Is it possible to correct tax base for claims not lodged in insolvency proceedings?

In Case C-146/19, the Court of Justice of the EU (CJEU) held that a creditor may adjust the VAT base for a claim not lodged in insolvency proceedings if they prove that the claim would have been irrecoverable even if it had been lodged in insolvency proceedings.

SCT, a Slovenian company, corrected VAT on unpaid claims it held against two companies in respect of which insolvency proceedings had already been concluded. The Slovenian tax authority did not accept this correction, as the claims concerned had not been lodged in insolvency proceedings, which is the precondition for claiming the adjustment of the taxable amount prescribed by Slovenian legislation.

The CJEU was referred the question whether a taxable person (SCT, in this particular case) can be refused the right to a correction of the VAT paid in respect of a claim that had not been lodged in insolvency proceedings and therefore extinguished the moment the related insolvency proceedings were concluded, even though the taxable person may prove that had they lodged the claim, they would not have been able to recover it nonetheless.

The CJEU concluded that a reduction of the tax base should be feasible provided that the creditor’s claims are proven definitely irrecoverable. The court also held that the requirement to lodge claims in insolvency proceeding aims to prevent tax evasion or avoidance in compliance with the VAT Directive. However, according to the CJEU, the requirement to lodge a claim in insolvency proceedings in situations where the creditor proves that had they lodged it they would not have recovered it, goes beyond what is necessary to attain the objective of eliminating the risk of loss of tax revenue.

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