IMPACT OF THE VAT REVERSE-CHARGE MECHANISM ON THE CASH FLOWS OF CONSTRUCTION COMPANIES IN THE SLOVAK REPUBLIC
AbstractIn 2015, the Slovak Parliament adopted the Law on Amendments to the Law on Value-Added Tax. This law came into force on January 1, 2016. One of the most significant changes was the introduction of a reverse-charge for the provision of construction works. A government statement of its positive influence on the business environment is inconsistent with the two-year experience in the building sector. The main goal of this paper is to establish the reason for the practical effects of the value-added tax reverse-charge mechanism on the construction companies. The hypothesis is that the negative effect on the cash flows of the construction companies increases ‘opportunity costs’ connected to excessive deductions. The paper focuses on evaluating and quantifying such an effect. It presents a comparison of the conditions before and after the adoption of the Act. No. 222/2004 Coll., as amended in 2016 and includes factors that influence costs and cash flows of construction companies. It but does not consider factors related to turnover and the economic situation. The reverse-charge mechanism affects the total of tax owing, the total deductible tax, the total excessive deduction, and the construction companies’ cash flows. In this study, the data from the information system of the Slovak Republic, under the condition of anonymity, are analyzed for the period 2014–2017. The effect of the value-added tax is quantified by way of financial interest expenses. These expenses depend on time limits for the excessive deduction, total of tax owing, and on the excessive deduction amount. Indicators of ‘Financial Burden 1’ and ‘Financial Burden 2’ are calculated. The results show that the Law on Amendments of Value Added Tax has significantly affected the constructions companies since January 2016. The reverse-charge system has not changed the delay in excessive deduction payments to the taxpayer’s bank account. It has changed the amount of excessive deduction expressed through money and the total tax owing. Based on the study results, this change markedly affects the financial burden of construction companies and provides an ‘opportunity cost’ Value Added Tax payers‘ construction company.
Azmi, A., & Noor, S. S. (2016). SMEs' tax compliance costs and IT adoption: the case of a value-added tax. International Journal of Accounting Information Systems, 23. (pp. 1–4)
Auerbach, A. J. (2008). Tax reform in the twenty-first century. In J. W. Diamond & G. R. Zodrow (Eds.). Fundamental tax reform: issues, choices and implications. The MIT Press. Cambridge, pp. 27–74
Banks, J. W., & Diamond, P. A. (2010). The base for direct taxation. In Institute for Fiscal Studies (Ed.). Dimensions of tax design. Oxford University Press. New York (548–648),
Barbone, L., Bonch-Osmolovskiy, M. and Poniatowski, G., Study to Quantify and Analyze the VAT Gap in the EU Member States (September 2015). CASE Network Reports No. 124. Available at SSRN: https://ssrn.com/abstract=2693524 or http://dx.doi.org/10.2139/ssrn.2693524
Barb one, Lea t al. (2013): Study to quantify and analyses the VAT gap in the EU-27 member states, CASE Network Reports, No. 116, ISBN 978-83-7178-598-6
Berger, W., Kindle, C., Wakening, M., 2010: Service ES o dana z priding honesty – praktický komentář. 1. vyd. Praha: 1. VOX, 734 s. ISBN 978- 80-86324-83-8.
Borseli, F. (2011). Organised VAT fraud: features, magnitude, policy perspectives. Banca D'Italia: Questioni di Economia e Finanza. Commission Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (notified under document number C(2003) 1422) (2003/361/EC).
Bojňanský, J., Krajčírová, R., & Ferenczi Vaňová, A. (2013). Dane podnikateľských subjektov. (Taxes of entrepreneurs.) Nitra: SPU, 251 s.
FERENCZI VAŇOVÁ, A. -- KRAJČÍROVÁ, R. -- VÁRYOVÁ, I. -- KOŠOVSKÁ, I. Depreciation influence of fixed assets on accounting result and corporate income tax base pursuant accounting and tax legislation in the Slovak Republic. In Finance and performance of firms in science, education and practice. Zlín : Tomas Bata University in Zlín, 2015. s. 287--296. ISBN 978-80-7454-482-8. URL: http://www.slpk.sk/eldo/2015/zborniky/9788055213491.pdf.
Keen, M. (2013): “The Anatomy of the VAT”, IMF Working Paper, WP/13/111, May.
Miller, J. and Pangbourne, T., 2010. Tax avoidance schemes: the liability of professional advisers, Professional Adviser (1743-3339).
Nerudová, D. & David, P. (2008). Empirical Study of Specific Value Added Tax Problems in Selected European Union Member States. European Financial and Accounting Journal. 3, 70–91. Keen, M. (2013): “The Anatomy of the VAT”, National Tax Journal 66 (2): 423-446.
Pfeiffer, S. & Semerád, P. (2013). Missing Trader Fraud in European VAT. Mendelu Working Papers in Business and Economics. Available from: http://econpapers.repec.org/paper/menwpaper/41_5f2013.htm
Scott D. Dyreng, Michelle Hanlon, and Edward L. Maydew (2010) The Effects of Executives on Corporate Tax Avoidance. The Accounting Review: July 2010, Vol. 85, No. 4, pp. 1163-1189.
Terra, B. & Kajus, J. (2007). A guide to the European VAT Directives: Introduction to European VAT 2007. IBFD.
SMĚRNICE RADY 2006/112/ES, ze dne 28. listopadu 2006, o společném systému daně z přidané hodnoty, [online] [cit. 2012-12-14]. Dostupné z http:// eur-lex .europa .eu/LexUriServ/LexUriServ. do?uri=OJ:L:2006:347:0001:0118:cs
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License (Creative Commons Attribution License 3.0 - CC BY 3.0) that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
email@example.com, www.iseic.cz, ojs.journals.cz