Invoice with incorrect VAT rate and tax deductions

Service-Tax

The supplier is always responsible for applying the correct VAT rate for a given good or service. The taxpayer should determine whether a reduced rate of tax or an exemption from VAT can be applied. In a situation where it is difficult to determine the correct rate of tax on goods and services, the interested party may apply to the tax authorities for an individual interpretation of tax regulations.

Invoice with incorrect VAT rate - consequences at the supplier

Demonstration of an incorrect VAT rate by the supplier of a good or service causes specific effects in the tax on goods and services. It is important whether the VAT rate is overstated or undercut.

An overstated value of the tax on goods and services results in an increase in the selling price of a good / service, thus showing a higher amount of tax liability.On the other hand, the understatement of the VAT rate may result in the understatement of the tax liability, and then the emergence of tax arrears and late payment interest. Such action causes irregularities in the VAT settlement, therefore, if a given good or service is not included in the specific provisions of the VAT Act or ordinance as subject to a reduced VAT rate or VAT exemption, the basic rate of 23% should be applied to the sale of such products.

It should be noted, however, that both overstating and understating the VAT rate are incorrect. If the taxpayer incorrectly determined the VAT rate and issued a document with the amount of tax higher than that applicable to a given product or service, it is obliged to pay the output tax resulting from the sales document.

Invoice with incorrect VAT rate - deduction of input tax

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VAT taxpayers are entitled to reduce the amount of tax due by the amount of the input tax. However, pursuant to the Act, they may not always do so, as there are cases in which no reduction or refund of the difference in output tax is applied.

Therefore, when issuing an invoice with an incorrect VAT rate, two situations should be distinguished:

  1. The transaction documented with an invoice is not subject to tax or is tax-exempt

The right to reduce the amount of tax due by the amount of input tax shown in documents confirming the purchase of goods or services does not apply in a situation where it concerns transactions documented with invoices that are not subject to tax or are exempt from tax. Therefore, a taxpayer who has an incorrectly taxed transaction that is exempt from VAT or not subject to this tax, despite having settled the amounts shown on the document, cannot deduct the input tax from that invoice.

  1. Incorrect VAT rate applied to the invoice

The provisions of the Value Added Tax Act do not make the right to deduct input tax from an invoice dependent on the correct VAT rate being applied to the invoice. Therefore, the taxpayer-buyer has the right to deduct input tax, even if the VAT amount is calculated at the wrong rate (provided that there are no other restrictions under the VAT Act).

Correction of incorrectly specified VAT rate

In the event of an incorrect application of the tax rate, the seller is obliged to correct the incorrectly issued sales invoice and provide the buyer with a document enabling him to correct the input tax. On the other hand, the buyer has no right to correct the VAT rate by means of a correcting note.