Pitfall of (non) taxation of advances from the VAT point of view after the amendment
The amendment of the VAT law from the 1st of July 2017 brings a new view on the taxation of a payment received before the realised fulfilment. According to the new adjustment, the advance is only taxed if the performance at the time of receipt of the payment is sufficiently certain.
The fulfilment is sufficiently specified when the following is known:
- what goods should be delivered or what service should be provided,
- by what rate this fulfilment is taxed at and
- where the place of fulfilment is.
If at least one of the above information is not known, VAT is not deducted at the time of receipt of the payment. The tax administrator has published the information including examples, where they significantly indicate that point a) will usually be sufficient enough. In addition, they admitted that the rate and place of fulfilment do not have to be known.
In case you pay, for example, advances for energy (water, gas, electricity) via a monthly lump sum and later on it comes to redistributing it to the final account according to the real consumption, the VAT received from the payment would not be returned. At the time of the received advance, the VAT rate of future fulfilment is not sufficiently known. VAT will only be charged when you issue an invoice.
In case that the VAT is wrongly returned from this lump sum advance and the tax document is made out about received payment, the customer has no claim on the deduction on the ground of the tax document! Entitlement to deduction arises only after invoicing.
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