Mazars Tax Newsletter, April 2021

Tax Authorities’ opinion

Receivables’ write off for VAT cash accounting scheme taxpayers

Tax Authority recently issued an opinion regarding the receivables’ write off in case of personal income taxpayer (i.e. self-employed) which is VAT payer on the basis of the cash accounting scheme. Receivables’ write off in question do not exceed HRK 5.000,00 per individual debtor.

Questions raised to the Tax Authorities relate to the interpretation of Article 11, paragraph 12 of the Personal Income Tax Act, i.e. what for the purposes of this Article is not considered a receipt and whether the mentioned taxpayer (on the basis of cash accounting scheme) is obliged to pay VAT on such write-off or is it obligated to pay VAT only if it exits the register of taxpayers (e.g., when it ceases to carry out a taxable activity).

Namely, Article 11, paragraph 12 of the Personal Income Tax Act stipulate that receivables’ write-off from unrelated persons does not constitute taxable receipts under the condition that write off in individual tax period does not exceed HRK 5,000.00 per individual debtor who is a Corporate Income Tax payer or Personal Income Tax payer on the basis of self-employment.

In addition to the mentioned Article, Personal Income Tax Rulebook further explains that this, applies to all overdue receivables, whereby each receivable (on the basis of invoice or other document having the meaning of an invoice) does not amount to more than HRK 5,000.00 per individual debtor.

On the other hand, the Tax Authority states that according to the Value Added Tax Act, if the tax base is changed subsequently due to price change, various types of discounts or impossibility of recovery, then the taxable person who supplied the goods or performed the services may correct the amount of VAT if, among other things, the taxable person to whom the goods or services were supplied corrects input VAT deduction and provide written statement on input VAT correction to the supplier.

According to the current provisions of the VAT Act and Rulebook, it is not possible to unilaterally correct output VAT (without statement) since the taxable person recipient deducted input VAT and accordingly reduced its VAT liability. Accordingly, in case of output VAT correction on the basis of bad debt, the correction can only be made in such a way that both the supplier and the recipient on prescribed way correct the output VAT and input VAT.

Accordingly, the Tax Authority concludes that if a cash VAT accounting scheme payer write-offs an invoice claims for a goods or services supplied, it is required to include liability arising from such invoice in its VAT return and pay VAT at the end of the tax period in which it write offs the receivables.

Furthermore, the above mentioned does not relate to the correction of an invoice issued to a taxpayer which is not entitled to deduct the input VAT or an individual (non-VAT payer). Namely, VAT Rulebook stipulates that in such case output VAT can be corrected during the tax period when the sales price or the part of the sales price has been refunded to the recipient who is not entitled to deduct the input VAT and supplier possess the proof of price refund.

Tax Authority concludes that, when the taxable person issues an invoice to a person who is not entitled to deduct the input VAT, output VAT may be corrected in a tax period in which it possess a document, such as the court judgment on cancellation of the receivables right on the basis of sales invoice, by expiry of the tax period in which it made the receivables’ write-off. If such document is not available, the taxable person is required to include the VAT liability in its VAT return and settle VAT liability arising from it.

Mazars comment

In this opinion, the Tax Authority pointed out the correction of output VAT is possible only under condition that the supplier has a written statement from the customer (i.e. a taxpayer entitled to deduct the input VAT) that it had made a correction of the input VAT.  

In this part, the novelty is that suppliers will be able to correct output VAT without a statement for the invoices issued to a customers which do not have the right to deduct input VAT, but under condition that they have a relevant document on the removal of the right to receivable (e.g. court judgment). This represents a significant departure from the earlier practice of the Tax Authority where such unilateral correction was not possible.

However, it appears that a correction will not be possible without a customer’s statement on the correction of the input VAT when dealing with customers entitled to deduction of input VAT, irrespective of a final impossibility to recover receivables (e.g. bankruptcy, abolition of customer from the Court Register, etc.), which is not fully in line with the relevant practice of the European Court of Justice.

Other news

• State aid and calculation of the tourism membership contribution for 2020.

The Ministry of Tourism has announced that income from COVID-19 aid will not be included in base for the calculation of the tourism membership contribution.

Bearing in mind that the aid was received with the aim of mitigating the negative consequences caused by the COVID-19 pandemic, i.e. that it was not realized by the activity of taxpayer such as catering services, tourism services or tourism related activities, the Ministry of Tourism has announced that aid itself should not be included the calculation of tourism membership contribution.

• Notification on the deadline for the submission of forest contribution form (OKFŠ form) for 2020

Due to the exceptional circumstances caused by the COVID-19 pandemic, the Ministry of Agriculture has announced that it has extended the deadline for the submission of OKFŠ form for 2020 to 30 June 2021.

• The Croatian Chamber of Commerce membership fee

Due to the epidemic caused by the Covid-19 virus, the Croatian Chamber of Commerce passed a Decision on the temporary abolition of the obligation to pay membership fees on the 13h of April 2021. The decision is valid from April 1 to June 30, 2021. The temporary abolition of the obligation to pay membership fees relates to the following activities:

Further, the Croatian Chamber of Commerce passed a Decision on the temporary abolition of the obligation to pay membership fees for taxpayers which had their registered office or residence in Sisak Moslavina County and which are unable to conduct their activity. The decision is valid from April 1 to June 30, 2021.

Also, temporary abolition from the membership fee will be provided to other taxpayers based in Karlovac and Zagreb counties, which were prevented from doing business due to the damage caused by the earthquake, based on the previously approved request.