrecoverable at the earliest 12 months after its payment. If both conditions were met after more than 12 months of maturity/creditor would have performed an action to obtain payment/ after that period, the claim would have become irrecoverable on the day following the execution of the required action (the law does not require the execution of the action within the 12 month repayment period).

If it occurs the existence of facts leading to an irrecoverable claim, the claim becomes irrecoverable on based on the fact that it occurs earlier. On the date on which the irrecoverable claim arises, the creditor may first exercise the right to correct the taxable amount of the irrecoverable claim.

Scope of the correction of the tax base for irrecoverable claim

Maximum amount corresponding to Unaccepted consideration for the supply of goods or services /Attention: the creditor’s claim may be higher e.g. by the value of the accessories/; the amount of the unpaid consideration for delivery shall be assessed at the date on which the payer exercises the right to correct the tax base and tax.

In case of Partial implementation the debtor’s unilateral declaration of which of the creditor’s claim or what part of the claim /principal is required, the accessory of the claim/creditor is to be satisfied by the performance; if such a declaration is not to be made by the creditor, the offsetting of the payment shall be governed by the general provisions of the law. Where a certain commitment relationship is governed by the provisions of the Civil Code, pursuant to §566 (2) of the OZ partial performance shall be counted first on the payment of the principal and only then on interest, unless otherwise specified by the debtor. In the partial execution of a debt arising from a contractual relationship governed by the provisions of the Commercial Code, priority shall be given to the accessory of the creditor’s claim. From the point of view of the maturity dates of the creditor’s claims, the oldest claims shall preferably be settled even if those claims are already time-barred under company law. In both of the above cases, the debtor’s will to pay a certain claim or a certain part of the claim, if expressed in a timely manner /no additional/, has priority over the above mentioned statutory adjustment.

Limitation of the right to correct the tax base for irrecoverable claim

the payer supplying the goods or services is required; acted in good faith that he gets paid for the delivery; the supplier is required to act with professional care and to implement the usual preventive measures leading to the elimination of the risk of non-payment. Heading of situations where the supplier cannot correct the tax base pursuant to §25a paragraph. 4 is not clear and limited, as according to the letter. (c) it will be necessary to examine and evaluate individually the fulfilment of the above requirements in the light of the circumstances of the relevant contractual relationship.

Termination of the right to make a correction of the tax base for irrecoverable claim

– the right to correct the tax base expires three years; 3 year period calculated from the last day of the period for filing the tax return for the tax period /monthly, quarterly/, to which the goods or services have been supplied /§19 VAT Act regulates the day of delivery of goods or services/. Three-year limitation period It does not occur during the tax limited periods of §25a par. 5, which may be fixed for days, which makes it considerably difficult to calculate the date on which this right expires.

Auxiliary calculation example:

• Date of delivery = 05.02020
• period for filing the tax return (monthly tax payer) = 25.06.2020
• time period during which there was no 3 year limitation period = 74 days
• Calculation = 25.06. 2020 + 3 years = 25.06.2023 + 74 days (5 days June, 31 days July, 31 days August, 7 days September) =) 09.20.23.

Acceptance of payment after reduction of the tax base on the irrecoverable claim

The payer who receives any, even a partial payment, in respect of the irrecoverable claim in respect of which he has made a correction of the taxable amount pursuant to §25a obliged to correct the tax base and the tax equivalent to the payment received. The obligation to correct the tax base and the tax is also imposed on the payer who forward such a claim to another person, even at a price lower than the outstanding claim; on the assignment of the claim, the payer is obliged to correct the tax base and tax  the value of the entire irrecoverable claim for which it reduced the tax base pursuant to §25a. Correction of the taxable base / increase/ made by the payer in the tax year in which the payment was received, which is not limited in time.

25a (7) to (13) provides for the obligation to draw up an amending document (for the customer – taxable person) and to forward this document within a specified period, defining the mandatory particulars of the correction document (s) drawn up under this provision, the recording obligation and others.

53b (2) 1 adjusts Obligation customer – of the payer make a correction of the deducted tax / increase the tax base and tax/, if the fact occurs pursuant to §25a and the payer received proof of the correction of the tax base, in the tax period in which he received the document. According to par. 2 Allows to the customer – to the payer to correct/reduce the tax base and tax if the supplier applies the procedure under §25a (6) in the tax period in which this proof of correction was received. When correcting the deducted tax pursuant to §53b (1) or §53b (2) the customer shall take into account all the related provisions of the VAT Act, e.g. proportional deduction under §50, adjustment of the tax deducted for investment property.