Under the law, when a company charges VAT on an invoice or other tax document, it has the obligation to reimburse the tax to the tax authorities, regardless of when and if it collects it from the counterparty. Therefore, in terms of VAT, companies essentially act as “tax collectors” on behalf of the tax authorities, bearing the burden of insolvency of their customers. With these data, the recovery of VAT on uncollected receivables could act as a lever to stimulate liquidity, which is undoubtedly an ardent desire of businesses and freelancers.
At this point it should be noted that one of the basic principles governing the VAT system is that the basis for calculating the tax is the amount that a company actually received from its counterparty. The consequence of this is that the tax authority can not collect VAT much higher than what the company received. In this light, the companies should not be burdened with the VAT burden of the invoice, to the extent that they will not be able to collect it due to the insolvency of their customers.
In this sense, at the level of European legislation, and as interpreted by the Court of Justice of the European Union, it provides that Member States may lay down terms and conditions, but in no case can they completely avoid the possibility of recovering VAT on uncollected receivables.
In this context, the Court of Justice of the European Union accepts that the recovery of VAT on uncollectible receivables should be possible in cases where it can reasonably be accepted that the full or partial payment of the debt will probably not take place, in the context of course the terms and conditions laid down by the national law of each Member State. In the light of the above, the recovery of VAT resulting from other additional requirements is currently possible in 22 Member States of the European Union, while the main criteria found in the domestic legislation of other countries are the following:
1. Taking legal action to collect the debt (Indicatively we refer to Ireland, Czech Republic, Hungary, Malta, Italy, Latvia, Slovakia).
2. The provision of a specific period of time during which the debt remains unpaid (indicatively, we mention, 90 days from the agreed payment date in Poland, 12 months from the date of the transaction in Cyprus).
3. Deletion of the claim (for example, in Latvia, Ireland).
In view of the above, we believe that businesses and professionals in the EU can take advantage of the possibility of recovering VAT on their uncollected receivables in order to increase their liquidity, and in the light of European legislation and case law, such a possibility seems to exist even in cases other than bankruptcy, reorganization or placement under special management of the contractor, where it exists in European case law.
