With tax package approved, GFD preparing draft information on amendment to VAT Act
The chamber of deputies has approved a tax package referred back to the chamber by the senate in its original “chamber” wording. In particular, the senate’s motions to amend VAT on real property were dismissed by deputies. Even though the effective date set by the original wording was 1 April, the law was not approved and published before this date. Hence, in compliance with a general rule prescribed by the Act on the Collection of Laws, the law will become effective on the fifteenth day of its publication in the Collection of Laws. It is even possible that the government will wait with its publication so that the law will enter into effect from 1 July. This would make sense, especially with respect to the application of the changes to VAT. The General Financial Directorate is currently preparing information on amended VAT areas, also asking the Chamber of Tax Advisors to provide comments.
GFD’s information on unsupported shortages and damage
Current legislation does not clearly specify a VAT regime applicable to shortages. The approved amendment to the VAT Act partially clarifies and determines a taxpayer’s duty to balance or adjust the originally-claimed entitlement to VAT deduction where the taxpayer is unable to support the destruction, loss or theft of an asset in a due manner.
Balancing will be carried out in the taxable period in which a shortage was, or could have been, identified by the taxpayer, but no later than on the date of the physical counting of assets. Adjustments of the VAT deduction will be reflected in the VAT ledger statements.
The GFD’s information also clarifies how to proceed when taxpayers are unable to determine the exact amount of their originally-claimed deduction. In such cases, the GFD recommends using the valuation method arising from the taxpayer’s accounting or tax records, i.e. FIFO or weighted average. According to the information, the same methods should also be applied where the taxpayer uses valuation methods other than those permitted by the Accounting Act (e.g. LIFO or FEFO).
The draft information also shows examples of documents that support shortages and damage in a due manner.
In light of this clarification, we recommend paying attention to the issue of VAT on shortages and damage as early as possible. At the time of a physical counting and examination of assets, taxpayers should have the appropriate procedures in place to be able to deal with any deduction adjustments, minimising any adjustments within the limits set by law.
GFD’s information on the unreliable person concept
The amendment introduces the unreliable person concept in addition to the current unreliable payer concept, aiming to ensure continuity of the unreliability concept after an unreliable payer cancels their VAT registration. However, unreliable persons do not become liable for unpaid VAT as supply recipients.
An entity becomes an unreliable person:
(i) by law, when an unreliable payer cancels their VAT registration. If the entity re-registers for VAT, it again becomes an unreliable payer.
(ii) by a tax authority decision on the grounds of serious violations of duties in relation to VAT administration specifically listed in legislation (for example, the issue of a fictitious document; conviction based upon a final and conclusive judgment; a cumulative VAT underpayment of at least CZK 50 thousand, etc.).
It will also be possible to apply the unreliability concept to VAT groups, for example as soon as a VAT group is joined by an unreliable person/payer. Group members that are designated as unreliable payers remain unreliable payers even after they cease their membership in the group. It will be possible to appeal the tax authority’s decision on unreliability. Unreliability arising from the law can only be cancelled upon request, but not earlier than one year after the date on which a decision on unreliability entered into legal force.