The consequences of introduction of VAT electronic accounts for VAT overpayments
General principal of new system’s operation
Starting from January 1, 2015 the amendments to the Tax Code of Ukraine in the part of electronic administration of VAT will enter into force, including Article 2001.
Thus, starting from January 1, 2015 all VAT settlements shall be held through electronic VAT accounts opened by the registered VAT payers in the authorized bank. These accounts can be credited only at the expense of VAT payer from his own bank account with monetary funds. Herewith, the funds flow between electronic accounts of separate VAT payers does not take place.
The VAT amount, same as before, is paid out at the cost of goods (works, services) on the bank account of the supplier. Further the supplier of the goods (works, services) shall make a decision on passing of the VAT amounts, received from the customers, to his electronic VAT account. Such decision will depend upon the sufficiency or insufficiency of funds on the electronic VAT account for issuance of the VAT invoice or for the payments of the agreed tax liabilities of VAT to the budget.
In case of sale of goods (works, services) for cash, all VAT amounts received by the supplier on his bank account are to be obligatory transferred to VAT electronic account. Such obligation exists as well regarding VAT amounts which are accrued by VAT payer by himself in result of transactions envisaged by para. 198.5 of the Tax Code of Ukraine.1
At the same time according to new rules VAT payer has the right to draw tax invoice only to that amount which is recorded at his electronic VAT account and consists of:
- own funds of VAT payer transferred from his current (bank) account;
- VAT amounts paid to customs bodies during import of goods;
- VAT amounts which is confirmed by tax invoices received from other VAT payers,
which are to be reduced at:
- VAT amount under the tax invoices issued by a VAT payer (VAT liabilities);
- VAT amount declared for budget refund (it is most likely referred to automatic budget refund only);
- Surplus of tax liabilities recorded in declaration over VAT amount on which tax invoices are registered in the Unified Register of Tax Invoices (probably it is the difference which appears in result of adjustments after corrections of mistakes and etc.).
Problem of VAT overpayment
In fact the abovementioned means that all VAT overpayments, which have appeared till January 1, 2015, are removed from the new algorithm of VAT payment, as far as amounts of budget refund andVAT negative value claimed/ calculated/ declared till January 1, 2015are not involved into the new electronic system of VAT administartion2. It concerns, first of all, the amounts of VAT budget refund declared for reducing of VAT liabilities of the next periods (line 23.2 of the VAT Declaration) which are most likely since January 1, 2015 to be “frozen” on the cards of “personal accounts” of VAT payers due to absence of the mechanism of their use.
Considering the above, we suggest to revise the available amount of VAT overpayment and, if it is necessary, to carry out the reconciliation with the tax bodies of the state of VAT settlements. Within October-December 2014 to take measures for change of direction of amounts of VAT budget refund declared for reduction of VAT liabilities of the next periods. We would like to note that the possibility of change of direction of budget refund of VAT amounts was discussed in detail in our newsletter as of June 18, 2014.
After changing of direction of VAT refund, to draw the respective amount of VAT refund by internal government loan bonds or direct it for other tax payments, obligatory duties etc.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
1 Commencement of use of goods (works, services) in transactions, which are not subjects to VAT, exempt from VAT, is not considered as business activity of a VAT payer, is carried out within balance of a VAT payer.
2 Chapter II “Transitional Provisions” of the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Some other Legislative Acts of Ukraine” No. 1621-VII as of July 31, 2014.