SLIM VAT 2 - changes to the ‘bad debt relief'
As a result of President of the Republic of Poland signing the Act of August 11, 2021 amending the Act on Value Added Tax and Banking Law known as Slim VAT 2 package, taxpayers should prepare for certain further simplifications, initiated by the Slim VAT package, in settling VAT. The new regulations are to simplify taxpayers’ lives by implementing several beneficial solutions and simplifications. Among the proposed changes there are also regulations concerning the ‘bad debt relief’.
The main change in the newly adopted package is the repeal of the obligation for a debtor to have the status of a registered VAT taxpayer on the day preceding the submission of a correcting return by the creditor. In addition, the changes provide that a debtor may be in the course of restructuring proceedings, bankruptcy or liquidation.
However, it is surprising that the changes do not simultaneously provide for an analogical solution with regard to the creditor. Thus, the requirement for the creditor to have the status of a registered VAT payer remains unchanged.
What is more, the new regulations also allow the debtor to adjust the output VAT due under the ‘bad debt relief’ where the debtors are natural persons – consumers and VAT taxpayers enjoying a tax exemption.
In case of these categories of entities, additional safeguards have been introduced to prevent the ‘bad debt’ relief from being used for fraud or VAT evasion. For these taxpayers, the use of the ‘bad debt relief’ is possible after the creditor proves the existence of the debt on the same terms as provided for in the provisions of tax laws for certain claims not recognized as tax deductible costs, i.e. the claim should be confirmed by a final court decision and is subject to enforcement proceedings, or the claim has been entered in the debt register maintained at the national level, or consumer bankruptcy has been declared with respect to the debtor.
Furthermore, the deadline for taking advantage of the ‘bad debt relief’ has also changed. It has been extended from 2 to 3 years from the date of issuance of the invoice documenting the debt, counting from the end of the year in which it was issued. The 3-years’ deadline has been correlated with the provisions of the Civil Code regarding the limitations of claims with respect to persons conducting business.
Upon an analysis of the proposed changes, it should be admitted that they will make life easier for the taxpayers who, for reasons beyond their control, were unable to benefit from the ‘bad debt relief’.
The regulations on the ‘bad debt relief’ will come into force on October 1, 2021.
Kinga Duszna, Tax Consultant, ATA Tax Sp. z o.o.
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