On
June 11, 2020, the Court of Justice of the European Union (CJEU) adopted a
decision in Case C-146/19 (SCT) concerning the right of a taxpayer to recover
the paid VAT for a bad debt if an individual creditor’s claim has not been
lodged against the debtor in the
insolvency
procedure.
In the SCT case, the Slovenian company SCT adjusted the VAT for bad
debts in relation to claims against two companies in respect of which
insolvency proceedings had been concluded. The SCT had not registered its
creditor claims during these procedures. The SCT claimed that it would not have
been able to recover the debt even if it had lodged a claim.
The Slovenian tax administration refused the right to adjust the VAT to
the SCT.
The CJEU has ruled that EU Member States should not refuse a taxable
person rights to reduce the taxable base of the VAT related to a irrecoverable
debt where the taxable person has failed to lodge that claim in insolvency
proceedings commenced against the debtor.
We believe that this CJEU case is a good development for the Latvian
taxpayers, as the conditions for adjustment of the paid VAT on bad debts have
become simpler.
Namely, the Law on the Value Added Tax lays down several conditions (for
example, the debt was incurred during the last three years, the bad debt is
written off from accruals or directly included in the loss, transactions with
the debtor have been discontinued, and measures have been taken to recover the
debt) that the taxpayer should meet to have a right to adjust the paid VAT
considering the bad debt. In addition, the taxpayer should be in the possession
of
a court judgment concerning the recovery of the debt from the
recipient of goods or services and a statement from a bailiff confirming
impossibility of such recovery. According to the above decision of the CJEU,
this requirement is unjustified.
Currently, the State Revenue Service (SRS) has not provided
comments/explanations concerning the effect of this decision in the SCT case on
the rights of the Latvian taxable person to adjust the paid VAT for debtors’
debts. Thus, it would be advisable for taxable person who faces this challenge
to ask the SRS for an explanation.
Should you require any assistance or have
questions with regards to debtors’ debts, please contact Leinonen’s tax
advisors.
Information prepared by: Leinonen Latvia, Tax & Legal advisory department
