Is it possible to obtain bonds on sum of the VAT refund declared in line 23.2 of the tax return for repayment of future periods payments? Several other problem issues of VAT bonds (updated)
The Law of Ukraine as of March 27, 2014 No. 1165-VI brings a number of amendments to the Law of Ukraine “On the State Budget of Ukraine for the Year 2014” and to the Tax Code of Ukraine, among which it introduces a “new-old”1 way of VAT refund by means of government bonds of internal state loan.
The procedure of issue of such bonds is established by the Resolution of the Cabinet of Ministers of Ukraine No. 139 as of May 21, 2014 (hereinafter – “the Resolution of the Cabinet of Ministers of Ukraine”). The Resolution of the Cabinet of Ministers of Ukraine in particular establishes that bonds are issued «for refund of value added tax amounts, declared for refund till January 1, 2014 and which were not reimbursed as of effective date of the Law of Ukraine “On the State Budget of Ukraine for the Year 2014” and were confirmed upon results of audits […]».
Thereby, a number of practical issues have been occurred.
Under provisions of the tax legislation there are two possible ways for receiving such VAT refund from the budget:
- to an account of a taxpayer in the bank (line 23.1 of the VAT return);
- as reduction of tax liabilities on value added tax for the future periods (line 23.2 of the VAT return).
In general, regardless of which way the VAT amounts are directed to, in both cases these VAT amounts would be considered as a budget refund. Addendum No. 3 “Budget Refund Calculation” to the VAT return also confirms this approach.
Thus, seeing the above mentioned, it is logically to assume that VAT amounts, which were declared for budget refund both to an account of a taxpayer in the bank (line 23.1 of the VAT Tax return) and VAT amounts directed to reduce tax liabilities of the future periods (line 23.2 of the VAT Tax return), could be refunded by means of bonds.
However, it is not so simple. Considering the form of Application on execution of refund of value added tax amounts by means of the government bonds2 it is seen that VAT taxpayer can lay claim for bonds rather regarding the VAT amounts declared for reimbursement exactly to the bank account:
«In accordance to the Article 24 of the Law of Ukraine “On the State Budget of Ukraine for the Year 2014” we choose the way of refund from the budget of value added tax amounts, declared for refund to an account in the bank, through issuance of bonds of internal government loan on the total amount».
No other form of Application on execution of refund of value added tax amounts by means of the government bonds intended for refund through bonds of VAT amounts, which directed for reduction of tax liabilities of the future periods, is foreseen.
That is in practice it hardly could be possible to obtain budget refund of VAT amounts by means of bonds under indexes of the line 23.2 of the VAT return. However, certain options can be considered.
Since the Application on execution of refund of value added tax amounts with the government bonds directly refers to the VAT amounts, declared for refund to the bank account, it is logically that regarding VAT amounts, declared for refund by reduction of future payments, the necessity of changing the direction of refund arises. Such approach is potentially possible pursuant to the provisions of para. 200.6 of Article 200 of the Tax Code of Ukraine:
«200.6. A taxpayer can make a decision individually to include own budget refund or its part to reduce tax liabilities which arose during the next reporting (tax) periods under the terms set forth in paragraph 200.4 of this Article. The abovementioned decision is declared by a taxpayer in a tax return that is submitted on result of the reporting (tax) period, when the right for application on obtaining budget refund in accordance with provisions of this Article arises. A taxpayer maintains the right for obtaining budget refund by funds in the future reporting (tax) periods».
That is, having previously declared the VAT amounts for the budget refund on account of future periods’ payments, a taxpayer maintains the right for obtaining budget refund with funds, and thus has the right to change VAT refund from reduction of future periods to refund with funds. However, having such possibility foreseen, the legislator did not stipulate directly any specific mechanism of its fulfillment in principle.
Hereinafter we are going to review possible ways of changing the direction of VAT refund on account of future VAT payments to refund with funds to an account:
- submission of application on correction on personal card of a taxpayer of VAT refund direction from “on account of future payments” to “refund to an account in a bank”;
- submission of a correction return, where the VAT amounts for budget refund would be transferred from the line 23.2 to the line 23.1.
What concerns changing direction of VAT refund through submission of correction return, the Ministry of Revenues and Duties of Ukraine expressed the following opinion:
“If a VAT taxpayer declared in VAT tax return the line 23.2, that is chose the direction for VAT refund to be “in reduction of tax liabilities on value added tax of future taxation periods”, in accordance with para. 200.6 of the Tax Code of Ukraine in the future reporting periods he has the right to change this direction “to an account of a payer in the bank” through amending the line 23.1 of the VAT tax return for the period, when such right for obtaining budget refund arouse. Amending is done through submission of correction return in accordance with Article 50 of the Tax Code of Ukraine”3, – as stated in the Unified Database of Tax Knowledge.
