The VAT excess refund procedure has undergone changes due to updated rules introduced in March 2024. Key changes affected "Pyramid" report formation and risk assessment when confirming VAT amount reliability.
The "Pyramid" report is no longer generated if VAT amounts on invoices don't exceed 300 times MCI, and also if the service recipient is established at various supplier levels. For companies under horizontal monitoring, reports are formed only for direct suppliers, speeding up verification.
Risk assessment introduced the concept of "risk of suppliers using tax evasion schemes" and specified categories of suspicious suppliers. When tax obligation non-fulfillment risks exist, "Pyramid" reports are formed only for direct suppliers.
Additionally, cases aren't considered tax obligation non-fulfillment risks when suppliers changed VAT payment obligation deadlines according to Tax Code Chapter 6, low-risk violations with desk audit result notifications, and violations unconfirmed by cross-checks or query responses.
Furthermore, the list of grounds for supplier cross-checks has been expanded, including cases where suppliers are intermediaries, freight forwarders, or own-production goods manufacturers.
Along with the above, judicial decision analysis reveals important points for taxpayers. Courts confirm that for VAT refunds, only first-level direct supplier violation absence matters.
Courts are critical of tax authorities sending queries before audit completion without time for violation remediation. Tax audit reports must include document copies and calculations. Their absence may become grounds for declaring reports and notifications unlawful. In turn, if suppliers remedy violations before audit completion, they cannot be grounds for VAT refund denial.
For successful VAT refunds, we recommend: conducting direct supplier audits, checking their compliance with risk criteria, requesting debt absence confirmations, considering the 300 MCI rule, collecting complete document packages, actively interacting with tax authorities, tracking query deadlines, and facilitating supplier violation remediation.
Grounds for challenging VAT refund denials include: denial based on 2nd and subsequent level supplier violations, queries directly before audit completion, ignoring violation remediation responses, missing report attachments, and premature audit completion. However, it's important to consider that unconfirmed VAT amounts can be included in subsequent period requirements within statute of limitations after supplier violation remediation.
Overall, new rules aim to improve verification procedures for conscientious taxpayers.
Nurlan Zekenov, Partner at GK and Partners
