Output tax correction in receivable from debtors in insolvency

In the Czech Republic a standard VAT scheme is applied and taxpayers are obliged to pay output tax according to chargeable event. It means the VAT shall become chargeable when goods or services are supplied, regardless of whether invoices have been paid or not.  As quoted in Council Directive 2006/112/EC, in the case of cancellation, refusal or total or partial non payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.  In accordance with this article of the Directive, the possibility of output tax correction (if the debtor did not pay the supplier for goods delivered or service provided and is in insolvency proceedings) has been introduced in the Czech Republic since the 1st of April 2011. 

The aim of this paper is to evaluate use of the possibility of VAT refund claims of debtors in insolvency proceedings based on a questionnaire survey among VAT payers. A critical literature review of relevant sources was a starting point and then the research has been conducted through a questionnaire survey. Logical methods of analysis and synthesis, induction and deduction were used when our own research was implemented. The questionnaire survey has been evaluated using statistical methods, namely the statistical correlation was performed using the chi-square test of independence. Empirical investigation confirmed that the law provides relatively strict conditions and, therefore, the institute is used only with a limited number of taxpayers. It was found that the procedure for refunds is also administratively demanding and therefore it is used mainly by taxpayers with high bad debts.