Companies may rectify the VAT taxable base for definitively uncollectible debts

Managing non-payments is a constant challenge for corporate treasury. Given the possibility that an issued invoice may not be collected, doubts arise as to whether it is possible to recover the input VAT or rectify the taxable base when the debt ceases to be an expectation of collection and becomes a definitive loss.

What the DGT has ruled

The Dirección General de Tributos (DGT) has confirmed that, when the non-payment of a debt becomes definitive and the credit right is extinguished, it constitutes a cause for modifying the taxable base of Value Added Tax (IVA). For this rectification to be appropriate under Article 80.Two of Law 37/1992, three fundamental requirements must be met:

• Extinction of the credit right: The debt must cease to exist legally.
• Accounting write-off: The corresponding write-off entry must be made in the company's accounting records.
• Notification to the debtor: The extinction of the debt must be communicated to the debtor or, in case of impossibility, a reliable attempt at notification must be proven.

Furthermore, the authority establishes that the period for carrying out this rectification is four years, calculated from the notification of the extinction of the debt or from the attempt at reliable notification.

What this means for you

This criterion provides legal certainty to companies managing collections. If a company has declared the VAT on an invoice but the debt becomes definitively unrecoverable, it has the power to adjust its tax situation. It is not enough for the debt to be old or difficult to collect; it is imperative that there is a formal extinction of the credit right and that the accounting and communication steps required by the regulations are fulfilled.

What should be done

To avoid contingencies during an inspection, companies must rigorously document the uncollectibility process. It is necessary to maintain records of the accounting write-off and the communications sent to the debtor. Since the calculation of the four-year period depends on the notification, the traceability of these acts is essential to guarantee the right to rectification within the timeframe provided by Law 37/1992 and Law 58/2003.