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Reimbursement of VAT on written-off Receivables

Author

Listed:
  • Florentsen, Bjarne

    (Department of Finance, Copenhagen Business School)

  • Møller, Michael

    (Department of Finance, Copenhagen Business School)

  • Nielsen, Niels Christian

    (Department of Finance, Copenhagen Business School)

Abstract

In many OECD countries, a seller has a right to reimbursement of VAT (RVAT) she has paid on goods sold, but for which she has not yet received payment. Such reimbursement of VAT on receivables is economically inefficient. It leads to: • Distortion of credit markets, by subsidizing direct credit at the cost of financial intermediaries. • Price discrimination, by subsidizing buyers with low creditworthiness. • A less efficient collection of bad debts, as trade with bad debts is made extremely expensive. The finance literature presents several “good” arguments in favor of trade credits, e.g. transaction costs and asymmetric information. In contrast RVAT is an economically “bad” argument for trade credit. It is a subsidy that leads to inefficiently high use of trade credit.

Suggested Citation

  • Florentsen, Bjarne & Møller, Michael & Nielsen, Niels Christian, 2003. "Reimbursement of VAT on written-off Receivables," Working Papers 2003-1, Copenhagen Business School, Department of Finance.
    • Handle: RePEc:hhs:cbsfin:2003_001
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    File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7193
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    References listed on IDEAS

    as
    1. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
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    More about this item

    Keywords

    bad debt; receivables taxes; trade credits; VAT;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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