Welcome to the VAT Blog!

Thank you for joining us here on the VAT Blog. This is one of the leading resources of Value Added Tax (VAT) news, and you will find that most of what we do here applies similarly to Goods and Services Tax (GST, the VAT in Canada, Australia and Singapore).

Mark Houtzager, the principal blogger here, is based in Brooklyn, NY. Mark is one of the handful independent VAT consultants in the U.S. His clients are big brand multinationals, online businesses and also smaller companies that have limited operations overseas, yet require practical, hands-on and timely tax advice. Many VAT Blog readers have found that Mark is always happy to get on the phone and provide a helping nudge in the right direction, whether you are a client or not.

More information is on Mark’s homepage at www.us-vat.com.

If you want to connect in person, there are plenty opportunities to reach out to me – I am only a click away.

You can send an email to mark@us-vat.com, or give me a call on 646-397-5855.

Please make sure to sign up for my email list (under “Subscribe” in the right column) if you are interested in Value Added Tax in general, and its impact on U.S. companies in particular.

Also, because there are almost 600 entries on this blog, you will want to use the search function. It is in the right column, under “Search here”.

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India GST: babysteps towards implementation

Political leaders in India made good progress last week in addressing issues in relation to sharing of GST revenue.

However, final agreement has not been reached, and it looks like the April 1, 2017 tentative date of go-live will not be reached.

The India Constitution mandates that GST implementation must take place before September 16, 2017.

More here: http://www.firstpost.com/business/two-day-gst-council-meet-to-end-today-as-centre-state-stuck-over-the-vexed-dual-control-issue-3170152.html

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Trump threatens a 5% tariff, but Congress opposes

President-elect Trump has been toying with the idea to use his Presidential executive authority – allowed under existing trade laws – to introduce a 5% tariff on all imports into the U.S.

Although initially this proposal was considered a trial balloon to push WTO negotiations, re-negotiate NAFTA and more generally as an extension of the “America First” election rhetoric, Congress is now getting seriously concerned.

As you know, the cornerstone argument for the 5% import tariff is that VAT countries “subsidize” domestic exporters by allowing for the zero-rate, with credit. U.S. companies that import into other countries pay the import VAT, which the U.S. considers a tariff (never mind that the import VAT is refundable or creditable). The 5% import tariff is to counter the “export rebate” and to protect American manufacturers from “subsidized” imports into the U.S. – particularly from China.

The CNN report indicates that the 5% tariff would be one of the first executive actions of Trump as the new president.

See the CNN article here – be mindful of the video that autostarts in some browsers: http://www.cnn.com/2016/12/21/politics/donald-trump-tariffs/index.html

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Tax Analysts: Trump suffers from VAT envy

Robert Goulder writes in Forbes “Diagnosis: Donald Trump Suffers From VAT Envy”:

“Strictly speaking, Trump’s claims about VAT are false. VAT is neither a trade subsidy nor a trade barrier. In fact, VAT is economically neutral. Tax burdens from the origin country do not carry over with exports as they’re transported to their place of consumption. That’s the beauty of the border adjustment, which is an indispensable feature of every destination-based VAT. The border adjustment establishes a level playing field between domestically manufactured goods and foreign imports.”

Well, VAT is not economically neutral, because someone (the individual) will have the economic burden of the tax – but otherwise Goulder is right.

Here is a link to his article: http://www.forbes.com/sites/taxanalysts/2016/12/21/diagnosis-donald-trump-suffers-from-vat-envy/. Highly recommended reading – wish U.S. politicians would read this too.

By the way, five years ago Tax Analysts published “The VAT Reader, What a Federal Consumption Tax Would Mean for America”. I had the honor of adding my 2 cents to this. Below is a pdf.

Download (PDF, 1.69MB)

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HMRC flooded with VAT registrations

The Scotsman writes:

“HM Revenue & Customs (HMRC) has seen 7,185 internet retailers register for VAT since new rules were introduced in September, forcing overseas companies to pay the tax or risk being blocked from trading in the UK.”

The full article is here: http://www.scotsman.com/business/companies/retail/online-sellers-scramble-as-1bn-vat-loophole-closes-1-4322649

Also see my earlier comments here: http://www.us-vat.com/blog/?p=1257

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U.S. tax reform: import tariff still on the table

From C-SPAN, House Ways and Means Committee Chair Kevin Brady (R-TX) insists that VAT is an export subsidy (transcript below from C-SPAN):

“REP. BRADY: WE HAVE MADE A STRONG CASE THAT FOR AMERICA TO COMPETE AND WIN AGAIN, WE NEED TO CHANGE THE WAY WE TAX.

AND ALL OF OUR COMPETITORS, THEY TAKE THE TAXES OFF THE GOODS AND SERVICES COMING OUR DIRECTION, SO THAT GIVES THEM THE ADVANTAGE OVER US HERE IN AMERICA. WE DON’T, SENDING OUR PRODUCTS AROUND THE WORLD, AND SO TODAY, WE LOSE IN AMERICA AND AROUND THE WORLD.

