Changes in VAT legislation effective from 1 January 2017

Indirect Tax Alert, December 2016, issue 6

In the current edition of the Indirect Tax Alert, we provide you with an overview of the major changes to the Slovak VAT Law which was recently adopted and will become effective from 1 January 2017. The current edition contains information on a draft law postponing the mandatory activation of electronic mailboxes for communication with the public until 1 July 2017.

Reverse charge on import VAT postponed indefinitely

The reverse-charge on imports was to be introduced on 1 January 2017. This would have entitled VAT payers do deduct import VAT. VAT payers would not have had to pay it to the customs authorities during customs clearance, but instead self-assess it directly via a VAT return using reverse-charge mechanism. This would have had a significant positive impact on cash flow for importing companies.

However, the introduction of the reverse-charge on imports has been postponed indefinitely. 

The takeaways

This change has an adverse impact on importers who have lost an opportunity to avoid paying import VAT in cash and thus to improve their cash flows from 2017.

General pardon on construction works

General pardon for VAT treatment of construction works and goods with installation and assembly falling under section F of the CPA classification. From 2016, VAT reverse charge will apply for such supplies. Supplies of construction works are often classified by the CPA classification in a non-uniform manner creating for supplier and customer a risk of additional VAT liabilities or a rejection of input VAT recovery.

From 1 January 2017, the recipient will automatically apply a reverse-charge if the supplier reasonably classified a supply of construction work as a supply subject to the reverse-charge and the information “prenesenie daňovej povinnosti” (“reverse charge”) is stated on the invoice.

The takeaways

The introduction of a general pardon is intended to bring a degree of certainty to the VAT treatment of construction works for suppliers. However, it appears that the general pardon does not cover cases where the supplier charges VAT regardless of the fact that the supply falls under section F of the CPA classification and the customer claims this VAT.

VAT refund for non-residents

The list of taxable transactions where foreign businesses are not entitled to recover input VAT via a regular Slovak VAT return has been extended. From 1 January 2017, it will also include supplies subject to local VAT reverse charge listed in § 69 (12) of the VAT Act (e.g. construction works, supply of metal waste and scrap, supply of mobile phones, etc.). If only involved in such supplies, foreign taxable persons will still be entitled to recover Slovak input VAT via a general VAT refund procedure for foreign entities.

It will also be clarified in the VAT Law that foreign taxable persons are entitled to deduct self-assessed Slovak VAT on received supplies (e.g. on intra-Community supplies) via Slovak VAT return at all times.

The takeaways

This change will limit the right of certain foreign taxpayers to recover input VAT via a Slovak VAT return and this could have a negative cash flow effect. However, we do not expect this category of VAT payers to be significant.

New type of compensation for VAT refund delays

Following the CJEU judgment in case C-107/10 Enel Marica Iztok 3 AD and the CJEU order in case C-120/15 Kovozber s.r.o., financial compensation for delays in VAT refund caused by an opened VAT inspection will be introduced.

Compensation is set in the amount of double the prime rate of the European Central Bank, but not less than 1.5% p.a. The right to interest on an unpaid VAT refund will arise if the Tax Office opens a tax audit by the statutory deadline for a VAT refund repayment. The interest will not be paid for the first six months of delay from the day of the repayment deadline. Compensation will be payable, inter alia, for delays caused by VAT inspections opened prior to 1 January 2017, but not closed by this date.

The takeaways

This is a positive change which could accelerate the timing of VAT inspections, which in many cases last for up to one year.

Changes to the control statement

From 1 January 2017, suppliers will have to report invoices issued for supplies of construction works in a control statement despite the fact that such supplies are not reported in a VAT return. Currently, invoices for construction works are reported only by the customers. Suppliers will have to report respective invoices in section A.2. of the control statement.

For this purpose, the Ministry of Finance introduced a new control statement form valid from 1 January 2017 (Measure of the Ministry No. MF/017524/2016-731 dated 14 October 2016). The structure of the control statement remains unchanged. Only comments and text related to table A.2. of the control statement have been changed.

The takeaways

Starting from a reporting period of January 2017/1Q2017, all taxpayers will use the new control statement form.

Electronic communication with the government postponed

On 1 December 2016, the Cabinet of Ministers passed to Parliament a draft law postponing for 6 months the mandatory activation of electronic mailboxes. According to the draft law, if not activated earlier, mailboxes for communication with the public authorities will be mandatorily activated for legal entities and registered branches on 30 June 2017 rather than 31 December 2016 as per the current wording of the Law on E-Government.

The takeaways

If approved, the half year postponement should give enough time for businesses with non-activated electronic mailboxes to become aware of the new measure and avoid situations when communication from the public authorities is left unread in the newly created electronic mailboxes. Please be aware that mentioned electronic mailboxes will not be used for electronic communication with the tax or customs authorities.