Relief for bad debt changes from July 2015

Bad debt relief is a procedure that allows active VAT payers to "recover" the tax due from invoices that have not been paid on time. This is not only a benefit for the seller, but also an obligation on the debtor's side. Taking advantage of the bad debt relief is possible only after meeting the relevant conditions. Already from July this year. there are changes - in favor of the taxpayer, which refer to the conditions enabling the use of the tax relief!

Bad debt relief until the end of June 2015

Bad debt relief applies to receivables that have not been paid within 150 days from the date on which the payment deadline specified in the sales invoice or contract expired. These are the so-called substantiated claims. In order to be able to take advantage of the bad debt relief, in accordance with the current rules, the following conditions should be met:

• the delivery of goods or the provision of services is made to a taxpayer registered as an active VAT payer who is not in the course of bankruptcy or liquidation proceedings,
• on the day preceding the day of submitting the tax return in which the correction is made:
• the creditor and the debtor are taxpayers registered as active VAT payers,
• the debtor is not in the process of bankruptcy or liquidation,
• 2 years have not elapsed from the date of issuing the invoice documenting the claim, counting from the end of the year in which it was issued.

Taxpayer - a legal person, an organizational unit without legal personality and a natural person who independently carries out economic activity, regardless of the purpose or result of such activity.

The correction of the tax base and the tax due for the relief for bad debts should be made in the VAT return for the period in which 150 days have elapsed from the date of payment of the invoice or contract.

Bad debt relief on the debtor's side

A debtor who has not paid the payment within 150 days from the due date of the invoice or contract, and has deducted the tax charged on the purchase, is obliged to correct the deducted tax resulting from the purchase document. The correction should be made in the settlement for the period in which 150 days have elapsed from the date of the designated payment date.

If the debtor pays the amount due by the last day of the settlement period, in which the 150th day from the due date expires, then there is no obligation to correct the previously deducted input tax on the purchase.

Bad debt relief for related entities

In a situation where the transaction takes place between entities listed in art. 32 sec. 2-4 of the Act, i.e. related entities, the creditor may not benefit from bad debt relief in the event of the debtor's failure to pay.

Art. 32 sec. 2-4 of the VAT Act 2. The relationship referred to in para. 1, exists when there are family or adoption, capital, property or employment relationships between contractors or persons performing management, supervisory or control functions. This relationship also exists when any of the aforementioned persons combines management, supervisory or control functions in contractors. 3. Through family ties referred to in par. 2, means marriage and kinship or affinity to the second degree. 4. Through the capital links referred to in par. 2, it shall be understood as a situation in which one of the persons or one of the counterparties has the right to vote amounting to at least 5% of all voting rights or has directly or indirectly such right.

Bad debt relief from July 2015 - debtor in bankruptcy or liquidation proceedings

Currently, one of the conditions for a creditor to take advantage of bad debt relief is that the debtor is not in the process of bankruptcy or liquidation. The provisions prevent the creditor from taking advantage of the bad debt relief when the debtor is in the course of the above-mentioned events, while the debtor is nevertheless required to make an adjustment to the input tax on the unpaid liability.

From July this year. the legislator introduces a change in this respect, adding in Art. 89b paragraph. 1b to the Act, pursuant to which the debtor will not have to correct the previously deducted input tax from the invoice, if at the end of the month in which the 150 day expires from the due date, the debtor is in the course of bankruptcy or liquidation proceedings. Already in 2014, this position was adopted by the Supreme Administrative Court in its judgment of July 1, 2014, file ref. I FSK 641/14, emphasizing that the debtor should be obliged to make the appropriate VAT correction only if such a correction was made at the same time by the creditor.

Bad debt relief from July 2015 - related entities

From July this year. A significant change will also be the fact that the bad debt relief will be available even if there is a relationship between the creditor and the debtor referred to in Art. 32 sec. 2-4 of the VAT Act. This means that the fact that the entities are related to each other by family or by adoption, capital, property or employment relationship - will not be an obstacle to taking advantage of the bad debt relief. Article 89a par. 7.

Bad debt relief and receivables arising before 1 July 2015

The provisions in accordance with the amended wording may apply to claims that arose before July 1, and their irrecoverability was made probable after December 31, 2012.