A ruling of the European Court of Justice (ECJ) at the end of 2017 (Di Maura case) is the cause of the Parliament’s decision to reintroduce the VAT refund on bad debt. The ECJ has ruled that EU Member States can determine the terms and conditions under which VAT on bad debt is refunded to the seller. Nevertheless, they are not allowed to completely disallow a refund VAT, even if the receivable is obviously uncollectible.
Under the law that will come into force next year, if the seller has acted with reasonable care at the time of the original transaction, as required by law, the seller must notify the customer and the National Tax Authority that the receivable is now classified as unrecoverable for VAT purposes. Next, the seller may deduct in its subsequent tax return the amount of the VAT previously paid. At the same time, the buyer is required to pay back the VAT to the state retroactively.