When a company is unable to recover a debt, it can, under certain conditions, reclaim the VAT initially paid to the Treasury. This procedure, which is governed by strict rules, is a protective mechanism for companies faced with unpaid bills. The recovery of VAT on bad debts is part of a broader framework of corporate taxation and VAT, and requires in-depth expertise in tax matters. Given the complexity of these procedures, the support of a tax lawyer specializing in tax litigation is often essential.

What is bad debt VAT?

Bad debt VAT refers to the possibility for a company to recover the value-added tax it has paid to the tax authorities on a sale for which payment has never been received. In concrete terms, on an invoice for €1,200 inc. VAT (€1,000 excl. VAT + €200 VAT), only the €200 VAT can be recovered, and not the entire amount owed. This mechanism prevents the company from incurring a definitive tax charge on a transaction for which it never actually received any cash.

The principle is based on a logic of tax fairness: a company should not pay VAT on sums it has never received. This rule applies only to trade receivables, and not to tax receivables, which are subject to a different regime.

Conditions for recovering VAT on bad debts

Recovery of VAT on irrecoverable debts is strictly governed by article 272 of the French General Tax Code, and is specified in administrative doctrine (BOI-TVA-DED-30-10). This procedure requires compliance with rigorously defined cumulative conditions.

The three cumulative conditions to be met are :

– The claim must be certain, liquid and due: it must correspond to a transaction actually carried out, its amount must be precisely determined, and it must have fallen due.

– The debt must have become definitively irrecoverable: this legal concept means that the impossibility of collection has been definitively established, after all available means of collection have been exhausted.

– The company must be able to prove that it has taken serious steps to collect the debt: formal notice, legal proceedings, a bailiff’s declaration of the debtor’s insolvency, or a court-ordered liquidation. A simple delay in payment never constitutes an irrecoverable debt.

The amount of the claim also determines the evidentiary requirements. For claims of less than 760 euros (incl. VAT), the procedure is simplified, with fewer supporting documents required. Above this threshold, however, the authorities require detailed proof of diligence and of the manifest impossibility of recovery, in line with established case law.

VAT recovery procedure

The recovery request is made by means of a declaration on the VAT return for the period during which the claim became definitively irrecoverable. The company must enter the amount of VAT to be recovered on the “Other deductions” line of its monthly or quarterly CA3 return. This deduction must be accompanied by a detailed statement of irrecoverable debts, specifying the amounts before tax, the corresponding VAT and proof of irrecoverability.

This procedure requires particular attention, as it may be the subject of an in-depth tax audit. The tax authorities systematically check that the debt is actually irrecoverable, and that the required supporting documents exist. A poorly prepared file can lead to a tax reassessment.

Supporting documents must be kept for the statutory limitation period. They include unpaid invoices, letters of formal notice, bankruptcy decrees and bailiff’s certificates of insolvency.

Reporting deadlines and obligations

The claim for recovery must be made within two years of the date on which the debt became definitively irrecoverable. This period runs from the date on which the debtor is declared bankrupt by the court, or from the date on which the debtor’s insolvency is officially recorded by a bailiff. This time limit is imperative and no extension is possible: failure to meet it will result in the definitive loss of the right to recovery, with no possibility of further recourse.

The company must also comply with its usual VAT reporting obligations. The recovery of VAT on bad debts is a specific VAT issue requiring rigorous accounting and appropriate documentation. This procedure may be the subject of an in-depth tax audit by the tax authorities.

In the event of subsequent recovery of the claim, even if only partial, the company must repay the corresponding VAT to the tax authorities. This obligation applies indefinitely, and is a logical counterpart to the recovery mechanism. Failure to comply with this obligation may result in penalties and interest for late payment.

Risks and precautions

Reclaiming VAT on irrecoverable debts involves considerable risks. The tax authorities carefully examine such claims and may question the irrecoverable nature of the debt. Incorrect qualification can lead to penalties for tax fraud, particularly in the case of abusive claims or insufficient documentation.

It is important to build up a solid file before making any recovery claim. The support of a specialized tax lawyer can make the procedure more secure and avoid the most common pitfalls. The lawyer’s professional secrecy also guarantees the confidentiality of exchanges during these sensitive proceedings. The complexity of these matters justifies professional advice tailored to each individual situation.

VAT on bad debts is a protective mechanism for companies, but its application requires perfect mastery of the applicable rules and impeccable documentation. A methodical, secure approach guarantees the effectiveness of this tax recovery procedure.