Recovery of VAT on unpaid invoices

In view of the possible increase in late payments in the coming months, it is worth remembering that there is a specific procedure for recovering the VAT charged on unpaid invoices from the Tax Authorities.

The current health crisis resulting from COVID-19 is having a very direct impact on the liquidity situation of many businesses and companies, which are being forced to remain closed for prolonged periods of time and/or to drastically reduce their volume of income. This liquidity crisis that is looming in the coming months will inevitably lead to a more than likely escalation of defaults. It is therefore advisable to be particularly vigilant with regard to the possibility of recovering the VAT charged on these unpaid invoices from the tax authorities.

In the event of uncollectible credits, both total and partial, VAT regulations (art. 80.Cuatro of the LIVA; art. 24 of the RIVA), provide for the possibility of the creditor being able to recover the VAT paid to the Tax Administration, but to do so, a whole series of requirements and specific deadlines must be met, as we will see below.

The requirements are:

• One year must have elapsed since the accrual of the output tax without all or part of the credit derived from it having been collected. This period of one year may, alternatively, be extended to six months when the holder of the credit is an SME (entrepreneur or professional whose turnover in the immediately preceding calendar year has not exceeded 6,010,121.04 euros). In forward transactions, the year or, where applicable, the six-month period, starts to run from the expiry of the unpaid instalment or instalments, not from the accrual of the output tax. Deferred or deferred price transactions are considered to be those in which it has been agreed that the consideration is to be paid in successive payments or in a single payment, respectively, provided that the period between the accrual of output tax and the due date of the last or single payment is more than one year or, in the case of SMEs, six months.
• That this circumstance has been reflected in the VAT records.
• The recipient of the transaction acts as a trader or professional or, otherwise, the taxable amount, excluding VAT, is more than 300 euros.
• The taxable person has previously requested collection by means of a judicial claim against the debtor or by means of a notarial summons to the debtor. In the case of transactions addressed to public bodies, the legal claim or notarial request shall be replaced by a certificate issued by the competent body.

However, even if these requirements are met, the modification of the taxable base and, therefore, the recovery of output VAT will not be applicable in the case of credits that enjoy a real guarantee, are guaranteed by credit institutions or mutual guarantee companies, or covered by a credit or surety insurance contract, in the guaranteed, bonded or insured part, as well as in the case of credits between persons or entities related for VAT purposes, and those that refer to transactions whose recipient is not established in Spain.

Likewise, it should also be taken into consideration that when there is an order declaring bankruptcy, for credits corresponding to payments charged for transactions whose accrual occurs prior to said order (bankruptcy credits), the taxable base will not be modified after said order. In this case, the tax base may only be reduced in accordance with the provisions of Article 80.Three of the VAT Law.

Importance of bearing in mind the deadlines

The modification of the taxable base, by issuing a corrective invoice that must be sent to the recipient and for which proof of delivery can be provided, must be made within three months following the end of the one-year period (or, in the case of SMEs, the six-month or one-year period) from the time of the accrual of the transaction or the expiry of the unpaid term or terms in the case of forward transactions, with a period of one month from the date of issue of the corrective invoice to notify the tax authorities of the modification.

One aspect to bear in mind in the future regarding this modification of the tax base is that, if the invoices are finally collected through the demand procedure, it will not be necessary to rectify the invoices upwards again, except when the recipient is not acting in the capacity of a businessperson or professional. However, if, in the course of time, the legal claim is withdrawn, the invoice will have to be rectified again, in order to pay back to the tax authorities the VAT for which rectification has been requested.

The AddVANTE Tax Department remains at your disposal for further information or to resolve any queries that may arise in this area, as well as for processing the VAT recovery file for unpaid invoices with the Tax Authorities.