The commercial accounts receivables should be understood as the debt of the enterprise-debtor to the creditor company, at which the goods should be received by the debtor. In such a situation we are talking about goods that are not received from the contractor, but the advance payment for them has been made.
It is known that the buyer - VAT payer had the right to a tax credit on VAT by the date of transfer of funds for goods (works, services) (para. 198.3 of the Tax Code of Ukraine of 02.12.2010, № 2755-VI, hereinafter – TCU). Of course, provided that such goods (services) were planned to be used in taxable transactions and economic activities in the presence of accordingly drafted tax invoice and registered in the Unified Register of tax invoices (para. 198.6 of the TCU).
Overall, therefore, the buyer is entitled to the VAT tax credit even if the seller delays the delivery of the goods (services).
But what to do when it becomes clear that the supplier does not meet its obligations and, consequently, the buyer-company has made a decision to debit such debts from the account? What about VAT?
In case of liberal approach, the first thing that comes to mind is to leave everything as it is. Accordingly, do not adjust the VAT tax credit on the amounts of uncollectible accounts receivable. Thus, the buyer paid the money. But the seller does not meet its obligations, namely, does not deliver the goods (works, services). At the same time the seller set the VAT liabilities for himself on receipt of funds (at least, it should done according to the TCU).
Were the goods (works, services) used for which the advance payment was made to the seller in taxable transactions within the economic activities of the buyer and taxable transactions? It turns out that they were not. The buyer even did not receive them. So, formally, it turns out that in this case the company is not entitled to the VAT tax credit. And therefore, the norms of para 198.5 of the TCU are in force in such a case.
In the mentioned paragraph, in particular, it is stated that the taxpayer is required to charge the tax liabilities on the basis of the tax base determined in accordance with para. 189.1 of the TCU and to make not later than the last day of the reporting (tax) period and to register in the Unified Register of tax invoices in the terms established by the TCU (15 calendar days) for such registration, the relevant tax invoices for goods / services, irreversible assets at acquisition or production of which the amounts of tax were included in the tax credit, in case when such goods / services, noncurrent assets intended for their use are starting to be used, in particular:
- in transactions, which are not the subject to taxation (except cases of paras. 196.1.7 of the TCU);
- in transactions that are not the economic activity of the taxpayer.
Taking the decision debiting the uncollectible accounts receivable, the management recognizes the fact that these goods never begin to be used in taxable and business transactions of the company. Therefore, it turns out, by the date of debiting, it loses the right to the VAT tax credit on these not received goods (para. 198.3 of the TCU). And, therefore, the VAT liabilities should be charged in accordance with para. 198.5 of the TCU.
The base for the assessment of the VAT liabilities in such a case is determined on the basis of the cost of purchase of goods (see para.189.1 of the TCU).
The tax authorities also say about the necessity of assessment of the VAT liabilities in the subcategory 101.16 of the public information and reference resource of the SFS of Ukraine. In particular, they note: “In case when the buyer on the date of transfer of the advance payment (prepayment) for goods / services was formed a tax credit, but during the limitation period such goods / services from the supplier never received, the taxpayer (the buyer), when the debiting accounts receivables, is obliged to reduce the previously formed tax credit on such transactions by him/her on the basis of accounting memorandum”. The tax authorities give another procedure and rules of the VAT liabilities adjustment in their explanation.
