VAT deduction right open for only two years instead of the former five
One of the substantial changes to Act CXXVII of 2007 on Value Added Tax effective from January 2016 was brought by the amendment of Section 153/A (1). With this amendment, the legislator shortened the period during which taxable persons could exercise their right of input tax deduction without a self-revision of the tax return concerned by the performance in any of their tax returns falling within the term of limitation.
Previously, the right of tax deduction could be used in any of the tax assessment periods falling within the term of limitation (i.e. until the end of the fifth year from the 31st of December of the year including the deadline for the declaration of the tax payable). According to the regulation in force from 1 January 2016, the tax liability of a given period may be reduced
"by the amount of deductible input tax arising in or before the same tax assessment period but not earlier than one calendar year before the calendar year including this tax assessment period”.
Turning the above rule around, this basically means that the right of deduction of the VAT arising in 2016 can be exercised without self-revision at the latest in the monthly VAT return filed for December 2017, the quarterly VAT return filed for Q4 2017 or perhaps the annual VAT return filed for 2017.
VAT not deducted within the deadline can only be applied with self-revision later
Taxable persons will only be able to claim the tax deductible not applied in the above period with self-revision filed for the VAT period in which the right of tax deduction emerged (which corresponds, according to the main rule, to the date on which VAT became payable).
The above rule extends beyond the case of late invoices. We have seen invoices including input tax not deducted (by oversight or perhaps intentionally or for some other tactical reason) that companies used for the reduction of the continuously arising tax payable or which were only included in the tax return around the end of the term of limitation or were perhaps only detected at the time of a tax authority inspection. The room for manoeuvring relating to these invoices was narrowed down as a result of the amendment.
Exemptions from the main rule: Community acquisitions, VAT deduction right relating to transactions before 2016
The above does not apply to:
- Intra-Community acquisitions of goods and other reverse VAT transactions as in the case of these, if the taxpayer has the right of tax deduction, this right can be exercised in the period in which the taxpayer is to assess the tax payable.
- The right of VAT deduction arising before 1 January 2016 may still be exercised in any VAT return filed within the term of limitation.
What to do with VAT in the case of invoice correction?
An important question in relation to the changed regulation is the treatment of increases in deductible tax arising from invoice corrections. Based on Section 153/C (2),the surplus deductible tax arising in relation to the correction of invoices may be applied by the taxable person at the earliest in the tax assessment period in which the correction document is personally available to the taxable person.
Having regard to this rule, in the case of such correction, the period of applicability defined in Section 153/A shall not be calculated relative to the date of performance shown on the correction document (which is identical with the date of performance of the original invoice),but relative to the date of receipt of the invoice. This means that a corrective document generating an increase in the tax deductible that is issued and delivered in 2017 may be used by the party accepting the invoice for exercising its right of tax deduction in any tax assessment period before the end of 2018. If the taxpayer does not exercise its right of tax deduction in any of the tax returns until the end of 2018, it will only be able to deduct tax within the term of limitation by filing a self-revision for the tax assessment period including the date of receipt of the correction document.
Based on the above, companies should consider in the period remaining until the end of the year whether they have any incoming invoices with date of performance in 2016 containing input VAT that were not included in any of the company’s VAT returns as these may still be included in the upcoming monthly, quarterly or annual VAT return. Those who fail to apply these invoices in the upcoming return and would like to deduct the input tax later, will only be able to do so by filing a self-revision, accepting the extra administration cost involved.