How amounts that would otherwise be refunded are used on unpaid taxes

This guide contains information on what happens to a tax refund when the taxpayer has not paid all their taxes.

The guide focuses on the following types of taxes and refunds:

Information for individuals and the self-employed can be found here: Tax refunds used for paying taxes (individual taxpayers)

How are refunds used on unpaid taxes?

When using the taxpayer’s refunds, the Tax Administration follows the chronological order of the unpaid taxes' expiration dates and due dates. An exception to this is the refunding of self-assessed taxes, such as negative balances of VAT. These refunds are first used on any other self-assessed tax that the taxpayer has not paid.

If a payment arrangement is in effect, any refund is used on the taxes that have been scheduled as the last payments under the arrangement.

No refunds are used on an unpaid tax until the due date of that tax.

This means that the taxpayer cannot decide on the tax or taxes on which their refund should preferably be used. You can see which of your unpaid taxes refunds have been used on in MyTax. See the guidance: How to see whether your tax refund has been used for payment of taxes

Whose unpaid taxes can refunds be used on?

The Tax Administration may apply a taxpayer's refund on the taxpayer’s personal taxes. Correspondingly, the Tax Administration may apply it on the unpaid taxes of a third party if the taxpayer has a position of accountability in a third-party entity (for example, because the taxpayer is a partner in a partnership). How and when the refunds are applied depends on the type of tax that the refund concerns.

Corporate income taxes, value-added taxes and other self-assessed taxes are examples of the types of taxes that can be refunded.

After the Tax Administration has applied a refund on an unpaid tax, the taxpayer will be informed of it. Information on how refunds have been used is shown on your summary of tax payment status. You receive summaries by letter, and you can always see your summary in MyTax. If you have enabled messages, you receive your summaries only in MyTax. Read more about the summary.

In some circumstances, the enforcement agency may impose a distraint on your refund, in which case they would also notify you.

Refunds of corporate income tax

If an amount would be refunded to a corporate entity relating to its income tax, but the entity has failed to pay some of its other taxes, the Tax Administration applies the refund on the unpaid taxes in the order of the taxes’ due dates. If the entity has made a payment arrangement, the refund will first be applied on all the unpaid taxes that the arrangement does not cover.

When are tax refunds used for tax payment?

The Tax Administration does not use a refund on an unpaid tax until the due date of that tax. In other words, a refund can only be applied on unpaid taxes that have already fallen due, i.e. taxes with due dates that have already passed or taxes with the current date as the due date.

If the taxpayer is a corporate entity, the Tax Administration is entitled to use the entity’s refunds on unpaid taxes immediately on the end date of tax assessment. Every corporate entity has its own date when the Tax Administration finishes the year’s assessment. That date is stated on the tax decision as the end date of tax assessment. For corporate entities, the end date for tax assessment is no later than 10 months from the closing month of the entity’s accounting period.

The Tax Administration will apply a refund on any taxes, up to the 18th day of the next month. In other words, if a refundable balance exists, it will be applied on the unpaid taxes that fall due by the 18th day of the month following your corporate entity’s end date of tax assessment. If the 18th is not a business day, the time limit will end on the day before it, or on the previous day if that day is a business day.

The date when the Tax Administration finishes the year’s assessment for a corporation is 10 August. The result of the year’s assessment is that €5,000 would be refundable to the corporation. The corporation has the following other taxes falling due soon: On 12 August 2020, the corporation should pay €1,000 in VAT, and on 24 August 2020, it should pay €3,000 in prepayments. The corporation fails to pay both. In this case, the Tax Administration is entitled to use the corporation’s refund on all taxes that fall due by 18 September 2020. This means that the refundable amount is used on the unpaid VAT on 12 August and on the unpaid prepayment on 24 August. After this, refund of €1,000 remains.

