How to recover VAT in case of insolvency proceedings?
If your customer is declared bankrupt, you must carry out the VAT recovery procedures within three months of the publication of this circumstance in the Official State Gazette (BOE).
If the credit is considered uncollectible or that the debtor is declared bankrupt without the consideration having been paid, the taxpayer is allowed to recover the accrued VAT that has been paid to the tax authorities.
If your client is declared in insolvency proceedings, you must carry out the VAT recovery procedures within the three months following the publication of such circumstance in the Official State Gazette (BOE).
As is well known, businessmen and professionals must pay the accrued Value Added Tax (“VAT”) derived from the transactions they carry out at the time of filing the VAT self-settlement corresponding to the accrual settlement period, whether the consideration has been collected.
If the credit is considered uncollectible or that the debtor is declared bankrupt without the consideration having been paid, the taxpayer is allowed to recover the accrued VAT that has been paid to the tax authorities. All this is articulated through the modification of the taxable base. However, the VAT Law requires that certain requirements (temporal, material and formal) and circumstances must be met for such modification to take place.
After the insolvency moratorium and in the current context of crisis, many companies are being forced to file for bankruptcy, as they are in a situation of insolvency.
This is done to continue with the business, but many of the creditors are concerned about the recovery of VAT.
In view of this situation, companies and freelancers are concerned about whether they will be able to recover the VAT if their client files for insolvency and what are the mechanisms to recover the debt.
In this case, we can tell you that companies that have invoices pending collection from a client that has filed for insolvency proceedings can recover the VAT on those invoices by modifying the taxable base of the invoices.
If a customer stop paying you an invoice, you must wait six months or one year after the transaction took place before you can start the VAT recovery procedures (if your company invoices more than 6,010,121.04 euros per year, you must necessarily wait one year). This recovery is done by issuing a rectifying invoice without VAT and, at the same time, declaring a lower output VAT in the corresponding monthly or quarterly return.
However, if your client is declared bankrupt before these deadlines expire, you will have to anticipate the VAT recovery procedures, taking special care not to miss the deadline for doing so. In this case:
– You must issue the rectifying invoice within three months from the publication in the BOE of the order of declaration of insolvency and send it to the client (also sending a copy to the insolvency administrator). Send the rectifying invoice and the copy by burofax, so that there is a record of the sending.
– You will have one more month from the issuance of the rectifying invoice to communicate to the Tax Authorities, by means of the specific form that appears in your electronic office, that you have made the rectification.
In any case, remember that you will not be able to rectify invoices for transactions whose payment is covered by credit insurance or guaranteed by credit institutions or that enjoy a real guarantee (in all cases, for the part that is covered, guaranteed, or secured). Likewise, you will not be able to rectify the VAT derived from operations carried out with related persons or entities.
Beware of deadlines
As it has been indicated, the term available to recover the VAT in case of insolvency proceedings is relatively short (only three months). This is because the Treasury itself also appears in the insolvency proceedings as another creditor and needs to know as soon as possible the amount to be claimed from the insolvent company. When your company recovers the output VAT, the insolvent client becomes the debtor of this tax before the Treasury, since it must compute a lower input VAT in its declarations.
The main problem in these cases is, precisely, to know in time that the order of declaration of bankruptcy has been published. The insolvency administrator must communicate this circumstance to all creditors, but this can often be delayed. Therefore, if you suspect that one of your clients is going to be declared bankrupt, periodically consult the BOE (Official State Gazette) where the bankruptcy announcements are published.
For more information, please contact Tax consulting