At what point after the goods have been shipped should VAT be restored from the advance payment?

Recovered VAT - what is it?

The question of VAT restoration arises in relation to tax previously taken into account in deductions. This needs to be done in several situations (clause 3 of Article 170 of the Tax Code of the Russian Federation), the most common of which are:

changes in tax conditions;
change in the situation with the advance payment.

The main condition for the restoration of VAT: first, the tax is accepted for deduction, and then, due to some circumstances, it turns out that all of it (or part of it) must be paid to the budget. In this case, the required amount of tax is restored (accrued for payment) and reflected in section 3 of the declaration either in 1 line (080) or in two lines (090 or 100 and in the final 080). The recovery of VAT on advances issued is recorded in two of its lines: 080 and 090.

For information on tax recovery situations not related to advances issued, read the material “The nuances of VAT recovery and what entries are used?” .

Blog about taxes by Vladimir Turov

Good afternoon friends.

This article is for accountants. Determination of the Constitutional Court of the Russian Federation of November 8, 2021 No. 2796-O .

VAT on advances must be restored in the tax period in which this VAT was received, and not in a later period, when the delivery and everything else was completed. If you don’t do this, you will get into trouble and additional VAT will be charged to you, as happened in this case.

The organization went to the Constitutional Court, but lost. The Constitutional Court pointed out that the legislation “does not envisage the possibility of changing the period for the restoration of amounts of value added tax accepted for deduction in relation to advance payments, with the transition to the tax period following the tax period in which the relevant civil obligations were actually fulfilled " This is clause 6 of Art. 172 NK . That's all, guys.

At the same time, “there is a direct dependence of the taxpayer’s exercise of the right to deduct amounts of value added tax on the fulfillment of his obligation to incur actual, real costs for paying the deducted amounts of tax.” But this is a platitude. And then again: “At the same time, paragraph 1.1 of Article 172 of the Tax Code of the Russian Federation allows the buyer, upon receipt of an invoice from the seller of goods (work, services), property rights after the end of the tax period in which these goods (work, services), property rights are registered, but before the deadline established by Article 174 of this Code for submitting a tax return for the specified tax period (no later than the 25th day of the month following the expired tax period), accept for deduction the amount of tax in relation to such goods (works, services), property rights from the tax period in which the specified goods (works, services), property rights were registered.”

The idea is that VAT should be restored in the tax period in which the advance was received. Therefore, if you are not an accountant, then you do not need to understand these subtleties. Just send this video to your accountant colleague, and perhaps it will save him from a mistake that could then lead to multimillion-dollar additional VAT charges.

In the next article, you'll learn how to save money with compensation payments.

Thank you, colleagues, and good luck in your business.

We will talk about other optimization methods, including VAT, at the next seminar.

Link to the court decision:

Determination of the Constitutional Court of the Russian Federation of November 8, 2018 No. 2796-O

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Vladimir Turov

Head of legal practice, practicing and leading specialist in tax planning, building individual tax schemes and holdings, optimizing financial flows.

Is it necessary to restore tax on advances received?

When receiving an advance payment, in most cases the seller is obliged to calculate the tax on it for payment to the budget (clause 1 of Article 154 of the Tax Code of the Russian Federation), and later, when making a shipment, against this advance payment, take all or part of the amount of the tax paid from the advance tax as deductions (clause 8 Article 171 and Clause 6 Article 172 of the Tax Code of the Russian Federation). In other situations (when the advance is returned to the buyer or the overdue debt on it is written off), VAT restoration will also not be required. In the 1st case, it can be taken as a deduction on the date of return (clause 5 of Article 171 of the Tax Code of the Russian Federation), and in the 2nd case it must be written off as expenses not taken into account in the calculation of income tax.

Thus, for advances received, the picture always turns out to be the opposite of the main condition for recovery: first, the tax is calculated for payment, and then taken as a deduction or written off. That is why there will never be a situation of VAT restoration on these payments.

ConsultantPlus experts explained how to calculate VAT on transactions related to coronavirus. If you don't have access to the system, get a free trial online.

When is it necessary to restore VAT: the position of the Constitutional Court

After the seller ships the goods, the buyer has the right to deduct “input” VAT from the cost of the goods supplied.
VAT, which the buyer previously accepted as deduction from the advance payment for future deliveries of these goods, must be restored.

VAT is subject to restoration, determined on the basis of amounts that, at the end of the tax period, cease to be a partial payment for future supplies.

That is, VAT must be restored in the amount of the tax accepted for deduction on the shipment, the payment of which includes the advance payment.

This follows from paragraph 3 of Article 170 of the Tax Code.

When applying this provision of the Tax Code, one should be guided by the position of the Constitutional Court, set out in the ruling of November 8, 2018 No. 2796-O.

In his opinion, it is impossible to restore VAT during the period when the organization had the opportunity to document the right to deduction, that is, when the seller received invoices and primary documents.

VAT deductions from payment amounts and partial payments for future deliveries are made from the date of shipment of the relevant goods (clause 6 of Article 172 of the Tax Code).

