Businesses pay off €26 billion of corona tax debts, but €5.7 billion at risk
Capacity problems at the Tax and Customs Administration
During the corona pandemic, businesses and the self-employed were granted tax payment deferrals totalling €40 billion that helped many of them to survive. Around €26 billion of these extensions have now been settled, but some €5.7 billion of the remaining €14 billion is proving problematic and may not be received in full or may largely prove impossible to collect. The Tax and Customs Administration currently has too little capacity to pursue these cases effectively.
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| Of the €40 billion of tax deferrals granted to businesses, more than half – over €26 billion – has since been settled under payment arrangements. | The Tax Administration has too little capacity to enforce recovery and appoint bailiffs if businesses fail to pay their tax debts or payment arrangements are discontinued. Similarly, there is too little capacity to offer customised arrangements to SMEs and the self-employed. |
Tax deferrals during the pandemic
During the pandemic, over 400,000 businesses and self-employed contractors made use of the opportunity offered by the Tax Administration to defer payment of income, corporate, turnover and payroll taxes. The payment deferrals of around €40 billion granted were a way to help businesses offset the drop in income they faced as a result of the pandemic.
Deferrals replaced by payment arrangements from late 2022
The deferrals were discontinued in March 2022. Starting in October 2022, all businesses with outstanding tax liabilities were offered arrangements allowing them to pay off these debts in monthly instalments over a period of five years. However, only businesses that started paying tax again in October 2022 in the normal way were eligible for such arrangements. Following a motion in the House of Representatives the repayment period was subsequently extended to seven years, with quarterly rather than monthly payments and the option to pause payments for a certain period.
€5.7 billion proving problematic to collect
As at 1 January 2024, some 210,000 businesses still had outstanding tax debts of €14 billion. Of these debts, €8.3 billion can realistically be expected to be received. Meanwhile €2.8 billion due is unlikely to be received in full, partly depending on the approach adopted by the Tax Administration. Most of these amounts relate to businesses with instalment arrears. Enforced recovery is likely to be required if the Administration is to recover any of the remaining €2.9 billion. These amounts are due by businesses that have not yet made any payments or whose payment arrangements have been discontinued. The Minister of Finance reported last year that a total of €2.5 billion was regarded as irrecoverable. This estimate was updated in the Spring Memorandum.
Capacity problems at the Tax and Customs Administration
Staff shortages of 1,000 FTEs, including a shortage of 400 FTEs to collect tax debts arising during the pandemic, are forcing the Tax Administration to prioritise. Priority is being given to requests by citizens and businesses and to ensuring that payments and repayments are processed correctly, while monitoring the instalments received has been assigned the lowest priority. This includes all the steps normally taken after an enforcement order is issued. As a result, enforcement orders are rarely being followed up and bailiffs cannot take the next step in the process.
Staff shortages are also limiting the opportunities to offer customised payment arrangements to SMEs, although there is still sufficient capacity to offer such arrangements to larger enterprises.
No quick fix for capacity problems
Staff shortages are a structural and broad-ranging problem for the Tax and Customs Administration. And this problem is set to increase because large numbers of its employees are expected to retire over the coming years. Some 12,000 FTEs consequently need to be recruited by the end of 2028.
This is at the same time as the Tax Administration is facing various major operational challenges, including assisting with benefit payments recovery arrangements and arrangements for those affected by the programme previously used by the tax authorities for fraud-signalling purposes. On top of these challenges and the efforts to recover corona tax debts, the Administration is also having to process various ‘box 3’ changes (including changes in the method used to calculate flat-rate returns on savings and investments and restoring the rights of people who formally objected to the previous provisions) and, in 2023, the temporary energy allowance for people with block connections.