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Tax settlement dates in the case of continuous supplies

How often should you invoice recurrent (continuous) performances and supplies? An amendment to the VAT Act muddies the water.

 

An amendment to the VAT Act which came into force on 1 July 2017 has impact also on continuous supplies (Sec. 21 (8)). The amendment came in response to an EU Directive pursuant to which it is up to the member states to decree that, in certain cases, performances and supplies which have been rendered over a certain period of time will be deemed to have been rendered at least once annually (namely, no later than as at the last day of the calendar year following the calendar year in which the provision of goods or services began). This provision does not apply to supplies of heat, cooling, electricity, gas, water, etc. In the absence of established practice regarding the application of this provision, uncertainties as to how to properly invoice may crop up in practice.

The explanatory memorandum which accompanied the amendment bill merely specifies that the provision ought to concern, in particular, recurrent deliveries of goods of the same kind or the recurrent provision of services of the same character, such as purchases of meat or milk, the collection of refuse, transportation services, or the provision of accounting services. In other words, the application of the law will also depend on how the underlying contract is phrased.

If the parties to the agreement agreed on a certain billing frequency (say, quarterly) independent of whether or not the provision of services continues, then the newly worded continuous-supplies provision ought not apply. In our view, the situation is similar in the case of contracts for work. However, if the contract for work stipulates what is known as partial performances, then the date of taxable services and supplies will standardly be governed by Sec. 21 (7) (and thus be the date given in the agreement, or else the date on which the work or partial performance was accepted by the recipient).

To some degree, the uncertainty surrounding proper invoicing procedure may be eliminated by arranging for payments on account (to which the supplier must apply VAT and make the corresponding payments to the finance office), which ought to dispel any doubts on the part of the fiscal authorities as to the payment of VAT.

Another major amendment to the VAT Act is in the works but does little to change the provision in question. The only upcoming change which will affect Sec. 21 (8) concerns legal services by an attorney who has been appointed by the court to provide legal services (i.e., a public defender): these will be exempt from the obligation to file a tax return if the services have been rendered for more than one year because the attorney's fees are paid by the state.

Source:
VAT Act (Act No. 235/2004 Coll.)

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