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Claiming VAT on bad debt

13-07-2015

The Parliament has passed a bill that allows creditors with outstanding debt against their customers or clients to claim the VAT they have already paid. The bill is an amendment to the law on correcting VAT settlements.

Following the amendment, the creditors may claim the VAT they have already paid on the bills and invoices issued to (but not paid by) their debtors. The previous regulation was imprecise and have not permitted such claims. It was in force as of 2013 and required debtors to pay back, after 150 days, the VAT they had claimed on their purchases. However, the VAT regulations did not permit creditors to claim the VAT paid on their sales. As a result, the VAT on a creditor’s bad debt was paid twice: by the creditor and its debtor.

The amendment law, in effect since 1 July, has a retrospective effect. Businesses may apply the new rules to invoices issued after 31 December 2012 and with 150 days after the due date. The amended law defends the basic principle of VAT – neutrality; this means that the tax will no longer be paid twice, i.e. by the creditor and its debtor. However, the new rules may be applied only to invoices issued not earlier than two years before the end of the year in which the VAT on them was settled. If the creditor’s tax authority refuses to accept a claim for VAT on debt arising earlier, the matter can be taken to court to decide whether the authority’s decision was correct.

Source: Rzeczpospolita, 6 July 2015, p. C1