• Refunds

EU VAT refunds: what happens under new rules

EU VAT refunds can only take place after a business supplies a VAT number. It is then the eMerchant's responsibility to make all the relevant adjustments.

Jun 23, 2014

REFUNDS are a headache for businesses, but also a necessary evil. The prompt refund of transactions or overpayments paints a business in a good light, no matter the industry.

EU VAT refunds

When a business is charged VAT based on the new EU VAT rules they must liaise with the eMerchant and not the EU member state where the sale took place for a refund. Photo: eFile989/Flickr

The reform of EU VAT legislation in relation to the cross-border supply of digital services provides detailed guidance as to how a refund would take place post-2015.

The new rules come into effect on Janaury 1, 2015, and only apply to B2C sales of broadcasting, telecommunications and electronic services. This is a crucial point in determining refunds.

EU VAT refunds may arise, for example, when a VAT identification number was not included during the initial purchase of a digital service. The lack of a VAT number means it is treated as a B2C transaction and thus within the scope of the new EU VAT rules. When there is no VAT number produced the eMerchant is protecting itself by classing the transaction as a B2C sale.

What happens when a customer reveals a VAT number after a transaction?

The EU’s explanatory notes”) on the 2015 VAT reform state that: “Once the customer communicates his VAT identification number, the supplier will need to make the necessary adjustments (issue of corrected invoice, refund of VAT charged to the customer, correcting his VAT (MOSS) return …).”

This process is also outlined in the EU VAT 2015 Directive”).

The business must deal directly with the eMerchant if they have been charged VAT, they do not engage with the relevant tax authority. It is the eMerchant’s responsibility to make the relevant changes in the normal way and also to update their MOSS returns.

Claims in respect of the VAT paid in any EU member state should be made to that country’s tax authority.

HMRC – in helpful FAQs on EU VAT refunds – also outlines what an eMerchant should do if a business customer requests a refund?

MOSS is intended for supplies to consumers who cannot recover VAT. Thus, a business customer who fails to provide a valid VAT registration number at the time of the transaction and is charged VAT, cannot deduct that VAT as input tax. However, if that business customer subsequently produces a valid VAT registration number and requests a credit, you may refund the VAT.

Taxamo content is created for guidance only, please consult your local tax advisor.