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Value Added Tax (VAT) is an essential fiscal lever for the State and is a fundamental obligation for businesses. An indirect tax on consumption, VAT has no impact on the results of a company that can deduct VAT in full; in fact, it is only an intermediary between its customers and the State.
At the level of companies selling goods and services, a distinction is therefore made between:
In the end, the company will have to remit to the State the difference between the VAT collected and the deductible VAT. While deductible VAT is relatively simple to manage (supplier invoices show it), the VAT to be paid by the company can be confusing. Sometimes errors in collecting VAT occur, leading to unjustified or incorrect amounts. These errors, which are often complex to manage, require companies to put in place adequate procedures to recover VAT wrongly collected from the Public Treasury.
To get a clearer picture, we offer you an overview of common mistakes, the methods for their regularization and the steps taken by the company to recover unduly collected VAT.
Improperly collected VAT refers to the collection of this tax without a legal basis, often resulting from the incorrect application of rates on invoices for goods or services by the company. In accordance with articles 271 and 272 of the French Tax Code (FTC), only VAT duly invoiced can be deducted, i.e. be VAT deductible. Businesses should also refer to article 272 of the FTC to understand the regularization mechanisms and the conditions for recovering VAT returned to the tax authorities by mistake.
A business is applying an incorrect VAT rate to an invoice. For example, by including a standard rate of 20% instead of the applicable reduced rate of 10%. In France, there are several rates ranging from 2.1% to 20%. This is the most common mistake.
example : construction companies must “juggle” several rates depending on the site: new (20%), renovation (5.5%) or intermediate (10%). This multiplicity is often a source of errors in the amounts to be paid.
A business includes VAT on a transaction that should have been exempt. Some sectors of activity are exempt from taxes by law, such as exports or certain intra-EU services.
Reference : Article 262 of the General Tax Code.
In this case, VAT is collected on a transaction that does not fall within the scope of the tax. Insurance benefits or subsidies, for example, are not taxable according to tax legislation.
Reference : Article 256 of the General Tax Code.
If the company does not have an effective accounting management system installed, it can issue two invoices for the same service or delivery of goods and then remit VAT twice. This is also a relatively common error, especially in small companies or SMEs.
A transaction that was originally billed is cancelled or changed after the fact, and the VAT charged becomes incorrect. This may be due to returns of goods, and therefore a refund to the purchaser, or to discounts granted after the sale.
Reference : BOI-TVA-BASE-20-10-20220629.
There are companies that are not subject to VAT, or whose business is not subject to VAT; it is also a source of approximations in VAT management.
Reference : Article 293 B of the General Tax Code.
When a company closes its doors (judicial liquidation, bankruptcy filing, cessation of activity), VAT management may be impacted. If the closure of a company in itself is not directly a cause of wrongly collected VAT, errors may occur in the context of liquidation or cessation of activity.
Any billing after the official end of activity date of course implies incorrect collection. Likewise, during a liquidation, the management of assets and VAT credits are often the basis for incorrect adjustments. The company closes with customer claims: it invoiced services but never performed them.
Another problem: the final VAT declaration to the Public Treasury contains errors, such as the adjustment of invoices cancelled before the accounts are closed.
In general, VAT recovery is done in three steps in these cases:
In judicial liquidation, the liquidator plays a crucial role in the management of claims and debts, including VAT. He must ensure the proper regularization of VAT, in particular by ensuring that all invoices are properly processed and finalize the accounts including the management of those issued after the cessation of activity.
The main causes are administrative or accounting errors. Input errors, confusion between regimes or between different rates are common in this type of dispute between companies and the Public Treasury.
Of course, a poor understanding of tax rules can also be a cause. For example, various judgments of the Council of State have refused reimbursement by the tax authorities in certain cases recently. At issue: complicated contexts and conditions in which the reading and analysis of legal texts by the State finally leads to new rules. At the expense of the company concerned.
Frequent changes in tax regulations, such as adjustments to VAT rates or changes in service regimes, also cause collection errors. Businesses need to adapt their billing and reporting practices quickly to these changes to avoid mistakes.
In the context of activities outside France, tax rules and laws on deductible and collected VAT immediately become more complex. In short, without a thorough internal control system and well-calibrated software for monitoring and calculating the various VATs, errors become very problematic, leading at least to the refusal by the Public Treasury to process refunds until sanctions and controls are imposed by the Directorate-General for Public Finances. That's when the help of a tax lawyer specializing in corporate VAT is always welcome, including at the outset to avoid these concerns.
To correct a VAT collection error, the first step is to issue a corrective credit note correcting the erroneous invoices. These adjustments must of course be included in the company's next VAT return. It is crucial to keep supporting documents to document these adjustments: they may be requested by the tax authorities during inspections.
To recover VAT collected incorrectly, the company must submit a formal refund request to the tax services. This includes correcting amounts in previous returns and providing supporting documentation to support the claim.
In situations of judicial liquidation of a company, the liquidator is responsible for managing fiscal aspects, including the VAT claim. He must ensure that VAT collection errors are correctly adjusted, in accordance with article L641-9 of the Commercial Code.
It is crucial to respect the legal deadlines to submit requests for the adjustment and reimbursement of VAT collected incorrectly. Businesses must be careful not to lose their right to recover amounts due if these deadlines are exceeded.
The maintenance of appropriate and legible documents and supporting documents (quotes, invoices, invoices, credit notes, correspondence between the company and customers, etc.) is an essential condition to support regularization requests and reimbursement claims.
For complex or uncertain cases, it is strongly recommended to consult a chartered accountant or a tax consultant specialized in VAT.
Our firm, for example, is often alerted to resolve situations of VAT collected incorrectly, especially in the event of recent legislative changes or specific international contexts. Experience in this field makes it possible to guarantee optimal approaches that comply with legal obligations.
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