Di Maura: Bad-Debt VAT Base Reduction and Proportionality
A member state may not make the reduction of the VAT taxable amount in the event of total or partial non-payment conditional on the unsuccessful conclusion of insolvency proceedings where such proceedings may last more than ten years. The non-payment derogation does not permit effectively excluding the correction — restrictions must respect proportionality and VAT neutrality.
Facts
Italian trader Enzo Di Maura reduced his taxable amount after his customer went bankrupt and left a EUR 35,000 invoice unpaid. The Italian administration refused the correction because national law allowed it only after the unsuccessful end of insolvency proceedings — which in Italy commonly exceed ten years. The referring court asked about the limits of the derogation under Art. 11C(1) of the Sixth Directive.
Legal assessment
The Court recalled that the taxable amount is the consideration actually received and the state cannot collect more VAT than the taxable person obtained. The member states' option to derogate for non-payment serves the uncertainty whether non-payment is definitive — it must not amount to abolishing the right to correct. Requiring traders to await the end of decade-long insolvency proceedings forces them to pre-finance tax on bad debts and disadvantages them against competitors elsewhere, breaching proportionality. It suffices that the taxable person shows a reasonable probability the debt will not be paid, with a later upward correction if payment nevertheless arrives.
Practical impact
Practically: correct the taxable amount for a bad debt under Sec. 46 et seq. of the Czech VAT Act as soon as a statutory title arises — e.g. enforcement running over 2 years or terminated for lack of assets, the debtor in insolvency (for a filed and ascertained claim), the debtor's death or dissolution. Do not wait for the formal end of insolvency. Procedure: issue a corrective tax document, deliver it to the debtor, report the correction in the return and the control statement, and match it to the original documents. If the debtor later pays, you correct back upwards — per the CJEU it is precisely this option that justifies the earlier reduction.