The Grounds of the Right to Credit VAT
The starting point of VAT diagnostics is the right of credit: where goods or services are intended or used for a VAT-taxable operation, the taxable person may credit the VAT paid or payable on purchase from another taxable person, the VAT payable on operations treated as supply, the VAT paid on import, and the VAT assessed under reverse charge. In addition, the VAT connected with expenses is credited where the goods or services are used for the provision of services outside the territory of Georgia, in operations exempt with the right of credit, or in defined financial services. The basis for receiving credit is a document: a tax invoice, an import declaration, or, on reverse charge, the amount reflected in the VAT declaration; in defined cases the basis is also a purchase-confirmation document of the buyer, in which the amount paid — including the VAT — must be indicated. Diagnostics is precisely the verification of these three elements — destination, document and period.
Restrictions and Correction
No credit is made on the amount of expenses for social or entertainment purposes, except where the supply within such events is taxed with VAT; likewise on goods used in operations for which the person has no right of credit; on an invoice that does not identify the seller or is not issued in the established manner; and on an invoice reflecting an operation for which 3 years have passed from the end of the calendar year. Where the credit is made in the third year after the operation, the limitation period towards the parties to that operation is extended by 1 year, and the credit is made no later than through the declaration — including a corrected declaration — of the last reporting period of the year in which the right arose. The correction rule regulates the dynamics: the taxable amount and, correspondingly, the creditable amount are corrected where the circumstances on the basis of which the taxable amount was determined at the time of the operation have changed; the correction is made in the reporting period of the occurrence of the causative circumstance. The creditable amount, however, is not cancelled on a write-off or loss of goods — an exception that deserves the auditor's attention.