Questions regarding the recent tax changes concerning VAT refund
Taxes are usually meant as funds to be paid to the state. Yet, in some cases, it may relate also to the funds the state needs to pay to the taxpayers, such as a VAT refund. Provision of a VAT refund has remained a hot topic for a number of years. At the end of last year, legislators amended significantly the process of VAT refunding with the aim of making it less dependent on discretionary approaches from the tax authorities and creating a more transparent system.
At the moment, there is no specific formal consent that can be issued by the tax office regarding a refund but rather the taxpayer’s application should be entered directly into the electronic public register and be refunded in a chronological order by the treasury based on the registry data. Relevant application may still be challenged by the tax office within the terms provided by the law; such dispute and its stages shall be clearly seen as well in the said public register. If an application is not formally challenged within the short terms provided by the law or a respective dispute is resolved in favor of the taxpayer, the VAT refund application will receive a status of ‘agreed’ in the register and shall then be refunded within 5 days, as now provided by para. 200.13 of the Tax Code. Earlier the same 5 day term for the refund were linked to the receipt by the treasury of a formal consent from the tax office. Manipulation with issuing such consents by the tax authorities were an issue where the tax office could often delay the refund by delaying provision of respective formal consents.
Does this mean that there will be no more delays with VAT refunds? Unfortunately no. While the Tax Code provides for a strict term of providing a VAT refund within 5 operational days, getting automatically an ‘agreed’ status for the application in the register, para. 55 (which is also added with the recent changes) of section II of Transitional provisions of the Tax Code stipulates that a VAT refund shall be provided depending upon availability of funds at the unified treasury account. In other words, this clause makes the 5 days term for the refund provided by para. 200.13 merely indicative and not truly binding and the actual term of the refund would depend upon availability of relevant funds with the treasury. Para. 56 of the same section II of Transitional Provisions envisages that the amounts available for VAT refund shall be provided by the budget law for the respective year.
Therefore, this may be considered as basically depriving the tax authorities of the possibility to apply selective approaches to different taxpayers and the delay of a VAT refund by delaying the issuance of formal consents to the treasury. The actual term of VAT refund still cannot be precisely predicted based on the law. Yet, everybody will be in the same ‘queue’ for the refund in a chronological order.
The above mentioned information relates to the current applications for a VAT refund. Those already who are experiencing delays or disputes are viewed as a more complicated subject. For the applications submitted before February 1, 2016 and still not refunded by January 1, 2017, a separate Transitional register shall be established. When the application is set to be ‘agreed’ in the Transitional register, it shall as well be refunded in a chronological order. The amounts available for refund shall be allocated by the Cabinet of Ministers from the general amount allocated for the purposes of VAT refund by the budget law. As such, the split of the total amount available in the budget for VAT refund between Current and Transitional registers is to be executed by the Cabinet of Ministers.
Recent changes bring also technical issue to those with court disputes concerning VAT refund. Due to the position of the Supreme Court, a valid type of claim for VAT refund were claims to cause the tax authorities to issue respective formal consents on the applications. But, there are no such consents at this present time. Therefore, even winning formally with such a claim may now be deemed as useless. As the judicial battles may usually continue for sometime, the taxpayers within this process shall now be able to review what can be done in order not to receive a positive yet non-binding court decision in such disputes.
Another important point to carefully consider is the extension or the right for the tax authorities to audit transactions among agricultural producers with special VAT regime for the period up to January 1, 2017 (i.e., of the transactions for the period until the date when this special regime will cease to exist). This is the result of the fact that while a relevant VAT within the system is basically supported by cash funds or a recognized VAT credit where there is a certain ‘draining’ as the agricultural producers under that regime have been entitled to keep a significant portion of that VAT for their own kind of state subsidy.
Simultaneously, such a VAT is legally and entirely refundable for the buyers from such companies. I.e., there was certain incentive even to ‘create’ certain transaction on agricultural supply with VAT by withholding a respective part such as a subsidy at the seller’s level and getting a full VAT refund from the state at the buyer’s level in case the goods were further officially exported. Such non-transparent deals and relevant tax fraud might be possible which is why the tax office is entitled to do routine respective checks. Refunds may be delayed for the entire sector deemed ‘suspicious’ when dealing with agricultural products due to the respective audits until the completion of the VAT application (and resolving of respective issues if so) will not be ‘agreed’ for refund in the register.
In summation, although the changes on the discussed issues are positive concerning the technical aspects, the state is now incorporated directly within the tax law with the possibility to manage manually the overall flow of VAT refund while treating each taxpayer equally and arranging them within the same queue. The discussed technical changes still require adoption of the relevant implementation acts which may delay the actual start of the system as reshaped by the legislation.