Which Member State is the most expensive for late payment of VAT? And how far do you need to go back in time when correcting errors?

VAT Consult
Last week we published a post on penalties for reverse charge errors. A remarkable fact: many Member States (13!) appear to impose penalties measured as percentages of the VAT amount for these errors.

Imposing material fines on errors that have no impact on VAT revenue is unfair and we concluded that such penalties would most likely not pass the test of the European Court of Justice.
Besides penalties, Member States also appear to impose a wide range of country specific interest rates for late payment of VAT.

These charges range from 0.1 % to 1.85 % per month (equalling an annual interest rate of between 1.2 % and 23.9 %). The average rate is approx. 0.63 % per month (7.8 % annually).
Luckily, in most Member States, businesses can avoid material penalties when launching voluntary disclosures. Such disclosures are meant to encourage the correction of mistakes.

The idea behind disclosures is that VAT legislation is complex, and everyone (including the tax authorities) can make mistakes.
However, the approach to voluntary disclosures appears to be quite different from one Member State to another. There are different schemes and regulations which are not always known, especially to SMEs which typically have limited legal knowledge and resources.


A remarkable recent development in this area is Denmark that just passed a bill introducing an interest surcharge of approximately 30% for corrections. The interest surcharge would apply to both corrections initiated by the taxpayers and the Danish tax authority. And this is regardless of whether the corrections concern VAT periods prior or after the legislation’s effective date.
Overview of  statute of limitations
Source EU VAT FORUM – administrative sanctions (europa.eu)
Cross-border challenges
The lack of harmonization creates challenging disclosures when performed in a cross-border context and ultimately even to VAT losses.

The cross-border challenegs can be illustrated by the following example. A Belgian business, performing B2C deliveries in the Netherlands, wrongly applied the (old) distance sales regime and settled Belgian VAT instead of Dutch VAT. The business launched a voluntary disclosure by settling Dutch VAT in the Netherlands and subsequently requesting for a refund of the undue Belgian VAT.

However, since the limitation period of paying/refunding VAT is not harmonised and Belgium and the Netherlands apply different statutes of limitation, the business is confronted with VAT leakage. This has to do with unpaid Dutch VAT, which must be regularised up to 5 years back; whereas the undue Belgian VAT can only be recovered up to 3 years back. Hence, the business is suffering 2 years of effective double taxation. In other words: because the statute of limitations differs between Belgian and Netherland, the business has the obligation to pay the VAT amounts up to 5 years, but could only recover the VAT amounts unduly paid to the Belgian tax authorities for the last 3 years.