You know the drill. One period you have to pay taxes. The other you get back. But you are not allowed to offset the two on your own.
Set off
Recovery of tax debts is governed by civil law. The main rule in civil law is that claims and debts can be set off against each other. You will find this rule in Article 127 of Book 6 of the Civil Code.
A condition is that there is a payable debt to and a payable claim against the same counterparty. The debtor can invoke set-off against the creditor. However, be careful in specific situations, such as suspension of payments or bankruptcy. The right to set-off can be excluded by agreement.
Settle yourself
Set-off of tax debts and claims by the Tax Debtor is not allowed. Arnhem-Leeuwarden Court of Appeal recently confirmed that self-dealing with VAT does not involve payment of the VAT debt. The tax authorities rightly imposed an additional tax assessment for the amount payable. And the penalty for the payment default was also justified.
It concerns a BV, which applies for a refund of €1,525 in its September 2013 VAT return. And on the October 2013 return, €1,924 in VAT is due. The BV wrote to the Tax Authorities in a letter in November 2013 that it set off the refund for September against the amount due for October.
Deferred payment
The BV appealed to the tax court for deferral of payment. A taxpayer can apply for deferral of payment for tax payable over a return period if a tax refund application has been filed for another period. The condition is that the refund period ends:
- before the period for which payment is due;
- equal to that time period;
- less than 34 days after that period.
The court concluded that the BV did not apply for deferral of payment. Indeed, it only reported that it had set off.
The application for deferral of payment will be refused by the Inland Revenue if:
- the return for which an extension is requested has not been filed on time;
- the request for deferred payment was not made at the same time as the tax return;
- the request does not also include an authorisation for the Inland Revenue to offset;
- when the refund can already be offset against other outstanding tax debts.
Note that if you defer payment, you will pay recovery interest. Its current annualised rate is: 4%.