Client based in: Spain
Industry: E-Commerce
Period: Jan to Dec 2024
Background
Our team was responsible for managing the client’s bookkeeping, while VAT compliance was handled by a third-party tax consultant engaged directly by the client. The client’s business was under financial stress, having taken multiple loans to sustain operations.
The Challenge
In Aug 2024, Amazon revised its VAT policy for the EU region. As part of this change, Amazon began charging VAT on all EU region expenses, including those incurred in Spain. This VAT—although captured in our accounting records—was never claimed by the client’s tax consultant when filing VAT returns.
As a result, approximately €150,000 in VAT input credits remained unclaimed with the Spanish tax authorities. The client was unaware of the policy change and the missed refund opportunity. This blocked amount was significantly affecting the client’s cash flow, but they had not linked the shortage to VAT refunds.
Our Observations
While reviewing the books, our team noticed that:
- VAT charged by Amazon on EU expenses was accumulating in the accounts.
- The amounts were consistent with unclaimed VAT inputs over several months.
- Communication between the client and their tax consultant did not address these unclaimed credits.
Our team member repeatedly highlighted that funds were blocked with the VAT authorities. However, due to other business pressures, the client did not investigate further at the time.
Breakthrough Moment
When the client shared details of their worsening cash flow, we analyzed the liquidity gap and demonstrated that €150,000 was tied up in unclaimed VAT refunds. We explained that the blockage was due to the change in Amazon’s VAT billing policy and the tax consultant’s oversight in not including these inputs in VAT returns.
Our Intervention
- Detailed Reconciliation – We extracted Amazon transaction data and identified VAT amounts charged on expenses since the policy change.
- Supporting Documentation – We prepared a full backup of invoices, accounting entries, and VAT computations for the unclaimed period.
- Collaboration with Tax Consultant – We shared all reconciliations and working papers with both the client and their tax consultant to enable them to file the claim.
The Result
The client was able to file for a €150,000 VAT refund from the Spanish tax authorities which is still in process. Since the amount is large it is taking on department side to investigate things to process the refund.
Key Takeaways for Businesses
- eCommerce is Highly Dynamic: Policies, tax rules, and platform billing structures can change rapidly, as seen in Amazon’s Aug 2024 VAT update. Only experienced professionals who actively monitor these changes can ensure compliance and prevent financial leakage.
- Complex Reporting Requires Expertise: eCommerce platforms generate large volumes of data in complex formats. Without professional expertise, it’s easy to overlook critical details—leading to missed tax credits, compliance issues, or financial misstatements.
- Stay Updated on Platform Policy Changes: Even small adjustments in marketplace terms can have significant tax and cash flow implications.
- Maintain Cross-Team Communication: When bookkeeping and tax compliance are handled by different parties, proactive coordination is crucial to avoid missed opportunities.
- Review Input Credits Periodically: Regular reconciliations help identify unclaimed tax credits before they turn into large blocked amounts.