2019 amendment to VAT Act: changes to original wording

Change to the definition of price subsidies no earlier than from 2021 

 A new concept of subsidies included in the tax base and therefore subject to output VAT has already been discussed in our JuneMay  issue of the Tax and Legal Update. During the comment procedure, the effectiveness of the provisions dealing with subsidies was postponed. In accordance with the draft amendment’s current wording, the amended definition of subsidies should come into effect no earlier than from 1 January 2021. Consequently, until 2021, the existing definition of a price subsidy should remain in application. From 2021, a price subsidy included in the tax base should be the amount from public resources provided in direct relation with the appropriate supply and having a direct impact on the supply price.

In its explanatory report, the Ministry of Finance gives reasons for postponing the effectiveness, claiming that sufficient time to prepare has to be given to payers whose business is fully or partially dependent on income from the public budget. A new General Financial Directorate’s methodology that should help payers respond to this change should also be prepared in advance. Simultaneously, the ministry has declared that payers who proceed or will proceed in adherence to EU law, i.e. assess whether a subsidy is directly linked with a price, already before January 2021, indeed proceed in accordance with the principles of value added tax.

GFD’s information on restructuring

The GFD’s approach to a possible adjustment of paid VAT relating to outstanding receivables from a debtor whose insolvency is dealt with by restructuring has also changed. In connection with this, in August 2018, the GFD issued information specifying conditions under which the tax adjustment can be carried out. The crucial point is that the receivable amount must be reduced, which must be evident from the restructuring plan. It therefore involves the restructuring of creditors’ receivables by waiving part of the debtor’s debt and related accessories. The tax adjustment may only be performed in the taxable period in which the decision on the approval of the restructuring plan was passed.

It is not possible to adjust the paid VAT where restructuring involves a mere postponement of the receivable’s due date, since this does not reduce the creditor’s tax base relating to the appropriate receivable, and where co-debtors or guarantors are involved, up to the amount of their suretyship/co-debtor liability.