At the same time, as follows from the conclusions of the Constitutional Court, it is impossible to postpone the period for restoration of VAT accepted for deduction from an advance payment to the next tax period due to the fact that the documents necessary for deduction have been received.

Clause 1.1 of Article 172 of the Tax Code allows the buyer to deduct VAT if invoices from the seller were received after the end of the period in which the goods were registered, but before the deadline for submitting the declaration for the specified quarter.

At the same time, issuing an invoice in electronic form is not excluded (clause 1 of Article 169 of the Tax Code).

Organizational defects in economic activity cannot serve as a reason for failure to fulfill tax obligations.

Previously on the topic:

When should VAT on an advance payment be restored?

Are you writing off accounts receivable? Don't forget to restore VAT

How to deduct VAT when returning an advance payment?

Conditions for deducting tax on advances issued

When calculating the tax on the advance payment received, the seller issues an invoice for it and sends 1 copy of it to the buyer. Based on this document, the buyer has the right to take into account the amount of tax allocated in it as deductions (clause 12 of article 171 of the Tax Code of the Russian Federation). Although he may not do this, since deductions are not an obligation, but are made voluntarily (clause 1 of Article 171 of the Tax Code of the Russian Federation). It is better to consolidate the taxpayer’s position regarding deductions for advances issued (whether they will be applied or not) in some document (for example, in the VAT accounting policy).

However, these 2 circumstances (payment and invoice) are not enough for the buyer to deduct it. Additional conditions for carrying out such an operation follow from other provisions of the Tax Code of the Russian Federation:

a condition on the possibility of transferring an advance payment must be included in the supply agreement (clause 9 of Article 172 of the Tax Code of the Russian Federation);
The invoice for the advance payment must be dated within the 5-day period allotted for issuing such documents (clause 3 of Article 168 of the Tax Code of the Russian Federation), and have all the required details for it (clause 5.1 of Article 169 of the Tax Code of the Russian Federation).

Acceptance of deductions from the buyer will be reflected in the following posting (for each individual document):

Dt 68/2 Kt 76/VA,

Where:

68/2 - subaccount for accounting for settlements with the budget for VAT on account 68;

76/VA - subaccount for accounting for VAT on advances issued in account 76.

Conditions for VAT deduction when returning an advance payment

As a general rule, the seller can deduct VAT from the prepayment amount.
The deduction is made in the amount of tax calculated from the cost of shipped goods (work performed, services rendered), the payment for which previously received payment is taken into account (clause 8 of Article 171, clause 6 of Article 172 of the Tax Code). But is it possible to deduct VAT if the advance payment is returned to the buyer?

This issue was clarified by the Ministry of Finance in a letter dated 09/07/2020 No. 03-07-11/78402.

He drew attention to the rule established by paragraph 5 of Article 171 of the Tax Code.

This paragraph provides that VAT amounts calculated and paid from prepayments for future supplies can be deducted in the event of a change in conditions or termination of the relevant contract and the return of the corresponding prepayment amounts.

Thus, in order to apply a VAT deduction in the event of termination of the contract or change in its terms, it is necessary to return the advance received.

The Tax Code does not provide for the deduction of VAT from advance payment amounts without changing the terms or terminating the relevant agreement and without returning advance payment amounts.

The Ministry of Finance came to this conclusion in letter dated 09/07/2020 No. 03-07-11/78402.

In addition, in this letter he confirmed his other point of view stated earlier. If, upon termination of the contract, the obligation to return the prepayment was offset against the counter-obligation, then VAT on advances can be deducted.

Since the termination of the obligation to return advance payment amounts by offsetting a counter-similar claim, in the opinion of the Ministry of Finance, is recognized as the return of advance payment amounts (letter of the Ministry of Finance of Russia dated September 11, 2012 No. 03-07-08/268).

Previously on the topic:

Refund of advance: how to deduct VAT

What does VAT deduction mean?

Procedure for recovering VAT from advances

VAT recovery on an advance payment is made in the following situations (subclause 3, clause 3, article 170 of the Tax Code of the Russian Federation):

the delivery has been completed against which an advance payment has been made;
the supply contract is terminated or its terms are changed and in connection with this the advance payment is returned to the buyer.

See also “Prepayment under a terminated contract was transferred to a new one - the buyer recovers the advance VAT .

The Russian Ministry of Finance adds one more to the list of these situations - the write-off of overdue debt on an advance payment that was not returned by the supplier under an unfulfilled contract (letter of the Russian Ministry of Finance dated August 17, 2015 No. 03-07-11/47347). The need to restore the tax in this letter is explained by the fact that the advance transfer transaction, for which the tax was taken as a deduction, ultimately turned out to be unrelated to VAT. That is, the requirements of paragraphs. 1 and 2 tbsp. 171 of the Tax Code of the Russian Federation on the possibility of applying deductions only to transactions subject to this tax. However, in the list of reasons for the restoration of VAT contained in paragraph 3 of Art. 170 of the Tax Code of the Russian Federation, there is no such basis. So, if you wish, you can try to argue with the position of the Russian Ministry of Finance.

