The rules for fixed-term accounting in the VAT Act from 01.07.2015

The so-called There has been a lot of uncertainty regarding fixed-term settlement for years. From July 1, 2015, changes will also come into effect in this regard.

The LXXIV of 2014 by law in two steps:

• From July 1, 2015, as well as

• From January 1, 2016

the settlement of fixed-term (temporary settlement) transactions changes.

As of July 1, 2015, the change will initially cover the following services:

• bookkeeping service,

• auditing service,

• tax advisory service.

Apropos of this, I have collected the most frequently arising practical questions, and I will also cover the details of the changes.

The currently applicable rule reads:

"In the case of the sale of a product or the provision of a service, if the parties have agreed on payment in installments or settlement for a fixed period of time, performance is the due date for reimbursement of the consideration to which the given installment or settlement applies."

This provision - I could also say - introduced a kind of cash flow approach into the VAT Act, since the seller/service provider's tax payment obligation began when the consideration became due. That is, the payment obligation or VAT deductibility of an entrepreneur that arose in the month in which the payment deadline according to the invoice fell.

But what is forward settlement?

In general, we speak of fixed period accounting if there is no quantity and/or quality condition stipulated in the transaction, upon reaching which consideration can be demanded, but the contracting companies agree to periodically measure the performance and account for the quantity calculated as a result of the measurement. For example, if we contract to pave 20 kilometers, then the date of this performance is the day when we finished the paving (this is not a fixed age settlement). But if we agree to settle the asphalting works every 5 days, then there is no longer any quantity requirement. Then we invoice every 5 days based on the rules of fixed-term accounting. We also apply fixed settlement rules for flat-rate contracts. For transactions subject to this rule, special rules also applied to the consideration determined in foreign currency, the VAT payment obligation in HUF had to be applied not at the exchange rate at the time of performance, but at the time of issuing the invoice.

With the introduction of cash flow taxation (when the taxpayer chooses for all of his transactions, if certain conditions are met, that his obligation to pay tax arises when the consideration is reimbursed), the above rule partially became obsolete.

Provisions of the rules that come into force from July 2015 on accountants

According to the main rule of the amendment, "if the parties, on the basis of the contract concluded by them, account for the sale of the completed product or the service provided periodically, or if the consideration for the sale of the product or the provision of services is established for a specific period, the date of performance is the last day of the relevant period."

The new rule must be applied for the first time if both the performance period and the payment deadline fall on the day after June 30, 2015. In practice, this means that e.g. on our monthly accounting fee invoice for the period of June 2015, the payment deadline and the date of completion will be July 8, 2015. On the other hand, according to the new regulations, we will issue our invoices for the period of July 2015 so that the payment deadline will be August 8, 2015, while the fulfillment date will be July 31, 2015. If an advance payment is made, it must be treated as an advance payment including VAT. An advance invoice must be issued for this, and the advance must be shown later in the final invoice issued at the time of actual performance.

In the second step, the new rule must be applied from January 1, 2016, in the case of all periodic settlement transactions. The invoicing rules are the same as the above-mentioned invoicing regime, except for public services and telecommunications services according to the VAT Act, which are still taxed according to the date of completion according to the payment deadline (payment deadline = date of completion).

What does not change, but is important to keep in mind when issuing a continuous payment invoice:

• The rules of continuous performance must be applied if the parties settle together for a specific calendar period and there is no separate performance certificate for the performance for that period.

• The settlement period cannot be longer than 12 months. If it is longer, then the completion date is the last day of the 12th month.

• For tax-free sales within the EU, the settlement period cannot be longer than one calendar month. If it is longer, then the fulfillment date is the last day of the month.

• For services with international reverse taxation, the settlement period cannot be longer than one calendar year.

• The invoice must be issued within 15 days after the last day of the settlement period

Example. Two businesses agree with each other on the fixed-term service provided by one of them. According to their contract, they report to each other quarterly.

Depending on when the service provider issues its invoice and when the payment deadline is, the payment date for VAT is determined according to the table below. according to the main rule and on the basis of paragraphs (1a) of § 58.

In 2015, in the case of Accountants

In 2016, for all fixed-term settlements

From the tables above, it is clear that the taxable person providing services can decide which rule is most suitable for him in terms of the activity he performs and can shape his contracts and transactions accordingly. Those taxpayers for whom the current rules would be more suitable must shape their contracts with their partners in such a way that they comply with the second supplementary point [b) of § 58.