Filter out risky companies!

Guidance No. 3012/2018 issued by the National Tax and Customs Administration (NAV) previously drew mixed reactions even within professional circles, but it is worth being aware of the expectations it sets out. The guidance helps businesses avoid transactions that could subsequently be classified as fictitious when exercising their right to deduct VAT.

Tax-evading companies can pose a serious risk to your business! If you do not screen your business partners and accept an invoice from a company that later turns out to have committed or participated in tax evasion, the National Tax and Customs Administration may deny your business the right to deduct VAT in connection with that matter, and may also impose a severe penalty.

To avoid risky companies, the guidance recommends continuously monitoring the status of your business partners. This check is a mandatory task, but more importantly, it provides security for your business.

NAV's position on taxpayer liability

The right to deduct VAT cannot be denied based solely on an irregularity committed within the sphere of the invoice issuer, of which the invoice recipient neither knew nor could have known, and over which they had no influence.

The objective circumstances on the basis of which it can be established that the taxpayer knew or should have known that the transaction for which they wish to exercise the right of deduction was part of tax evasion consist of numerous factors. These factors cannot be listed generally, and may vary depending on the taxpayer's economic activity and the economic sector concerned.

However, the invoice recipient's right to deduct VAT may be denied if it can be established, based on objective circumstances, that the taxpayer to whom the goods giving rise to the right of deduction were sold, or the services rendered, knew or should have known that, through this transaction, they were participating in tax evasion committed by the seller or by another economic operator involved earlier or later in the sales chain.

NAV's itemised guidance for reliably screening risky companies

Based on the above, you should check:

• whether registration has taken place — in the Company Register for business organisations, or the sole trader register for sole traders,
• the validity of the partner's tax number,
• whether the invoice issuer has employees, and how many,
• whether they have a Community tax number,
• whether they have tax arrears exceeding 180 days, or of a significant amount,
• whether enforcement proceedings are underway against them,
• whether they have employed undeclared workers,
• whether they appear in the database of taxpayers with no outstanding public debts,
• whether they qualify as a "qualified taxpayer".

What are the consequences of failing to carry out this check?

If, being aware of the risk of tax evasion, you do not carry out the above checks when concluding a given transaction, and tax evasion within the sales chain is subsequently proven, the tax authority may deny your business the right to deduct VAT. Furthermore, it may impose not the usual 50% penalty, but the punitive 200% penalty on the invoice recipient.

What tool can you use to carry out pre-qualification, and how can you continuously monitor your partners?

With the Credit Online business information system, you can carry out pre-qualification by reviewing a company's basic data, financial indicators and ownership structure. Using the Partners and Monitoring modules, you can continuously monitor changes relating to your business partners throughout the course of your cooperation. The system sends you an immediate email notification whenever a change occurs affecting your partners.

With Credit Online, beyond meeting the obligations set out by NAV, you gain access to comprehensive business information through an easy-to-use, clear, user-friendly system.