In day-to-day accounting practice, it’s not uncommon for a company to accidentally overpay an invoice — for example, paying €80 instead of the invoiced €79. Such errors can also involve very small amounts, such as one cent. What should be done in these cases, and how does it affect the company’s tax obligations?
Can the Overpaid Amount Be Treated as an Expense?
If the overpaid amount is not recovered (e.g., the sum is so small that recovery would be inefficient), a question arises — can this amount be recognized as a business expense? The answer depends on the nature of the payment and the relevant legal considerations.
According to the Civil Law, anyone who receives another person’s property (such as money) without legal grounds must return it. Therefore, any overpayment automatically creates a right of claim (restitution).
Overpayments Related to Business Transactions
If the payment was made for a business transaction (e.g., rent, goods, or services), but the amount paid exceeds the invoice, the overpaid part becomes a receivable from the counterparty (debtor). In such cases, the rules of Article 9 of the Corporate Income Tax (CIT) Law apply. If the overpaid amount is later written off as an expense, it must be included in the taxable base as deemed profit distribution.
However, if the overpaid amount is small (e.g., under €20) and certain conditions are met, it may be excluded from the CIT base. Similarly, amounts up to €500 may be written off if:
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recovery actions were taken and documented;
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the amount does not exceed 0.2% of the company’s annual net turnover.
Key considerations include:
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the debtor’s country of residence;
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whether a double tax treaty exists with that country;
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whether adequate recovery actions have been taken.
Payments Made Without Business Purpose
If a payment is made without any business justification — for instance, funds are transferred to the wrong recipient by mistake — and the amount cannot be recovered, it cannot be treated as a business expense. Instead, such amounts are classified as non-business expenses and must be included in the CIT base.
A similar approach applies in cases where:
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advance payments are not used within 12 months;
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deposits or guarantees are not recovered, or the related transaction is not initiated within 36 months.
Recommendation – A Policy for Handling Erroneous Payments
To avoid confusion and reduce risk, it is advisable to establish a clear procedure in your accounting policy for handling overpaid amounts, including:
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when to initiate recovery actions;
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what kind of evidence is required;
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when it is acceptable to write off the amount;
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how to document the write-off properly.
It is also helpful to define timeframes and communication procedures with the counterparty — for example, sending written reminders or making phone calls.
❗ Important: According to the Civil Law, claims remain valid for up to 10 years, but keeping minor receivables on the books for long periods is often impractical — especially when cooperation with the counterparty has already ended.
📌 Conclusion: Erroneous payments are more than just an accounting error — they may significantly impact tax obligations. Responsible handling and clear internal procedures can help prevent unnecessary tax risks and streamline daily bookkeeping.
©INNOVATOR 23.07.2025.
