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Italy recently announced the reversal of their bad debt rules into the former requirements in place prior to 2016. These requirements oblige the claimant to wait until the end of the bankruptcy proceedings in order to recover output VAT on sales where the VAT amount was not collected from the customer.
In 2015, the Italian government introduced changes to simplify the bad debt regime. Following these changes, VAT could be claimed once the legal proceedings had been initiated, hence allowing for a quicker VAT deduction on bad debt. However, after the latest announcements, this process will be extended again requiring the taxpayers to wait until the judge decision is made in order to request the refund of overpaid VAT.
The bad debt rules are not harmonized across the European Union. Some jurisdictions like Portugal or Spain require a large number of formalities and legal proceedings to be made before allowing the recovery of this VAT. Other jurisdictions like UK, for example, allow the VAT to be immediately recovered once a period of six months has been exceeded and the sale has been written down in the accounting books of the company. The Netherlands has recently announced plans to simplify their bad debt regime in view of implementing a process similar to the UK conditions.
Our VAT country manuals include information on the bad debt rules applicable in each country. You can check these rules in Spain, France, Belgium, The Netherlands and Germany. More country manuals will be published in the coming months.