Ask me anything about VAT

Did you see my 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. You can use Skype – my skype name is markhoutzager.

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It’s not easy to get to the European court

Under European law, taxpayers are unable to appeal to the the European Court of Justice (ECJ) directly. The ECJ only responds to “questions” asked by national courts (these can be either supreme courts or lower courts).

PWC UK took a long shot and nudged a UK court to refer a question relating to input tax credit to the ECJ. Their point was that the current UK law stating that VAT on “business entertainment” expenses is not recoverable is illegal. The 6th Directive (nowadays called VAT Directive) slightly changed the a small part input tax credit rules on August 1, 1988, and the UK has been caught with improperly implementing this change. This is the so-called Danfoss case (C37-07) in 2008.

PWC basically said that the partially incorrectly implemented rule on reclaiming VAT on business entertainment nullified the entire input tax block on these expenses.

PWC only wanted the UK court to refer the question to the ECJ, in order to get the ECJ to clarify what the EU VAT rules were. But the judge in the first-tier tribunal court was not swayed by PWC’s argument and rejected the request. PWC can still appeal.

Even if you are not into UK VAT, I still recommend this document because it is a clearly written decision tree, and provides lots of considerations and references to other court cases.

Download (PDF, Unknown)

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Canada to intro EU-like GST on e-commerce

“Canada’s government is considering new tax rules to level the playing field for e-commerce vendors that complain foreign giants such as Amazon.com Inc., Apple Inc. and Netflix Inc. have an unfair edge when selling digital products.”

A sensible and interesting article in The Globe and Mail about Canada following in the footsteps of the EU and other countries by taxing online services provided by non-residents to Canadian individuals.

More to come!

http://www.theglobeandmail.com/technology/digital-tax-crackdown-against-industry-giants-could-sting-consumers/article22371670/

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Any progress on GST in India? – UPDATED

Update:

“Prime Minister Narendra Modi has given directions for Goods and Services Tax to be rolled out by April 2016.” 

http://indianexpress.com/article/business/business-others/modi-fixes-april-2016-deadline-for-gst-launch/

 

There seems to be some movement in getting India to a federal GST, but the chances of survival are slim. AM Legals writes:

“GST will ultimately create a unified market by ending up the multiple levies of taxes by the Centre and the States. Consequently, it will lower the costs for business and more revenue for  the government.The states were afraid of loss of flexibility but it is said that this meeting has cleared many such fears. Broad agreement has been arrived between the Centre and various States.”

See here for more: http://amlegals.com/goods-service-tax-gst-to-roll-out-in-april-2016/

Indian VAT experts are sceptical, and rightfully so. A EY partner gave an extensive interview with great comments that is worth your consideration here: http://www.financialexpress.com/article/fe-columnist/record-cafe-states-not-prepared-for-gst-27-rate-cant-work/16698/. He says:

“VAT payable to a government is the output tax minus the input tax. Now, these states say that VAT is the output tax minus the restricted input tax deduction. And restricted input tax deduction means no credit up to 4% of the tax. The moment input tax credit is restricted, there is no longer a VAT. The worse thing is when input tax is collected and no input tax credit is given. Then, it becomes a turnover tax; and VAT was designed to get rid of the turnover tax.

Nothing destroys an economy like a turnover tax. When the customs union was formed in the EU, the first thing they did was to get rid of the turnover tax and replace it with the VAT.”

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Buon anno – Italy to increase their VAT rate!

Italy did not waste any time to announce new VAT rate increases, starting in 2016 to a whopping 25.5% in 2018. The current standard rate in Italy is 22%.

This is not as crazy as it sounds: the OECD has long been trumpeting VAT as the ideal revenue instrument to improve the economy – and countries like Sweden, Denmark have had a rate of 25% for ages.

There is more news from Italy – please see the KPMG leaflet below.

Download (PDF, 321KB)

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Again – U.S. e-businesses in the EU

I picked this video from the YouTube-like site Vimeo. It talks about the EU VAT requirements for U.S. businesses.

From the description it seems like these rules are new – not true, this has been going on since 2003. The presenters remediate this error in their presentation.

Apologies for the not-so-great sound quality.

US digital companies and their EU VAT challenge from Taxamo on Vimeo.

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TGIF: A VAT for the U.S.?

Today is Friday December 12, 2014 and the Progressive Consumption Tax Act has seen the light of day!

But wait – is it a VAT? I will have a look at the bill text (see below) and let you know. There is no rush; this is just a discussion document and won’t get any serious consideration any time soon.

The press release is here: http://www.cardin.senate.gov/newsroom/press/release/cardin-introduces-a-comprehensive-progressive-pro-growth-approach-to-tax-reform

Pundits did not take long to take a VAT entirely out of its context – see http://www.prosperousamerica.org/

“If US producers sell to other countries most charge a consumption tax when the US producers have already paid US taxes.  If we ever want to come out of our current economic malaise we need  to make more of what we consume and make our products globally competitive.”

Click here for the pdf of the bill text: http://www.cardin.senate.gov/download/progressive-consumption-tax-113th-congress

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Swiss VAT for U.S. companies

A number of my clients provide installation and maintenance services as part of their business. I call these services “boots on the ground” services, because they require physical, on-site work.

Doing so in Switzerland may create a VAT registration liability from January 1, 2015 onwards. This is because the definition of the supply of “goods” in Swiss law includes installation and maintenance – these supplies are not considered as services.

The Swiss tax administration puts it this way:

“it refers not only to the transfer of the economic power to dispose of an item, but also to the execution of work on an item and even the rental and leasing of an item.”

Therefore, no reverse charge on Swiss installation and maintenance services, even if they have been subcontracted to a Swiss contractor!

KPMG writes:

“As of the beginning of 2015, foreign companies whose revenues from the supplies of goods (incl. construction and similar work) effected in Switzerland exceed CHF 100,000 p.a. will be liable to register for VAT in Switzerland and charge Swiss VAT on the invoices to their clients. If the annual threshold is not exceeded, the business might still opt to register for VAT on a voluntary basis, or – as is the case today – remain unregistered and benefit from the reverse-charge procedure.

The threshold of CHF 100,000 will explicitly not apply to the services provided by foreign businesses not registered for Swiss VAT (except for B2C electronic services). The reverse-charge procedure will thus remain applicable regardless of the turnover achieved by the concerned entities.

It is however worth mentioning that the Swiss definition of services is much tighter than e.g. the EU’s one and, for example, does not include pure installation or maintenance work or leasing supplies.”

More info in this KPMG link: http://blog.kpmg.ch/swiss-vat-liability-of-foreign-companies/

And the notice from the Swiss tax authorities (English version): https://www.news.admin.ch/message/index.html?lang=en&msg-id=55183

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