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Proposed amendment to the VAT Act – new rules for tax base corrections and VAT

In this newsletter you can learn about the proposed changes that will affect tax base corrections and VAT. The changes, which are to be brought by the draft amendment to Act No. 235/2004 Sb., on Value Added Tax (“VAT Act”), are expected to significantly affect all taxpayers wishing to issue a corrected invoice (tax document).

The first fundamental change is the new definition of the date on which the correction of the tax base is considered a separately taxable supply (“tax point”). In most cases, it is the date on which facts relevant for the correction of the tax base occur. According to the amended wording of the VAT Act, the date should be stated on the corrected invoice as another mandatory element. Under the currently applicable VAT Act, a correction of the tax base and of the tax amount is a separately taxable supply that is considered to take place no later than on the last day in the tax period in which the taxpayer increases input tax by correcting the tax base and the tax amount, or decreases output tax by correcting the tax base and the tax amount, and in which the party to which the original performance was provided or which provided the consideration giving rise to the obligation to declare the tax receives the corrected invoice. Compared to the current wording that holds many pitfalls in practice (such as in determining the correct date in the control report), the proposed amendment may appear to bring about some simplification of the rules for taxpayers. However, the situation is more complicated than it seems on the face of it.

The amended version imposes a new obligation on taxpayers who must not only issue the corrected invoice within 15 days of the tax point but must also make efforts that can be reasonably required from them to ensure that the invoice is at the disposal of the recipient of the supply. This obligation is then related to the determination of the tax period in which the tax base correction should be reported. In general, the tax base correction should be reported as a separately taxable supply in the tax return for the tax period in which the correction is considered made (see the new definition of the tax point). However, if the tax base is decreased and the taxpayer is required to issue a corrected invoice (i.e. a credit note), the tax base correction should be reported as a separately taxable supply in the tax return for the tax period in which the taxpayer makes efforts that can be reasonably required from them to ensure that the invoice is at the disposal of the recipient of the supply.

This adjustment for the tax period in which the tax base correction should be reported no longer includes the requirement that the invoice must be received by the recipient of the supply. It will be sufficient for the taxpayer to make efforts to ensure that the corrected invoice is at the disposal of the recipient of the supply. However, the taxpayer must be able to prove this fact if inquired by the tax administrator. It should be emphasised that this regulation is to apply to cases when the taxpayer corrects the tax base under Section 24 of the VAT Act, which applies to situations such as the cancellation or return of the taxable supply in full or in part, or an additional price decrease or increase following the supply. If the taxpayer corrects the tax base under Section 43 of the VAT Tax, i.e. on the grounds of tax declared otherwise than as prescribed by the law (e.g. if an incorrect VAT rate or an incorrect VAT regime was applied), the corrected invoice must be received by the recipient of the supply and the new regulation does not apply to such cases.

Please do not hesitate to contact us if you have any questions regarding VAT. We will be happy to help.

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