Deferred VAT for disputed claims from 1 January 2023

Until now, the rule for dating VAT has been that the amount must be stated in the tax return for VAT in the period in which documentation is sent out, cf. the VAT Act Section 15-9 (1) (the invoice principle). The claim persists even if the invoice is disputed and the claim is not paid. The principle has meant that businesses have had major challenges paying VAT to the State before they have paid the invoice.

The Storting has asked the Minister of Finance to follow up and find a solution. On 21 December, the Ministry of Finance sent out information that a scheme is being introduced with deferred dating of value added tax related to claims that have their basis in manufacturing contracts.

New rules

From the new year, a scheme with deferred dating of value added tax will be introduced. In the proposal for the state budget for 2023, it is explained in more detail that a new provision will be introduced in the Value Added Tax Regulations. The new VAT regulation’s Section 15-9-3 will read as follows:

• 15-9-3. Disputed claims - manufacturing contracts

Amounts that have their basis in manufacturing contracts and where there is objectively reasonable doubt as to whether the creditor is entitled to the remuneration, must be stated in the tax return for the period in which the claim is settled or paid. This does not apply if there is a community of interest as mentioned in Section 4-4 of the Value Added Tax Act between debtor and creditor.

Below we will describe in more detail key terms in the provision on what is included in the concept of a manufacturing contract and what is included in the concept of disputed claims.

Manufacturing contracts

The proposal entails that deferred dating of VAT for disputed claims is limited to claims for consequences of manufacturing contracts. In the consultation memo, it is stated that manufacturing contracts include something more than just the purchase of a ready-made product or service, and that the manufacturer must “develop, design or manufacture a concrete asset” for the buyer.

The term manufacturing contract, on the other hand, is not defined either in the legal text or in the preparatory work. In addition to this, the legal sources are also limited regarding what is covered by the term. This can lead to disagreements between the parties involved as to whether a contract should be considered a manufacturing contract or not. This can be particularly problematic as such a disagreement can result in the dating of outgoing VAT being deferred, while at the same time a deduction is made for incoming VAT.

In the consultation memo, the deferred timing of VAT is limited to disputed claims to manufacturing contracts, as it cannot be limited to specific areas, such as building and construction activities. This is related to the state aid regulations in the EEA Agreement. The proposal for deferred dating will therefore apply to all manufacturing contracts, regardless of industry.

Manufacturing contracts must apply to something more than just the purchase of a ready-made product or service. The person who is obliged to deliver according to the contract (the manufacturer) must develop, design or manufacture a concrete asset for the buyer. To support the assessment, reference is made to the Tax Act’s concept of manufacturing contracts. The Ministry understands that the majority of the contracts within the building and construction industry will be covered, but that it must be limited to contracts without a fixed price element and pure service tasks.

The Ministry further assumes that most contracts where there is a “jump duty” will be covered.

When is a claim disputed?

In the consultation memo, it is stated that a claim is not in itself considered disputed if it is not paid by the debtor within the due date. Failure to pay may be due to a desire not to pay or inability to pay. There is therefore a requirement that, after an objective assessment, there must be reasonable doubt as to whether the creditor is entitled to the remuneration. This should not be understood as a requirement for a general preponderance of probability, but rather as a limitation against groundless objections.

According to the Ministry, the fact that an objective assessment must be carried out means that there must be a requirement that, objectively speaking, there must be reasonable doubt about the justification of the claim. In that assessment, the debtor’s subjective circumstances must be excluded from the assessment of whether there is reasonable doubt.

The scheme must also be limited to related parties.

When must VAT be reported?

If the claim meets the conditions that it must be a manufacturing contract and the condition that it is a disputed claim, then the supplier can defer payment of the VAT amount until the dispute has been settled or the claim has been paid. Deferment of payment of the VAT claim will mean that the principal can only deduct input VAT when the dispute has been settled or the claim has been paid.

The rules shall apply from 1 January 2023

The Ministry of Finance proposes that the rules will take effect from 1 January 2023. The proposal will mean that businesses who receive disputed claims after 1 January will have a liquidity advantage by not having to pay VAT that is disputed, while those who have already invoiced and reported VAT cannot change previous VAT statements, even if the claim is not disputed until 2023.