New Information on the correction of tax deduction claims for overdue receivables

We would like to draw your attention to the Information of the General Financial Directorate (“GFD”) regarding the correction of the tax deduction claim for overdue receivables on the debtor’s side (hereinafter the “Information”), which the GFD issued in response to the amended provisions of Section 74b of the VAT Act (“VAT Act”).

According to the Information, the new legislation reflects the case law of the Court of Justice of the EU, according to which it is possible to require a debtor to correct a tax deduction claim before insolvency or liquidation proceedings have been initiated against it.

According to Section 74b of the VAT Act, the debtor, the VAT payer, is obliged to correct the tax deduction if the claim (or, on his part, the liability) from the taxable supply has not been fully satisfied by the last day of the sixth calendar month immediately following the calendar month, in which it became due. For quarterly payers, the law stipulates an obligation to make an adjustment if the receivable has not been paid by the last day of the taxpayer’s tax period, in which this deadline expired.

The tax adjustment is based on the amount of the unpaid consideration. At the same time, the law allows the debtor to increase the tax deduction if the claim is satisfied. However, he must do so no later than the end of the second calendar year following the tax year, in which he was entitled to make the correction. Again, the amount of the correction is based on the amount of the payment made.

It is important to note that the obligation to correct the tax deduction applies only to receivables, which arose after 1 January 2025 and for which the creditor has become obliged to declare tax on the basis of the supply of goods or services with the place of performance in the Czech Republic (i.e. it does not apply to e.g. the acquisition of goods from the Czech Republic, the receipt of services from a person not established in the Czech Republic, performance subject to the reverse charge regime in the Czech Republic, etc.).

The Information specifies how to report corrections in the tax return and control report.

Reduction of the tax deduction pursuant to Section 74b(3) of the ITA is reported by the debtor on line 40 or 41 of the tax return with a negative sign. At the same time, he will enter the same amount on line 34 of the tax return with a positive sign.

If the debtor subsequently pays the claim, the increase in the tax deduction is shown on line 40 or 41 of the tax return with a positive sign. At the same time, he will enter the same amount on line 34 of the tax return with a negative sign. Line 34 of the tax return does not affect the resulting tax liability.

In the control report, correction of the tax deduction (both reduction and increase) is always entered in section B.2, regardless of the amount of the correction, and marked with “P” in column 12.

The information also provides advice on how to deal with specific cases. These include, for example, the following situations:

• the performance is unpaid due to a complaint,
• the receivable has a split maturity date,
• the debtor and the creditor have agreed to have agreed to offset their liabilities and receivables,
• the claim has been assigned,
• the claim involved transactions subject to different VAT rates/regimes,
• the six-month period after the due date expired before the entity was registered for VAT, etc.

The information also takes into account taxpayers who are entitled to a tax deduction in a proportional or reduced amount and states that a possible correction according to Section 74b of the ITA does not affect the extent of the tax deduction entitlement, i.e. the taxpayer will only make a tax correction in a proportional/reduced amount. The method of adjustment is demonstrated in the Information using several examples.

The right of the creditor to adjust the amount of tax on an uncollectible receivable, which is regulated in Section 46 et seq. of the VAT Act, is not addressed in this Information.