Since the IOSS submissions started, many questions have been raised about overpayments of VAT and how the EU tax authorities will manage to administer overpayments. In today’s post, we will talk about how to identify and what to do in case of overpayments of VAT, following the instructions published by the European Commission in the Guide to the VAT One-Stop Shop. 

How Can Overpayments be Identified?

There are two different ways of identifying VAT overpayments:

1- If the amount paid by the taxable person diverges from the figures demonstrated in the VAT return, the Member State of identification shall identify and reconcile the overpaid amount to the taxable person/intermediary company;

2- If a VAT return mistake is identified by the taxable person and corrected in the following return, the Member State of consumption must acknowledge the mistake and then reconcile the overpaid amount to the taxable person/intermediary company;

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READ MORE: 5 Disadvantages of not Having an IOSS Registration
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What if the taxable person/the intermediary corrects a previous One Stop Shop VAT return in such a way as to show that there has been an overpayment to one Member State, and an underpayment of the same amount to another Member State? 

Overpayments and underpayments to different Member States of consumption cannot be set off against each other. The overpaid Member State of consumption is required to reimburse the amount directly to the taxable person (balance between the VAT due for supplies declared in the current tax period and corrections made to previous VAT return(s) for that same Member State of consumption), on the basis of the information in the One-Stop-Shop VAT return. The taxable person is required to pay the VAT due to the underpaid Member State via the One Stop Shop when the correction is made. Where a Member State of identification has received an amount in respect of a VAT 46 return subsequently found to be incorrect (e.g. because of a correction received from the taxable person), and that Member State of identification has not yet distributed that amount to the Member State(s) of consumption, the Member State of identification shall reimburse the overpaid amount directly to the taxable person concerned.

Matching the payment to the One-Stop-Shop VAT return using the unique reference
number

Each One-Stop-Shop VAT return has a unique reference number, so it is imperative to make a reference to this number when the payment is made. If the taxable person/the intermediary makes a payment without making reference to this number, or the reference number does not correspond to any outstanding One Stop Shop VAT return, the Member State of identification may take steps to clarify the issue. If the issue remains unresolved, the payment will be returned to the taxable person/the intermediary and late payment is considered made if the deadline for resubmission of the payment has not been respected.

VAT Charged at the Point of Importation

Goods should not be subject to additional VAT charges at the point of importation, assuming that they were correctly imported under IOSS and VAT was charged at the point of sale. If VAT is charged for the release of goods by Customs authorities or carriers, then the VAT charged should be refunded by the parties. In this case, there is no need to amend the IOSS return.

Role of the Intermediary

In situations of errors, the intermediary company needs to be notified as soon as the mistake has been identified. As intermediaries become liable for submissions, it’s important to let them know and manage corrections.

According to recommendations made by the Commission, the taxable person should receive their overpayment reimbursement within 30 days after the error is identified, in case the tax authority assesses and agrees with the correction. The amounts to be reconciled will ultimately depend on each country’s jurisdiction after a case-by-case assessment.

You can appoint us as your IOSS intermediary company and we will be responsible for your VAT submissions on a monthly basis. If you are interested in any of our solutions, subscribe to our blog and visit our ​website​ and ​LinkedIn​ page for more updates.