The legislation does not set time limits for adjusting value added tax (hereinafter – VAT). However, VAT payers are not able to register in the Unified Register of Tax Invoices (hereinafter – ERTI) the adjustment calculation dated later than 1095 calendar days after the tax invoice (hereinafter – TI) is drawn up. What are payers supposed to do in such cases?
General rules
The term of 1095 calendar days (c.d.) is decisive in case of formation of a tax credit by the buyer and independent correction of mistakes by the taxpayer (subitem 50.1, 198.6 of the Tax Code of Ukraine; hereinafter – TCU).
In both cases, it is about already registered in the URTI tax invoices and adjustments calculations (hereinafter – AC) to them, which for some reasons have not been included in the VAT reports. Thus, according to i. 198.6 of the TCU, the VAT payer may include the VAT amount under the registered TI/AC to the TI within 1095 c.d. from the date of drawing up the TI/AC. Failure to do so within that period will result in the loss of the right to a tax credit under such TI/AC.
The limitation period and their application are regulated by Art. 102 of TCU. However, it also defines a 1095-day period as the limitation period in the case of:
- extra charge of tax liabilities by the controlling body (i. 102.1 of the TCU);
- filing the application for repayment or refund of overpaid funds (i. 102.5 of the TCU).
Art. 102 of the TCU does not provide for the application of the limitation period in the case of VAT adjustment.
VAT adjustment rules
In such cases as changes in the price after the delivery of goods/services, the return of goods/services or prepaid amount to the supplier, both the tax obligations of the supplier and the tax credit of the buyer – VAT payer are subject to adjustment. The reason for this is the AC to the TI prepared by the supplier and registered in the URTI by:
- supplier – if the AC is increasing or zero or decreasing AC is prepared for VAT non-payer;
- buyer – if the reducing AC is prepared for VAT payer.
In this case, the supplier has the right to reduce the amount of tax liabilities, and the buyer - to increase the amount of tax credit only after registration of the AC in the URTI. Increase in tax liability and decrease in tax credit are indicated in the VAT reports regardless of whether the AC is registered in the URTI.
However, there are exceptions. The supplier will not be able to adjust the tax liability if:
- at the time of adjustment he is no longer a VAT payer;
- VAT non-payer returned the goods and the supplier did not provide the buyer with full compensation of their value.
Art. 192 of the TCU defines this procedure. As we can see, it does not relate the contractors' right to adjust the VAT with a limitation period.
The analysis of other tax rules also shows that the TCU does not restrict the payers in terms of adjusting their tax liabilities and tax credit.
What AC are not subject to registration
Certain restrictions are envisaged by i. 6 of the Procedure for keeping the Unified Register of Tax Invoices, approved by the Decree of the Cabinet of Ministers No. 1246 of December 29, 2010 (hereinafter – Procedure No. 1246). It refers to the AC to those TIs, which were drafted before February 1, 2015 and are not subject to registration in accordance with paragraph 11, sec. 2, p. XX of the TCU. If 1095 c. d has passed since the date the TI was prepared, it can no longer be registered in the URTI. Accordingly, it is not possible to register the AC to it.
In other cases, the provisions of item 6 of Procedure No. 1246 do not apply.
Tax authority arguments and recommendations
Tax specialists extend the requirements of i. 6 of Order No. 1246 to all cases, considering that registration of the AC should be carried out in accordance with the limitation periods specified in Art. 102 of the TCU.
In their opinion, the AC cannot be registered in the URTI due to the expiration of the general limitation period of three years (1095 days), established by Art. 257 of the Civil Code of Ukraine and Art. 102 of the TCU. Although they acknowledge that the rules of the TCU do not specify the period during which the payer has the opportunity to prepare the AC to the TI (category 101.07 «ЗІР»). That is, the VAT payer can prepare the AC to the TI even after the expiry of 1095 c.d. period.
Judicial practice
Although the position of tax authorities is not in favor of taxpayers, their arguments regarding VAT adjustments do to comply with the requirements of tax legislation.
As practice shows, the courts in such matters are on the payer side.
The courts also emphasized that the application of Art. 102 of the TCU, apart from the content of i. 6 of Order No. 1246, cannot be considered legitimate and justified, as Art. 102 of the TCU does not provide any time limits for the process of adjusting the quantitative and cost indicators of the TI.
In addition, the courts found that the TCU did not contain a direct rule that would restrict taxpayers from adjusting their tax liabilities and tax credit.
Conclusions
Therefore, the VAT payers have the right to adjust the VAT due to changes in the amount of compensation (changes in the terms of the contract) beyond 1095 day deadline from the date the tax liabilities and tax credit were prepared.
The provisions of i. 6 of Order No. 1246 may not be applied as a ground for non-acceptance of ACs drawn up to the TI that have been registered in the URTI. The prescriptions of Art. 102 of the TCU do not restrict the ability to adjust the VAT in accordance with the procedure laid down in Art. 192 of the TCU.
