Under the “reverse charge system” it is the company receiving the service that is liable to pay the VAT, and not the company providing the service. Normally, the net amount of VAT to pay is offset by the same amount of the receivable VAT, and the tax burden remains 0. But not always: sometimes the tax office wins. These are 2 cases I’ve got this year:

• • A service was provided by an EU entrepreneur who had no EU VAT number. The invoice was VAT excluded, but I had to calculate the VAT payable (reporting code 1157 „Steuerschuldübergang bei Bezug gemäß § 19 Abs. 1 zweiter Satz, § 19 Abs. 1c“ in Austria, code 47 „Steuer, im Inland steuerpflichtige sonstige Leistung eines EU Unternehmers § 13b Abs. 1 UStG“ in Germany), while the VAT receivable was nil (otherwise reported as 1166 „Vorsteuer: Steuerschuldübergang gemäß §19, grenzüberschreitende Leistungen“ in Austria or code 67 „Vorsteuer aus Umsätzen nach §13b Abs. 2 Nr. 11“ in Germany).
  • There are more and more citizens who sell excess solar power to the grid, thanks to the overall trend, public incentives and the war. This falls under an obscure, but less and less exotic Reverse Charge regime for producers/resellers of electricity (reporting code 1132 “Steuerschuldübergang bei Bezug gemäß § 19 Abs. 1d: Gas und Elektrizität“ in Austria). If they resell, they have a deductible VAT to offset. But if they produce, they have to pay on top of the Credit note granted to them by an energy company or the authority.

Solution in Dynamics 365 for Finance

The 2 business cases have the same process in common:

– One becomes an invoice (or a credit note) from a supplier (vendor) over €100

– One pays (or receives) €100 to the supplier

– One pays €20 (€19) to the tax office

 

To implement this in Dynamics 365 for Finance, we activate the Use tax in the VAT group (en-us: Sales tax group) as usual (see Minimalistic EU VAT configuration in D365):

On top of that, the special VAT code (here: ServEUnond) for the non-deductible Reverse Charge receives Non deductible % = 100% in the tax code value:

This may be considered right or wrong, but a different expense account such as 7xxx “VAT, non-deductible” is not possible in standard Dynamics 365. If needed, this tax expense may be reallocated to a different account manually at the end of the period.

 

The monthly/quarterly Tax > Declaration > VAT > Settle and post VAT operation does not find any VAT receivable to offset the VAT payable and transfers the liability into the Tax authority’s payable account: