In our previous articles we have discussed some information pertaining to the changes proposed to the VAT Act, namely taxation of lease purchases, remuneration of executive directors, renting of immovable property, place of the chargeable event with electronic services, vouchers, and summarizing invoices.

This is the third and last article from the series focused on the proposed changes to the VAT Act. Here, you can read about the changes regarding the rounding up rule, corrections of the tax base, bad debt, and VAT on repairs of immovable property.

Rounding up rule

Article 37 section 1 of the Act on value added tax currently states that the tax may be rounded up to the nearest crown. The difference between the original and rounded up numbers is not included in the tax base.

The amendment proposes that this provision should be left out. The aim of this change is to eliminate possible double rounding up (of the amount of tax and of the total payment) and to reach the same amount of tax in calculations both from above and below.

Corrections of the tax base

According to the current provisions, the last day when a tax subject can make corrections to realized chargeable events is the last day of the tax period during which the taxpayer’s correction lowers the tax base and the customer receives the corrected invoice. For these cases, the lawmakers decided to simplify this provision and came up with an amendment according to which the correction of the tax base shall itself be considered a chargeable event realized on the day when the operative events for the correction arise. The taxpayer shall still be obliged to issue a correcting invoice if they were obliged to issue an invoice for the original chargeable event, or if this invoice was issued and the customer is sufficiently known to the taxpayer. However, the new amendment includes a proposal that the tax subject should be obliged to make only efforts (even repeatedly) which can reasonably be expected of them, in order for the invoice to become available to the receiver of the chargeable event.

Bad debt

In the area of bad debt the introduced changes should significantly broaden the scope of debt for which it is possible to correct the tax base for reasons of nonpayment of the taxable transaction. Currently, this transaction pertains mainly to debt which the tax subject is owed by debtors who are in insolvency. The amendment proposes that corrections should be allowed by the law in cases where:

1. the debt is being enforced through executory proceedings for the period of at least 2 years without being fully enforced,
2. the debt was being enforced through executory proceedings which were terminated for reasons of lack of means of the debtor,
3. the debtor is in insolvency, the creditor filed a claim regarding the debt, this debt was ascertained and the relevant insolvency court
   1. decided on declaring insolvency on the debtor’s assets, or on the transformation of reorganisation into insolvency,
   2. authorized debt relief,
   3. discontinued the insolvency proceedings,
4. the debtor deceased,
5. the insolvency has commenced and has not ended according to a) to d), the creditor has exercised their procedural rights in order to satisfy the debt but so far the operative events for the correction of the tax base according to a) to d) have not occurred, and 5 years have passed since the end of the tax period in which the chargeable event occurred.

Repairs of immovable property

The last proposed change we would like to introduce in this article is the alteration of the specific solution for cases of correction of the original right to deduction applied with repairs of immovable property. It is proposed that in cases where the delivered immovable property which has been significantly repaired, the right to deduction of VAT on this repair is subject to a one-time adjustment of the tax deduction (a significant repair means that the amount of received taxable transactions relating to it surpasses CZK 200.00).

A few words to conclude

Just like with the two preceding articles, we must point out the large scope of this topic.  The aim of this article is to provide a short overview of some of the planned changes to the area of value added tax. This miniseries does not include all of the proposed changes or details concerning these topics. Should you have any questions regarding these issues, do not hesitate to contact us.