For whichever of the listed reasons the restoration is made, it is carried out in the tax period when the corresponding event occurs (subclause 3, clause 3, article 170 of the Tax Code of the Russian Federation). At the same time, the sales book reflects the data of the invoice for the advance payment for which the restoration is made, and the tax amounts and tax base related to it. The deduction on the delivery invoice is carried out in the usual manner, but this document must reflect the number of the payment document for the transfer of the advance on account of the supply.

Depending on the ratio of the advance amount and the cost of the related supply, the following situations may arise:

The advance and delivery amounts are the same. Then the same amount that was taken as deductions is subject to restoration. The same will be true for cases of return of the advance and write-off of debt on it.
The amount of the advance is less than the cost of delivery, and the contract does not contain additional conditions on the offset of the advance against its payment. The entire amount of the deduction made on the advance payment is restored.
The amount of the advance payment is greater than the cost of delivery, and the contract does not contain additional conditions regarding the offset of the advance payment against its payment. VAT restoration is done for the amount of tax that is reflected in the supply document (letter of the Ministry of Finance of Russia dated July 1, 2010 No. 03-07-11/279).
The amount of the advance payment may or may not coincide with the amount of delivery, but the contract contains a provision for payment of only part of the delivery from the advance payment issued. Then the tax is restored only in that part that corresponds to the amount of offset of the advance payment for the delivery (letter of the Ministry of Finance of Russia dated November 28, 2014 No. 03-07-11/60891). To avoid any discrepancies, it is recommended that the supplier indicate in the shipping documents exactly what amount of the advance has been credited towards this specific delivery.

For information on a document that combines a shipping document and an invoice, read the article “Universal transfer documents.”

Tax accounting: what to pay attention to

When working with advance payments, you must be careful when filling out invoices. Tax authorities, in particular, pay attention to the correct indication of the tax rate - 10/110 or 20/120, and not 10% and 20%. When making advance payments, VAT calculations are carried out only at estimated rates.

When registering an invoice for an advance payment in the purchase book in case of a return, the seller uses transaction type code 22 (List of codes for transaction types indicated in the purchase book, attached to the Federal Tax Service order No. ММВ-7-3 / [email protected] dated 14/03 /16).

The details of the invoice for the advance payment, a document confirming the return of money to the buyer - usually a payment order (column 7, see letter of the Ministry of Finance No. 03-07-11/16044 dated 24/03/15) are also indicated. In the relevant In the columns you need to indicate the name of your company, INN, KPP, the full amount of the advance, VAT on the advance is only deductible. The tax must correspond to the refund amount (column 16).

The buyer in the same situation is obliged to restore the tax by reflecting the seller’s invoice for the advance payment in the sales book (it was already reflected in the purchase book). Operation type code 21 is used (Federal Tax Service order No. ММВ-7-3/136, appendix).

Accounting entries for VAT recovery from advance payment

The VAT recovery posting will always be the same for each individual invoice:

Dt 76/VA Kt 68/2,

Where:

68/2 - subaccount for accounting for settlements with the budget for VAT on account 68;

76/VA - subaccount for accounting for VAT on advances issued in account 76.

The results of VAT recovery for specific advance invoices will vary depending on the ratio of the amount of the advance and the cost of supply associated with it:

for the first two cases (the amounts of the advance and delivery are the same or the amount of the advance is less than the cost of delivery), with this posting the amount of tax on the advance, listed in subaccount 76/AB, will be closed completely;
in the 3rd and 4th cases (the amount of the advance is greater than the cost of delivery or the contract contains a condition on partial offset of the advance towards payment for the supply), in subaccount 76/AB after the restoration of VAT there will be a balance of unrecovered tax.

Pros and cons of deducting VAT on advances issued

The positive aspects of the use of such deductions occur with significant amounts of advances issued and manifest themselves as follows:

A large deduction amount can not only significantly reduce the total of the declaration drawn up for the period of its application, but also make it result in the amount of tax reimbursement from the budget.
A deduction for an advance on account of several deliveries for it is made one-time, ahead of time and in a larger amount than deductions would be made for each of the deliveries separately. At the same time, VAT restoration occurs in parts and can be extended over several tax periods.

On the plus side, there are also conditions for payment of only part of the delivery using the transferred advance payment. In this case, deductions for the advance payment issued and for the delivery document will occur earlier and will be taken in full, and the VAT restoration will be made only in part of these amounts and will be extended over time.

The following points will be negative:

increasing the volume of accounting operations and document flow;
there is no point in using deductions for advances if we are talking about small amounts and the period for transferring the advance often coincides with the period of shipment for it.

Read about the rules for issuing invoices for advance payments here.

Results

The question of recovering VAT on advances paid to suppliers arises if the taxpayer takes tax deductions on invoices issued by the supplier for prepayment. The provision for advance payment must be included in the supply agreement. VAT on advances issued is recorded in a separate subaccount of account 76.

Sources: Tax Code of the Russian Federation

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