A credit memorandum, also credit memo or credit note is a basic corrective document in intra-Community trade in goods. In Poland it is recognized as a corrective invoice (I. King, 2015,p.4).
Entry in the accounts of the credit memorandum
According to Article 91 of the VAT Act, Intra-Community Acquisition of Goods means the acquisition of the right to dispose as owner of goods which, as a result of the supply, are dispatched or transported within the territory of a Member State other than that in which dispatch or transport begins by, or on behalf of, the supplier, the purchaser of the goods (J. Duchac, Reeve J, Warren C. 2011 p. 378). When purchasing goods from EU business partners, Polish taxpayers are obliged to settle VAT on such a transaction. This means that they are VAT due and input, so the transaction is VAT-neutral (J. Duchac, Reeve J, Warren C. 2011 p. 378). In addition, in order for a transaction to be considered an Intra-Community Acquisition of Goods, the following conditions must be fulfilled (I. King, 2015,p.12-14):
- the purchaser of the goods must be a VAT taxpayer or a value added tax taxpayer of another EU country or a non-taxable legal person, and the purchased goods are to be used for the economic activity of the taxpayer;
- the person supplying the goods is a value added tax taxable person or a VAT taxable person.
In the case of an Intra-Community Supply of Goods, the tax obligation arises at the moment of issuing an invoice, but no later than on the 15th day of the month following the month in which the supply of goods which are the subject of the intra-Community acquisition is made (I. King, 2015,p.12-14).
Credit memorandum - corrective invoice
When we make purchases in EU countries, as a rule, EU counterparties do not issue a credit note, not a credit note, to correct the transaction (B. E.; Needles, M. Powers 2013, p.54-56). This is the equivalent of a Polish correction invoice. Therefore, they should be treated equally. The regulations do not regulate how and in what period the WNT's correction documents should be settled. However, this issue is explained by interpretations issued by tax authorities (B. E.; Needles, M. Powers 2013 p.54-56).
Settlement of credit memorandum
In accordance with the opinion of the tax authorities, the manner of accounting for the WNT adjustment depends on the circumstances that led to the need to issue a credit note (E.C Pefianco, E.C Mercado, 2005 p. 67).
Credit memorandum issued for discount or recognised complaint
If a credit note is issued as a result of a complaint or a reduction in the price resulting from the discount, it should be posted in the month in which the correction is received (J. Hall 2008 p. 172). In the event of receiving from the supplier a correction document issued in the event of a price reduction due to quality complaints and a price reduction due to discounts granted - he should make a correction of turnover and the corresponding tax on intra-Community acquisition of goods in the VAT-7 return for the period in which he receives from the supplier of the EU correction document (J. Hall 2008 p. 172-173).
In addition, making a correction in the month of receipt of the correction invoice is correct also in a situation when the final price of the purchased goods is known only after the original invoice, on which the estimated price was applied, has been issued (J. Hall 2008 p. 172-173).
After making intra-Community acquisitions of goods (issuing invoices documenting the supplies made by contractors), the value of purchased goods changes. This fact is documented by the supplier with a corrected invoice (A. Dey, T. Lys 2005 p. 5-7). The Company at the time of making intra-Community acquisitions of goods does not know how much the price of the goods it purchases will be reduced or increased. Therefore, the fact that the price of intra-Community purchased goods has changed is a new circumstance which cannot be predicted at the time of issuing the original invoice by the supplier (A. Dey, T. Lys 2005 p. 5-7). The Company is obliged to settle the adjustment of the tax base, output tax and input tax for a given intra-Community acquisition of goods in the month of receipt of the adjusted invoice, on which the supplier of goods will confirm the existence of circumstances resulting in the need to adjust the original transaction. Reduction or increase in the value of intra-Community acquisition of goods in a situation where it is the result of activities taking place after the issuance of the original invoice, should take place on the date of receipt of the corrective invoice (B. E.; Needles, M. Powers 2013,p.33).
Correction of Intra-Community Acquisitions of Goods caused by the return of goods
If a correcting invoice is issued in connection with the return of goods, it should be settled in the month in which it is made (J. Duchac, Reeve J, Warren C. 2011 p. 378-380). The method of settlement of Intra-Community Acquisition of Goods in case of receipt of corrective documents (invoices, notes) depends on the circumstances that caused its issue. Thus, when the goods are returned to the supplier, the reduction of the taxable base for intra-Community acquisition of goods should take place in the settlement for the period in which the goods were returned (J. Duchac, Reeve J, Warren C. 2011 p. 378-380).
Credit memorandum a quantitative errors in the supply of goods
Where a correcting invoice is issued because of a quantitative error in the delivery of goods, the correction must be booked in the month in which the original transaction was settled E. Swanson, 2004, p.122-124). In the case of receiving from the supplier an EU corrective document concerning the correction of the quantity of goods, when the invoiced quantity does not correspond to the quantity received in reality - it should make a correction of turnover and the corresponding tax on the intra-Community acquisition of goods in the VAT-7 return for the period in which the tax liability arose originally in connection with the intra-Community acquisition of goods (E. Swanson, 2004, p.122-124).
Correction of an erroneous price indicated on the original invoice documenting Intra-Community Acquisitions of Goods
Where a correcting invoice is issued because of an erroneous price indicated on the original invoice, the period during which the original invoice was recorded shall also be taken back to the period during which the original invoice was recorded for the purposes of booking (I. King, 2015,p.22-23). When the correcting invoice(s) issued by the Union supplier are linked to a price error, i.e. the correction of the invoices is due to the fact that the original invoice did not correctly reflect a situation that already existed when the tax liability for the corrected sale arose, the applicant should adjust the turnover and the tax on intra-Community acquisitions of goods in the month in which the tax liability for the corrected intra-Community acquisition of goods arose (in principle, it will be the month in which the Union supplier issues the original invoice) and correct the tax return for that month by applying the exchange rate of the currency of the correcting sale (I. King, 2015,p.22-23).
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Author: Sara Pilch