THIS IS THE KEY PART OF OUR TAX CODE. IT IS GOING TO STAY. AND I THINK BECAUSE TAX REFORM IMPACTS EVERYONE DIFFERENTLY AND INDUSTRIES DIFFERENTLY, WE WANT TO LISTEN TO, AND FIND SOLUTIONS, WITH THOSE WHO RELY A LOT ON IMPORTED GOODS COMING INTO AMERICA, AS WE THINK IMPORTS AND EXPORTS ARE BOTH IMPORTANT TO THE ECONOMY.

BUT WE WILL INSIST THAT THEY BE TAXED EQUALLY HERE IN AMERICA.”

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New GCC VAT: $25 billion collected annually

The VAT implementation in the Gulf countries are expected to rake in no less than $25 billion a year, says EY:

http://www.arabianbusiness.com/gcc-said-see-25bn-annual-revenue-boost-from-vat-launch-656070.html

The rate is expected to be 5%. The Gulf countries work towards introduction of VAT on January 1, 2018.

The IMF says that Oman will cash $1 billion in VAT (see the sidebox in the above link).

As a comparison, the UK (VAT rate = 20%) is expected to collect almost $150 billion in VAT revenue in the tax year 2016/2017.

Wow.

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Overwhelmed by VAT on electronic services: Wing it or comply?

U.S. based sellers of electronic services (you know: music, video, games, apps etc.) to individuals anywhere are overwhelmed by the VAT compliance requirements. They now have to account for VAT at the applicable local rates in the following countries:

  • All 28 EU member states,
  • Japan,
  • India,
  • South Korea,
  • South Africa and
  • New Zealand.
  • Update: Switzerland
  • Norway and
  • Iceland to be added to this ever increasing list 

Taiwan, Canada, Russia and Australia will be added to this list soon, and within the next 2-3 years this list will grow to at least 45 countries. Update: Some say that BEPS will inspire all 130+ VAT countries to adopt some form of tax liability for B2C e-sellers within the next 5 years.

As a result, B2C e-sellers will be required to identify their customers by country and calculate the VAT amount due for each customer. Online VAT registration and bi-monthly / quarterly online filings are required as well, plus, of course, online payment in the local currency.

In addition, they will need to set up a tax determination system, pulling the correct rates from a database or from the cloud.

Granted, most B2C e-sellers will qualify for the “simplified” filing option in the EU: register for VAT in one single country and use that registration to report the VAT liability in every EU member state. But that simplification still requires that VAT is calculated in each customer’s member state.

Also, when B2C e-sellers are selling through an aggregator like iTunes / Appstore, Google Play store, Digital River and the like, the aggregator applies a so-called commissionaire structure in most (but not all!) of the countries that require VAT registration. For VAT purposes, this commissionaire transaction means that the e-seller uses the aggregator as a buy-seller (a distributor). As a result, the e-seller does not transact with an individual, and therefore the B2C VAT rules don’t apply on the transaction between the seller and the aggregator. The aggregator is on the hook for the VAT on the sale to the individual – and the aggregator will add the VAT at the rate of the country of the individual to the final sale.

PayPal and other payment platforms do NOT typically act as an aggregator, so using PayPal etc. won’t help with minimizing the B2C VAT liability. Also, PayPal does not normally help you identify your customers – you have to pay extra for that.

If all this doesn’t help, and the B2C e-seller is liable to be registered in all of the above countries, there is really no way out.

U.S. e-sellers always ask what the chances are of getting caught. Frankly, at this time these chances are not very significant. Some EU countries will send e-mails to these companies, saying that the authorities noticed that the e-seller is selling to individuals, stating the applicable law and gently asking to register for VAT and pay the VAT due.

I am aware that some countries are working with the U.S. Internal Revenue Service and other U.S. government agencies in order to go after the major culprits. I have not heard of anyone within the U.S. government being receptive to this, nor have I heard of a successful pursuit. It seems that there are very few treaties that would allow such action. But overseas authorities will go after the culprits in some form – what about company executives being held at immigration on their family vacation to Paris?

The biggest deterrent to non-compliance that I have seen thus far is the following. Most of these B2C e-sellers are audited at some point – either for an IPO, or due diligence of a suitor, or perhaps by their own internal or external auditors. If these companies do not report VAT on their overseas sales, they are basically overstating their overseas revenue with 21% (average VAT rate in the EU) – penalties excluded. This is a “body” that no sane CFO wants to have lingering in his closet.

There are plenty of businesses here in the U.S. and in Europe that can help B2C e-sellers set up their VAT accounting system, register for VAT and manage routine VAT compliance. I don’t provide this kind of services, but drop me a line if you want recommendations, tips and/or tricks.

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