Along with it, such approach is vague. The option with correction return raises some doubts regarding existing of grounds for its submission seeing provisions of para. 50.1 of Article 50 of the Tax Code of Ukraine regarding revealing mistake as a ground for correction return’s submission. Thus, transferring of VAT refund amounts from one line to another hardly can be considered to be a mistake’s correction.
Herewith, the same Unified Database of Tax Knowledge contains completely opposite answer to the question regarding possibility of changing the direction of VAT budget refund through submission of correction return: “VAT taxpayers do not have any right to compose correction return for the purpose of changing direction of refund, since changing the direction cannot be considered to be mistake’s correction”4.
However, for completeness we would like to note that this answer is chronologically older. This factor can be considered as a change of tax authority itself in its previous prohibitive approach in favor of correction return.
Despite that, as an alternative option of changing the direction of VAT budget refund can be considered submission to the tax authority of application of correction in the personal card of a taxpayer of VAT refund’s direction from “on account of future payments” to “refund to an account in the bank”.
At the same time, the mechanism of corrections could be appropriate to such amounts of budget refund, which the taxpayer upon fulfillment of necessary criterions (for example, actual payment of VAT amounts to suppliers) had not declared for budget refund, but from various reasons referred to the line 24 of the VAT Tax return. Since the given case may be considered as a mistake, upon which the VAT amounts for budget refund were mistakenly inputted to the line 24 of the Tax return. In other words, there is the ground for filing correction return in accordance with para. 50.1 of Article 50 of the Tax Code of Ukraine.
In particular, the possibility of correcting mistakes is indirectly confirmed by controlling authorities. Thus, in the Unified Database of Tax Knowledge in sub-category 101.18.01 the taxpayers were given the following answer:
«Thus, a VAT taxpayer which revealed on his own underreporting of budget refund as a result of failure to declare by him of a paid part of a negative value, could submit a correction return and respective addendums to the VAT Tax return for the period, within which the right for budget refund has arouse (the payment was performed in fact) with corrected indexes».5
Please note that from formal point of view the outstanding negative value, which after budget refund is included to the tax credit of the future period (line 22 – line 23) is declared in the line 24 of the VAT Tax return. That is, formally, the VAT amount from the line 24 is not an amount, declared for refund, and the question arises as for criterion regarding declaring of amounts of VAT refund exactly till 01.01.2014. It is also necessary to confirm the respective amounts of VAT budget refund upon results of tax audit.
That is in case with the line 24, obtaining budget VAT refund through bonds seems to be rather complicated.
In general, if a taxpayer wishes to obtain bonds for the amount of VAT refund not only declared in the line 23.1 (VAT amounts declared to budget refund to an account in bank), but also in other lines of tax return, before performing specific actions in this direction we recommend preliminary to coordinate such actions with the tax authority in order to define whether the mechanism chosen by the taxpayer is appropriate.
Herewith we draw your attention that necessary submission (whether it would be application or correct return) should be done to a tax authority beforehand. We would like to note that even though the last term for submission of VAT amounts with the government bonds was not set by the Resolution of the Cabinet of Ministers of Ukraine, the taxpayers do not have much time left.
Thus, proceeding from the fact that the Ministry of Revenues and Duties has to submit of inventory registers of the VAT amounts, declared for refund on the grounds of taxpayers’ applications «within two months period». In connection with abovementioned the starting point for the period is not mentioned, we assume that the period has begun from the effective date of the Resolution of the Cabinet of Ministers of Ukraine – May 27, 2014. Respectively, we should be guided by the date 27.07.2014 as the date when all consolidated data on Applications would be submitted to the Ministry of Finance of Ukraine.
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 VAT refund through issuance of government bonds of internal state loan has been already introduced in 2010 – the Resolution of the Cabinet of Ministers of Ukraine as of 12.05.2010 No. 368.
2 The form of the Application has been approved by the Resolution of the Cabinet of Ministers of Ukraine as of 21.05.2014 No. 139.
3 Response of the Unified Database of the Tax Knowledge in Ukrainian is available here.
4 Response of the Unified Database of the Tax Knowledge in Ukrainian is available here.
5 Response of the Unified Database of the Tax Knowledge in Ukrainian is available here.
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