Amendment to VAT Act 2025 in detail – Part III
We present a continuation of the overview of the most important changes contained in the draft amendment to the Value Added Tax Act. As we have already informed our readers, the amendment has gone through the comment procedure, and a version for the government debate has been published. In this article, we focus mainly on corrections to the tax base for bad debts.
To harmonise domestic legislation with the EU VAT Directive and to implement the influence of the CJEU case law, changes were proposed concerning the correction to the tax base for bad debts. Above all, the conditions that a taxpayer must meet to make a correction have been softened. However, the principles remain the same. The list of cases where a correction to the tax base can be made is being extended to reflect relevant case law.
Softening the conditions for correcting the tax base
As for the mentioned softening of conditions and time tests, these apply, e.g., to (debtors subject to) enforcement or insolvency proceedings. Among other things, the required time from issuing the first enforcement order in the proceedings is being reduced to one year. As regards insolvency, the condition that the debtor must be in insolvency proceedings will no longer apply, and it will no longer be required to have the outstanding claim registered within the deadline set by the court.
Extending the possibilities to prove bad debts
Furthermore, following the case law, there are more ways to prove the irrecoverability of debts. According to the CJEU, the creditor cannot be restricted from making a correction for an irrecoverable debt. For this reason, it will now be possible to correct the tax base for ‘small’ debts up to CZK 10,000, under the condition that the debtor has been asked to pay at least twice, and that the total value of the recorded debts against the debtor does not exceed CZK 20,000.
New definition of debtor
The possibility of correcting the tax base for ‘small’ debts is particularly interesting in the context of another change: the definition of the debtor. It now includes any person who has received a taxable supply for which they owe consideration. It is therefore irrelevant whether the person is a taxable person, a payer, or a non-payer. It will now be possible to correct the tax base for bad debts even for B2C transactions.
Another novelty is that corrections should be possible even if the creditor is no longer registered for VAT. It shall be sufficient that they fulfilled the condition that they were VAT payer at the time of the original transaction. These corrections shall then be made retrospectively in the last tax return that the creditor was obliged to submit.
Changes to corrective tax documents
The last changes to be mentioned concern corrective tax documents. If the payer was not obliged to issue a tax document for the original transaction, they shall not be obliged to issue a corrective tax document either (e.g., when supplying goods to a non-taxable person). The due date of the receivable shall be entered in the corrective tax documents as a new mandatory entry.