Offsetting a tax debt may be the easiest way for a taxpayer, self-employed person or company to settle accounts with the tax authorities without the risk of having their accounts or assets seized.
Offsetting consists of settling the tax debt in whole or in part against credits recognised by administrative act in favour of the debtor.
Types of tax debt offsetting
The offsetting of tax debts can be carried out ex officio, by the administration itself, or at the request of the taxpayer.
Tax compensation at the request of the taxpayer
The debtor can apply for the offsetting of tax claims and debts held by him through a current account system.
In this case, both tax debts that are in the voluntary payment period and those that are in the enforcement period can be offset.
- In the voluntary period. This prevents the start of the enforcement period of the debt concurrent with the credit offered. However, interest for late payment may be generated until the date of recognition of the credit.
- During the enforcement period. In this case, the seizure of the debtor’s assets, property or rights is suspended.
The decision must be notified within six months. If the debtor does not receive the decision after this period has elapsed, the application must be deemed to have been rejected.
The extinction of the tax debt occurs at the time of filing the application or when the requirements for debts and credits are met, if this time is after the filing of the application.
Advantages of applying for debt relief
For taxpayers with debts, applying for compensation is a good way to stop seizures that can lead to the closure of the company. Because beyond their economic value, the use of machinery, vehicles and tools is normally indispensable for the operation of the business.
Another advantage of applying for debt offsetting, even if only partially, is that it does not prevent the application for deferment or instalments of the remaining debt. In this way, indebted individuals or legal entities can gain some time to overcome their difficulties.
Ex officio tax clearing
The Inland Revenue can also carry out the entire tax debt offsetting process ex officio. It is quite common for the Tax Agency to deduct any debts it may have with the taxpayer, self-employed person or company from its outstanding refunds.
A practical example. Imagine a self-employed person who has a VAT debt and, at the same time, a personal income tax return in their favour for which they have to return money. Once the voluntary period has expired, the tax authorities would subtract the amount necessary to offset the VAT debt from the personal income tax return. In this case, the self-employed person simply receives a notification.
In the case of individuals and companies, the tax authorities may, ex officio, offset the following tax debts:
- Those in the enforcement period.
- Those in the voluntary payment period and resulting from the same limited verification or inspection procedure or from the practice of a new settlement due to the annulment of a previous one.
- Those in the voluntary period and resulting from the execution of the resolution referred to in articles 225.3 and 239.7 of the General Tax Law.
Do you have a debt with the tax authorities and do you think that applying for tax compensation would be beneficial for your company? Get in touch with us.