Starting from 1st July 2014. the VAT regulations related to periodically settled (so called continuously fulfilled) transactions are going to change.
In case of these transactions in the future the date of performance will not be the deadline of payment - as it was in the past, but the last day of the period in question. The payable tax shall be calculated by this date, and the partner who receives the invoice can reclaim the VAT also from then on.
- WHICH TRANSACTIONS ARE AFFECTED?
The new rule is applicable only to the so called continuously fulfilled transactions, those supply of goods and/or services about that the parties agreed:
- to settle accounts and fulfilments periodically
- or if the consideration agreed upon for the supply of goods services applies to specific periods.
- public service contracts
- telecommunication services
- supply of goods and or services by telecommunication service provider to the customer through a network used for the provision of telecommunication services billed together with the basic telecom services
That means, that in case of the above excepted contracts the old invoicing rules remain valid (date of performance = deadline of payment).
The invoicing process shall remain the same in case of the so called individual performances as well, namely the date of actual performance (or partial fulfilment) is the date of fulfilment in VAT, and calculating the payable tax.
- FROM WHEN?
The new rule is only applicable if in case of continuously fulfilled transactions both
- the whole reference period AND
- the deadline of payment is after 30th June 2014.
If any of the above dates is prior to this day, the old invoicing rules are applicable (date of performance =deadline of payment).
- WHAT IS THE NEW RULE? HOW SHALL THE INVOICE BE ISSUED?
According to the new regulation the date of performancewill not be the deadline of payment any more, but the last day of the reference period in question. If the period is longer than 12 months, the last day of the twelfth month shall also considered as performance date.
In case of invoices issued in foreign currency, to calculate the VAT in HUF, the exchange rate shall be applied, that is valid on the date of issuing the invoice.
The invoices shall be issued as per general rule within 15 days after the fulfilment, so in case of periodic settlements it means the 15th day after the last day of the billing period.
- ADVANCE PAYMENT
Previously, in case of continuous fulfilled transactions the concept of advance payment could not be defined and applied, but only voluntary prior payment could occur. Due to the new rules regarding the date of performance in the future the question of issuing request regarding advance payment, advance payment invoice, and final invoice could come up in case of continuously fulfilled transactions as well, in case if the payment would be prior to the end of the reference, billing period.
It is treated as an advance payment (thus taxable point in VAT), if any payment is made either in money or by cash substitute payment instrument before the performance date, and this amount shall be taken into consideration by the final performance. In such case an advance payment invoice has to be issued, on that the date of performance shall be the date when receiving the payment.
That means, that in case the parties agreed in the contract on payments before the actual performance (for example the monthly fee is payable until the 5th of the actual month), and if the contract will not be modified, the documentation will be more complicated in case of continuous fulfilled transactions as well:
- advance request
- advance invoice when receiving the money
- final invoice by the time of the actual, final fulfilment, in which the previous advance shall be deducted referring to the advance invoice number.
Based on our experience, it might be an acceptable approach to issue only one invoice regarding the advance payment and the final settlement in order to minimise the administrative burdens. This solution might be applicable in cases, if the whole price is settled in advance and the date of performance is also known in advance. In such cases, it might be acceptable to issue only one invoice, which will include also the date of performance of the transaction based on the general rules. However, please note that such solution could require also to change the configuration of the invoicing systems. In addition, please note that such solution is not defined by the Act on VAT, but the Tax Authority has confirmed its applicability only in a non-binding opinion. However, we would like to highlight that as the new rules have not become effective yet, we do not have any experience regarding the outcome of tax audits in this respects yet.
- CONSEQUENCES- CONSIDERATIONS- Modifying contracts?
Based on the above we would advise to review and supervise the contracts, transactions, and get prepared in advance for the new invoicing rules, monitoring the cash movements in relation to the advances, and setting up the new invoicing systems.
According to the new practice the date of fulfilment is generally earlier than the due date of the invoice, therefore on the invoice issuers’ side the cost of financing of the VAT amount shall be also taken into consideration.
Special planning is needed also for example in case of the July VAT return period, when both invoices VAT will be due to pay: the invoices for June period, that have July deadline of payment, and also the invoices for July period (although having August deadlines of payment). This regards the profession expects a modification in the relevant acts.
From finance point of view a possible solution could be- when meeting certain criteria- to elect the special cash flow method calculation of VAT, that can be on the other hand chosen only from the next financial year.
We would kindly advise based on the above to consider the reconciliations about possible contract modifications with the partners, since the contracts, agreements, and the reference, billing periods as well as payment deadlines defined in them will generally determine the invoice issuing and VAT treatment.
We hope that our summary helps you to understand the new rules, regarding the supervision of individual cases or for detailed advisory please kindly turn to us with trust!
accounting team leader