The end date of tax assessment is 7 July, and a refund of €2,000 would be coming to the corporation. However, the Tax Administration is entitled to apply the refund on any unpaid tax up to 18 August. The corporation should have paid €400 real estate tax by 6 July but did not do so. The Tax Administration uses the corporation’s tax refund on its real estate tax on 7 July, the date when the real estate taxation process ends. Because the corporation had not paid its real estate tax by the due date, a late-payment interest is added to the tax. Part of the corporation’s refund is also applied on the interest.

In addition, the corporation should pay €1,000 VAT by 12 July. On 12 July, the corporation sends the Tax Administration a payment of €1,000 and uses the reference number for self-assessed taxes for the bank transfer. The purpose of this payment was to pay the VAT that falls due on that date.

Even though the corporation paid the VAT on the due date, the Tax Administration still uses the refund on the VAT on 12 July. The payment sent by the corporation will either wait for any upcoming taxes to fall due, or the Tax Administration may refund it to the corporation. This depends on the settings that the corporation has made for itself in MyTax: both a refund time and a refund limit can be selected by corporate taxpayers in MyTax. Read more about how to set a refund time and a refund limit in MyTax.

How does the Tax Administration use a refund caused by changes in income taxation?

Another situation where a corporate entity can receive a refund is when the Tax Administration has reduced the entity’s income tax as a result of an adjustment or other changes, i.e. decreased the entity’s prepayments or back taxes. Situations like this might arise when a corporate entity has claimed adjustment of its prepayments or back taxes at a time when it has already paid them. In these circumstances, the Tax Administration can apply a refund on the entity’s unpaid taxes immediately when the decision on refunding is made. This means that refunds can be used on any unpaid taxes directly, regardless of the date when the year’s tax assessment is finished.

A corporation’s prepayments amount to €24,000 in total. The payments fall due every month in instalments of €2,000. On 10 August, the corporation requests a change of its prepayments in MyTax. At this stage, the corporation has already paid €14,000 in prepayments, i.e. the instalments for January to July.

The Tax Administration approves the request on 14 August, and the annual total of prepayments decreases to €12,000. Only the instalments with due dates between January and June remain valid. This means that the corporation has pre-paid €2,000 too much.

This balance would be refunded to the corporation in full, but the corporation has not paid all of its VAT. The corporation should have paid €1,000 in VAT by 12 August, but it did not do so. The Tax Administration uses part of the corporation’s excess prepayments on the VAT and adds late-payment interest to it. This is done on 14 August, the date when the decision to refund the excess prepayment is made. What is left of the refundable amount will be paid into the corporation’s bank account a week later.

Refunds relating to VAT, employer’s contributions or other self-assessed taxes

You can receive a refund relating to your self-assessed taxes if the VAT balance of your company is negative. This means that you have more VAT to deduct than to pay. Another possible reason for a refund of a self-assessment is that amount of a tax you have already paid is adjusted later and its amount becomes lower than what you have paid to the Tax Administration.

You can also receive a refund if you have sent the Tax Administration a payment with the bank reference number for self-assessed taxes but your payment has not been used.

These refunds can be transferred back to your bank account if you have filed a refund request in MyTax or selected the "Refund after the next general due date following the day of filing the return” setting.

You can change the refund time in MyTax. Read more about VAT refunds and refunds of other self-assessed taxes.

No refunds for taxpayers that have not submitted all their tax returns

Refunds cannot be paid to taxpayers with neglected or incomplete tax returns. If the taxpayer has not submitted their returns, the Tax Administration will continue to apply any refundable balances on the taxpayer’s unpaid taxes until the taxpayer has submitted all the neglected or incomplete returns. After this, the Tax Administration pays the refund to the taxpayer’s bank account.

The tax assessment end date of a company is 28 August. Normally, if the company were due a refund, the Tax Administration would be entitled to use it on any unpaid taxes up to 18 September.

However, the company has not filed all its VAT returns. Because there are neglected or incomplete tax returns, the Tax Administration does not transfer the company’s refund to the company’s bank account. Instead, the Tax Administration still uses the company’s refund on 23 September in order to cover a prepayment that falls due on that date.