VAT of 6% in construction: Accountants ask the government for clarification

A Order of Accountants wrote to the Prime Minister demanding a clarification of the VAT rules of 6% in construction, for fear that the incentive will lose effectiveness if the tax officer has to monitor the invoices of one work one by one.

The missive, to which Lusa had access, was sent to the head of government, Luís Montenegro, last Friday, November 6, being signed by the Bastonary of the Order of Certified Accountants (OCC), Paula Franco.

The order alerts the legal uncertainty of the current rules, warning that, if nothing is clarified in the meantime, the application of the reduced rate “may be dependent on the verification of future events” and implies that, within a few years, taxpayers will have to justify it to the Tax and Customs Authority (TA) “invoice invoice” at the risk of the tax being considered to apply the rate of 23% instead of the rate of 6%.

“ A good measure can lose much of its effectiveness when its implementation is based on rules whose interpretation or subsequent verification does not offer the necessary legal certainty,” says Paula Franco, arguing that “it is preferable to clarify today, correct today and provide security today than to inspect, liquidate and litigate tomorrow.”.

The new tax system is concerned, which temporarily allows construction and rehabilitation undertakings to benefit from a VAT rate of 6% (instead of 23%) if the buildings are intended for the buyer's own and permanent housing or exclusively for housing, if the sale does not exceed EUR 660,982 and the rent does not exceed EUR 2,300.

“ The reduced rate may be applied to transactions covered by budget 2.42.1 where the legally established conditions are met. The problem is that a relevant part of these conditions can only be definitively verified after the execution of the transactions (sale or lease of the real estate) and, consequently, after the VAT has been settled at the rate of 6%”, the OCC states.

Each invoice with the 6% rate, he explains, “will have to be properly sustained” if the tax monitors the taxpayers.

“And we are obviously not talking about a single enterprise or invoice per enterprise. A construction can involve numerous endeavors, subcontracts, measurement records, advances and successive invoicing over months or years”, lists.

“ In two, three, four years’ time, a TA inspector “can analyze tens or hundreds of invoices from the same enterprise” and “can question, for each of them, whether the legal assumptions were fulfilled”.

The bastonary details six situations in which there is a risk that the tax authority will invalidate reduced VAT within a few years and this implies making tax corrections corresponding to the difference of 17 percentage points between the 6% rate and the 23% rate, “to which interest may be added and, depending on the circumstances, fines”.

The order argues that the executive should not wait “for the first major inspections”, nor “for the first additional settlements and for the first hundreds of cases” to proceed with “a technical review and clarification of the regime, involving the Government, the TA and the professional entities that monitor its application daily”.

The OCC argues that this work must, for example, “clearly clarify which documents and elements are sufficient to justify at the time of issuing each invoice” the 6% rate, define “clearly who is responsible for proving the assumptions and who bears the consequences when a future condition does not occur”.

The OCC states that the tax should also standardise the guidelines for inspection services, “so that the same reality is not interpreted differently by different services or inspectors”, and create “mechanisms that prevent interpretive differences in good faith from becoming, years later, additional settlements of enormous size”.