When compensation is paid to a performing entrepreneur in the event of damage for a taxable turnover, the compensation is considered remuneration for the insured turnover. To this extent, the performing entrepreneur may not claim any correction to the tax amount owed according to § 16 para. 1 and 3 of the UStG (Value Added Tax Act) for the insured turnover.
In very simplified terms, the question was how the indemnification that an insured received from the credit insurer due to an insured event in lieu of its defaulted receivable should be considered for VAT purposes. In its decision, the ECJ qualified the indemnification payment by the credit insurer to be a remuneration/consideration for the taxable supplies/services provided by the insured for VAT purposes. Consequently, there is no "irrecoverable debt" or "non-payment" to the extent of the indemnification payment. As a result, this view means that neither the (indemnified) insured nor the credit insurer may now demand a reduction in the tax base respectively are entitled to adjust the VAT.
The ECJ made this decision in a so-called “preliminary ruling procedure”. In such proceedings, the ECJ has to decide how provisions of EU law are to be interpreted. In this specific case, the lawsuit concerned a provision of the EU directive on the common VAT system (EU VAT Directive). This EU directive forms the basis for the national implementing legislation on VAT in the various EU member states. Due to its monopoly on the interpretation of EU law, the decisions of the ECJ in such proceedings must be taken into account by all EU member states when implementing the directive and applying their national legislation.
Austria recently reacted to the ECJ judgement and adapted its tax practice accordingly. Until now, an entrepreneur was entitled to adjust the VAT in accordance with § 16 (1) and (3) UStG 1995 in the event of a bad debt loss despite having received an insurance indemnification, as the latter had previously been regarded as “genuine compensation for damages“ and thus irrelevant for VAT purposes. According to the latest VAT maintenance decree 2023 (“UStR-Wartungserlass 2023”), such a VAT adjustment - if and to the extent that the entrepreneur has received an indemnification by an insurer in lieu of the defaulted receivable - is no longer possible:
"The monetary compensation paid to the supplying entrepreneur in the event of a loss is consideration for the insured, taxable transactions. In this respect, the supplier may not make any adjustments [...] from 1 January 2024."
It can be expected that the other EU member states will also adapt their tax practices accordingly, if they have not already done so or were already doing so before the ECJ ruling. In case the tax practices of other EU member states concerning this topic are relevant for your business (in particular, if you have co-insured companies in other EU member states), please contact your tax advisor for more details!
It depends whether if your insurance policy currently provides insurance cover for VAT or not:
If and to the extent that you already have a “gross insurance” (insurance cover including VAT), the amended tax practice has no effects for you.
In case you have agreed on a “net insurance” (insurance cover excluding VAT), the share in the total bad debt loss (receivable including VAT) that has to be borne by yourself increases due to the abolishment of the right to adjust the VAT.
ACREDIA Global
Please refer to the individual conditions agreed in your insurance policy (General Conditions of Insurance and any additional conditions if applicable)!
ACREDIA Easy
Net insurance (insurance cover excluding VAT)
ACREDIA Single
Net insurance (insurance cover excluding VAT)
On the one hand, the switch from net insurance to gross insurance means that our indemnification in the event of a loss also covers the VAT (which increases the share in the total bad debt loss that is insured/will be indemnified). On the other hand, at the same time there is an increase of the basis for the premium calculation as you have to include the VAT when declaring your outstanding receivables respectively your turnover for the premium calculation. Furthermore, in the event of a conversion, various thresholds agreed in your insurance policy (e.g. declaration limit/discretionary limit, credit limits, non-qualifying loss threshold etc.) are to be regarded as gross amounts.
Our Account Managers as well as our Customer Relation Centre will be happy to answer your questions on this topic on (+43) 05 01 02 - 5555.