For years, in Kosovo’s tax practice, the monthly carry-forward of excess VAT has been treated as a claim for tax credit. The same approach continues to be applied today, even though this practice is legally incorrect. As a result, this tax position has been considered subject to the three-year procedural limitation period provided for in Article 26 of the Law on Tax Administration and Procedures.
This interpretation is not solely a consequence of the current law. The same interpretation existed previously, under the former law, when the procedural limitation period was six years, and has been carried over into practice even after the legislative amendments. However, the fact that an approach has been applied for a long time does not make it legally correct if it is not supported by the wording and rationale of the law. This situation has also been reinforced by the forms prepared by the Tax Administration of Kosovo (TAK) itself, which use the term “VAT credit” instead of “carried-forward VAT”.
The problem arises from a fundamental misunderstanding of the legal concepts used both in the Law on Value Added Tax and in the Law on Tax Administration and Procedures. In practice, the term “carry-forward of credit” has been incorrectly equated with a “claim for tax credit”.
To properly understand this issue, we must examine Article 26 of Law No. 08/L-257 itself. The key to its interpretation lies in the first paragraph of this Article. The law provides that any amount of tax paid in excess of the tax liability shall be credited against other tax liabilities or contributions.
In other words, this concerns a payment or credit balance that exceeds the taxpayer’s specific tax liability. This excess amount may be transferred, through an administrative action, towards another tax or contribution—for example, from excess VAT to corporate income tax, or vice versa.
This wording clearly indicates that “crediting”, in the procedural sense, relates to the transfer of an amount from one type of tax to another. This action does not take place automatically. It requires formal intervention, either through a request submitted by the taxpayer or through an adjustment made by the tax administration, of which the taxpayer is notified in writing. Only in these circumstances does the need arise to apply the procedural time limits for crediting. Only after this stage may a refund follow, provided that the legal conditions are met. Claims for crediting and refunds are subject to a three-year limitation period.
The monthly carry-forward of excess VAT operates according to an entirely different logic. It is connected to the mechanism for balancing input VAT against output VAT. When VAT deductions exceed the liability for a particular period, a credit balance arises within the same tax. This balance is carried forward to subsequent periods, not through any formal request or administrative decision by TAK, but through monthly self-declaration in the EDI system. The taxpayer does not submit any request; they simply continue filing their declarations as prescribed by law, while TAK becomes aware of the VAT balance through the system.
This distinction is also clearly reflected in the Law on Value Added Tax. Article 40 of this law makes a clear distinction between the carry-forward of VAT credit and a claim for a refund. The carry-forward is treated as a normal and continuous VAT mechanism, whereas a refund is treated as a conditional alternative, activated only when the taxpayer submits a request and fulfils the legal criteria. It is only in the case of refunds that the law refers to procedures, audits, decisions and, consequently, procedural time limits.
The problem has arisen precisely from equating these two situations. The monthly carry-forward of excess VAT has been treated as a claim for tax credit, even though it does not satisfy any of the elements that procedural law associates with crediting. This misinterpretation also existed under the previous law. The amendment of the law and the reduction of the limitation period to three years have not changed the substance of the problem. Only the duration of the limitation period has changed, not its subject matter.
In practice, TAK is deducting carried-forward VAT amounts relating to periods more than three years before the entry into force of the new law, treating them as time-barred claims for tax credit. This approach raises several interconnected problems, beyond the incorrect application of the law: the tax is effectively collected twice. The VAT in question was already paid once at the purchasing stage and, by eliminating the carried-forward credit, the state effectively appropriates that amount a second time, without a legal basis.
The consequences for businesses are often severe. Carried-forward VAT credits, regularly and continuously declared through the system, are being treated as though they were overdue claims for tax credit. In this way, substantial amounts of money are lost, even though those amounts have already been acknowledged by the state.
If the monthly carry-forward of excess VAT constituted a claim for tax credit, the VAT law would have expressly provided for such a requirement. However, the law does the opposite. It treats the carry-forward as a right exercised through self-declaration, while a formal claim is the exception, associated with refunds or crediting against other tax liabilities.
A harmonized reading of Article 26 of the Law on Tax Administration and Procedures and Article 40 of the VAT Law leads to a clear legal conclusion: the procedural limitation period for claims for crediting or refunds cannot be applied to the monthly carry-forward of excess VAT. This limitation period is relevant only where the taxpayer submits a formal request for the transfer of an overpayment or for a monetary refund.
Finally, it must be emphasized that tax provisions must be interpreted systematically and harmoniously, taking into account the relationship between substantive and procedural law. Procedural law cannot expand, restrict or extinguish substantive rights arising from substantive law unless this is expressly provided for by the legislature. In the case of VAT, the mechanism for carrying forward excess credit is clearly regulated by substantive law and cannot be subjected to procedural limitation periods established for other situations. Interpretations that have disregarded this distinction have distorted the functioning of the tax system and produced legal and financial consequences that the law did not intend.
Author: Florin Lata
