When you send an invoice to your customers, the VAT due must be paid to the Dutch tax authorities. If, at a later stage, it appears that the invoiced amount was not received, either in full or in part, and will also never be received, the VAT paid can be reclaimed. Under current legislation, VAT can only be reclaimed if the receivable, in full or in part, is irrecoverable. In practice, this is often the subject of debate with the Dutch tax authorities. Requests for the refund of VAT must be filed separately and the VAT cannot be reclaimed in the regular VAT returns. The government intends to simplify these rules, as well as the rules for the refund of energy tax in the case of bad debts, as of January 1, 2017.
Although the new bill is primarily a response to the wish to simplify the refund of VAT in the case of bad debts, it will also apply if full or partial payment does not take place due to the cancellation, termination or rescinding of the agreement. You should be aware of the fact that the proposed changes, despite the simplification, can have a significant impact on the manner in which your administrative processes are set up. It is therefore essential that steps are taken on time in anticipation of the proposed legislation.
The proposes changes/ simplification:
- Under current legislation, the moment of irrecoverability is often difficult to determine and subject to differences in interpretation. The new bill includes an evidentiary presumption, whereby a receivable is in any case deemed to be irrecoverable no later than one year after the date on which the payment became fully due and payable. This evidentiary presumption of one year applies to both the refund of VAT on bad debts as well as the refund of energy tax.
- The amount of the VAT refund is deducted in the VAT return for the period in which the entitlement to the refund arose. A separate refund request therefore no longer has to be filed! With regard to energy tax, it was already the case that refunds in respect of bad debts could be made in the tax return. This will not change.
- If in the case of a VAT and/or energy tax refund, full or partial payment is received at a later date, the refunded VAT and/or energy tax must be repaid. Although in current practice agreements on this are often made with the Dutch tax authorities, there is at present no legal basis for them.
- In the case of a transfer of receivables, the acquirer replaces the transferring supplier and/or service provider. This means that the entitlement to the refund of VAT or energy tax is also transferred to the business that acquires the receivables. The provisions on refunds and on a potential repayment obligation will therefore apply to the acquirer.
- The current legislation also contains a counterpart to the VAT refund in the case of bad debts. If VAT has been deducted by a purchaser, the VAT deduction should be corrected once it is obvious that the receivable, in full or in part, will no longer be paid. At present, this adjustment must be made no later than two years after the receivable became fully due and payable. The new bill reduces this period to one year, so that it is the same as for the refund.
- If after the VAT deduction that had previously been taken into account has been adjusted, full or partial payment is still made, an entitlement to the deduction of VAT will once again arise in that period.
With regard to current receivables, the one-year period will commence on January 1, 2017 by virtue of transitional rules.
Please note that the above changes/simplification will also apply to the refund of VAT and/or energy tax in the case of partial bad debts. With regard to VAT, the Explanatory Notes to the proposed changes explicitly state that the amount of VAT to be refunded will be calculated in proportion to the unreceived part of the previously invoiced payment. No such explicit statement is made with regard to the refund of energy tax.
The government has set August 14, 2016 as the deadline for providing input on the new bill. You can access this internet consultation via this link.
We recommend that you respond to the proposed changes/simplification via this internet consultation. We would of course be pleased to assist you with this by preparing, together with you, any response your organization may wish to make. It is also important that steps are taken on time in anticipation of the proposed new changes as of January 1, 2017, so that your administrative and tax return processes are modified on time.
Meijburg & Co’s Indirect Tax advisors can help you identify the impact of the potential changes to the law as of January 1, 2017. They can also advise you on any process modifications that need to be made and how this can best be done. Feel free to contact one of them or your regular Meijburg & Co advisor.