Postponement of deadline for submission of VAT refund requests related to 2009 will cost HMRC of around £150,000

Yesterday (14 October), the Council, unanimously, adopted a Draft Directive amending Directive 2008/9/EC laying down detailed rules for the refund of VAT, provided for in Directive 2006/112/EC, to taxable persons not established in the Member State of refund but established in another Member State.

To recall, under the Council Directive 2008/9/EC, with effect from 1 January 2010, VAT registered taxpayers can request a refund of VAT incurred in another Member State via a web portal in their home Member State and have until 30 September of the calendar year following the refund period to submit their VAT refund claims to the Member State of establishment. Consequently, businesses would have had until 30 September 2010 to submit VAT refund claims related to 2009.

Member States tax authorities were obliged to develop an electronic VAT refund portals whereby taxable persons established in a Member State submit applications for the refund of VAT incurred in a State where they are not established, which was supposed to be operational from 1 January 2010. However some member states have faced technical problems and delays in developing their electronic portals that has prevented the timely submission of certain refund applications.

Taking into account the delay in some Member States in setting up their electronic VAT refund portals, the Commission has proposed this Directive, which has now been adopted by the Council, allowing an exceptional six-month extension of the deadline for the first year, that is from 30 September 2010 to 31 March 2011 in order to ensure that taxable persons in all Member States can exercise their right to deduct VAT on expenses incurred in 2009.

The Exchequer Secretary to the Treasury, David Gauke, said to the European Scrutiny Committee that such extension of the deadline for claiming tax refunds will “impose additional IT system change costs on HMRC of between £100,000 and £150,000…” as well as “un-quantified costs on VAT refund agents.”

Nevertheless, the Directive will enter into force on the day following that of its publication in the EU’s Official Journal, but will apply from 1 October 2010. It has therefore a retroactive effect.