Is it possible to cancel the invoice returned by the customer?

Service-Tax

The specificity of the activity sometimes in practice forces the issuing of invoices to the client before the transaction is actually completed. The customer resigns from the purchase and sends the invoice back. Is it possible to cancel it in such a situation?

The law does not specifically regulate the cancellation of invoices. However, it has been assumed that the invoice may be canceled only when the invoice has not been placed on the market. An additional assumption is, of course, that the transaction did not take place, i.e. when the invoice documents an event that did not actually take place.

If the transaction is finalized but the entrepreneur has not received payment, the invoice cannot be canceled. The tax obligation arises despite the lack of receipt of payment
(the amounts due, even if they have not been actually received, are considered income from activity).

When the entrepreneur has sent / delivered the invoice, but the event described in it did not materialize, and the customer returned the previously received invoice to the seller, the entrepreneur might think that he may cancel it. However, it is not so obvious. The basic of generally accepted conditions has not been met. The invoice has been put into circulation at the time of sending. Therefore, despite the fact that the transaction has not been completed, it should not be canceled. Although, as mentioned at the beginning, no provision of the VAT Act specifies the possibility and conditions of canceling an invoice, there are opinions that the invoice can be canceled in this case, but it is quite risky because most tax authorities are of the opinion that the introduction to turnover has taken place and cancellation is possible even though the customer has returned the invoice.

In practice, the above situation often occurs when making online purchases, where the customer can often generate an invoice immediately after ordering, which is automatically sent to him in electronic form. Here, too, cancellation of the order will result in the seller not being able to cancel the invoice because it has entered into circulation.

If it cannot be canceled then the question is how to fix the error? Then it only remains to make a correction. If the transaction was not successful, the invoice value should be adjusted to zero.

The cancellation of an invoice can therefore be made on condition that it has not been put into circulation (it has not been sent to the customer) and, at the same time, on the condition that it documents a transaction that did not actually take place in an economic reality. If both conditions are met jointly with simplified accounting, it is allowed to reduce the income tax revenue in the month of canceling the invoice (if it does not exceed the tax year of its issuance - then it would be necessary to return to the year in which the invoice was issued).