Before I get into the legal provisions and interpretations, I just want to bring to your attention that this article is based on my understanding of law and related guides and every one should take their own discretion before applying. Putting this disclaimer because towards the end of the article, you may find it really interesting and VAT Gurus may even open the reference material to verify the same. Let us see how this article unfolds. Happy Reading!!!
As per Article 55(1) of Decree law; the input credit can be taken in the first period in which the following conditions are satisfied
a. Tax Invoice having details of supply is received and kept
b. Pays the consideration for supply (or has intention to pay in line with Article 54(2) of Executive Regulation)
The provision is straight, but the complication arises when we put it to practical application. Let us consider a scenario. Ahmed General Trading LLC (AGTL) purchased goods amounting to AED 100,000 from Basheer Traders LLC (BTL) on 01-Jan-2018. Assuming AGTL has monthly tax period and while filing return on 28-Feb-2018, AGTL realized that the tax invoice of BTL is not available and only delivery note exists. In line with Article 55(1), AGTL did not claim VAT Input on such purchases as condition (a) above was not satisfied.
Subsequently, AGTL was able to find the tax invoice of BTL on 01-Mar-2018 which lost its way from Reception to Finance Department of AGTL. On receipt of invoice, can AGTL claim input credit in next tax return filing of February. The answer lies in Article 55(2) of Decree Law. Article 55(2) states that if the Taxable Person entitled to recover the Input Tax fails to do so during the Tax Period in which the conditions stated in 55(1) have been satisfied, he may include the Recoverable Tax in the Tax Return for the subsequent Tax Period. This means that while filing return of Feb-18; the same can be claimed. So far so good.
Now let us assume AGTL was able to find the tax invoice of BTL on 01-Apr-2018. Can AGTL claim input credit in tax return filing of Mar-18. Prima facie conditions of Article 55(2) of Decree Law is not satisfied and hence cannot be claimed. However, there are two alternate views on this
If we refer VAT Return Guide Page 20; it states that Standard Rates Expenses (Box 10) will include errors that you are allowed to correct for previous Tax Periods discovered in this tax period. This will apply where you have discovered an error where the payable tax is more or less than required with an upper cap of AED 10,000.
However, Article 8(2)(a) of Executive Regulation on Tax Procedure has a contradictory view. Article 8(2)(a) states that if a Taxable Person becomes aware that a Tax Return submitted by him to the Authority is incorrect, resulting in a calculation of Payable Tax according to the Tax Law being less than required with an upper cap of AED 10,000; the Taxable Person shall correct the error in the Tax Return for the Tax Period in which the error has been discovered.
The contradiction is the use of word “more or less” in tax return guide page 20 while the use of word “being less” in Article 8(2)(a).
If we go by Tax return guide, AGTL can claim input credit in Tax Return Filing of Mar-18 and this will defeat the intent of Article 55(2) of Decree Law.
However, if we go by Article 8(2)(a) of Executive Regulation on Tax Procedure, AGTL cannot claim input credit in Tax Return filing of Mar-18 as this error is not resulting in previous payable tax being less than the revised one. Rather this error will result in previous payable tax being more than the revised one and hence condition of Article 8(2)(a) is not satisfied. This is also in line with intent of Article 55(2) of Decree Law.
Now this is up to you to decide – Is Input Credit lost if not claimed within Tax Period or Is open to claim as and when discovered.