- If the agreed payment for a taxable service becomes uncollectible, the entrepreneur must adjust the corresponding tax amount.
- This is not a discretionary provision, but a mandatory one, and the entrepreneur has no choice regarding the timing of the adjustment.
- A recent case at the Munich Tax Court highlights the importance of timely adjustment.
- The case involved a contractor who provided services to a municipality but was not paid.
- The contractor sued the city and eventually reached a settlement in 2020.
- In the third quarter of 2020, the contractor reported negative taxable sales in their VAT pre-registration due to the corresponding loss of receivables.
- The tax authority argued that the reduction in the tax base should not be recognized in 2020 because the final claims were already uncollectible in 2015.
- The court agreed with the tax authority’s interpretation and rejected the contractor’s claim for a change in the VAT assessment for 2015.
- The court considered the receivables uncollectible in 2015 or at the latest in 2017.
- This case serves as a reminder of the importance of timing when claiming losses or guarantees under tax law.
Source: nwb-experten-blog.de
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
