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.

Please 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.

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Thank you for 5 years!

Today (July 1, 2015) marks the fifth anniversary of the start of my one-man-VAT-band. I have many thoughts about the past five years, and I just wanted to share a couple on this occasion.

Needless to say that it has been a pretty interesting journey, both professionally and for my family. The gist of it is that my job has become much more appealing – although I make longer hours, the work is much more flexible. The mailman asked the other day if I had retired, because he always runs into me when I bring the kids to school! I got much more exposure to my family and am probably more involved in bringing up the kids than I could ever make time for while working in a Big 4 environment.

The other major benefit – and frankly speaking eye-opener – is that I am now able to take the time to get to know my client’s business and organization. As a result, my VAT advice has become much more practical and relevant for the client – not because Big 4 advisers are not doing a good job, but simply because my rate and my approach are better suited for U.S. based multinationals that have no or limited in-house VAT capability.

Before you get a picture that is too rosy – this all of course comes at significant financial cost. My income this year is just over half of what I made in my last year as a director at PWC New York – enough said!

Business development is not easy for anyone practicing VAT in the U.S. But I found out the hard way that there is an additional drawback for an independent tax adviser.

Potential clients would say “Look Mark, you are exactly what we need. Your approach, experience and profile fit great into our global organization. I would engage you on the spot, but the Head of Tax has a cozy relationship with … [name of any Big 4 firm] and I am not prepared to defend working with a one-man-band.” I have been told these exact words and variations on the theme 5 times over the past six months. I don’t have a solution – such companies need to take a leap of faith too. As my clients will tell you, I don’t compete with Big 4 VAT advisers, in fact, we work together often – as brilliantly demonstrated during my recent Singapore trip.

So let me take this moment to say a heartfelt thank-you to my committed supporters, friends and certainly also my dedicated clients. You know who you are. Without your friendly coaching, gentle steering and truly remarkable confidence, this one-man-band would have played only a few gigs. Every day I recognize and celebrate your active support, and I look forward to the next five years of US VAT, Inc.

Mark-naam-pen

P.S. The VAT Blog turned 5 too! I will celebrate once I hit 500 postings – about 20 more to go.

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Again: VAT and holding companies

This is not an item that U.S. companies generally want to spend a lot of time on. But on occasion holding companies incur VAT – predominantly on expenses relating to consulting, legal work, M&A deals etc.

These VAT charges can be substantial, and the question is whether a holding company is “in business” and is therefore a taxable person, and if so, if that taxable person is entitled to a VAT refund of VAT incurred (or “reverse charged” VAT).

Courts have been struggling with this for many years, due to minute differences in facts and circumstances in the various cases brought before them.

There is another such case pending before the European Court of Justice. Larentia + Minerva GmbH & Co. KG (C-108/14) will be published on July 16.

PWC is organizing a webinar on July 20 at 10am Eastern to share their thoughts and comments. Click here to sign up: http://bit.ly/1dkzMm9

Hat-tip to Bart van Osch

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VAT management = data management

Over the past couple of years I have been helping U.S. based multinationals to get a grip on managing their business data and ensure efficient, timely and compliant VAT filings and VAT invoices.

Electronic invoicing and self-billing (or e-procurement) finally seems to be taking off after many hiccups, where not only accounting data but also vendor and customer master data have an important effect on VAT.

It has been a fascinating addition to my old-school job of VAT adviser, and it opened my eyes to practical, day-to-day challenges of in-house indirect tax practitioners – I also recognized how profoundly different sales/use tax filings are from global VAT compliance. IT departments (not a common tax ally) are deeply involved with data management, and some of my clients even have IT specialists embedded into their internal tax organization.

I have spend many a blog post on this challenge, and my new search function will help you identify them on this blog (see the box in the column on the right). Also have a look at http://globalindirecttaxmanagement.com/, where Richard Cornelisse and his team share their views on tax data managament.

In addition, all Big 4 accounting firms have something to say at various levels of complexity. The below pdf from KPMG discusses audit and compliance developments in relation to “Big Data”. I have yet to see a more comprehensive article that includes all aspects (i.e. e-invoicing and e-procurement mentioned above) – but KPMG’s discussion is a worthy addition to your summer reading list.

Download (PDF, 2.97MB)

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VAT increase vs. economic growth

When Japan recently increased its consumption tax rate, it seemed to hinder economic growth. We have seen the same in Spain and to a certain extent also in Italy.

The Washington DC-based Tax Foundation now makes the case that VAT increases do not necessarily lead to recession, at least not in the case of Japan. Japan cut the corporate tax rate at the cost of a set of Consumption Tax increases and thus substituted tax on companies for tax on individual consumption.

This move towards taxing consumption vs. taxing income is an ongoing trend and theme in most countries’ tax reform. In practical terms, VAT/GST continues to increase in popularity, and its global impact becomes more tangible.

Did you know that the average company in a VAT jurisdiction must manage an amount somewhere between 20%-45% of its gross sales in VAT only? Imagine what would happen if a company miscalculates input VAT or output VAT.

The brief item of the Tax Foundation is here: http://taxfoundation.org/blog/japan-s-pending-vat-increase-context

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KPMG’s June 30 webcast: GST in India

As I suggested in an earlier blog post (see here), GST is getting more traction in India. They are looking at an implementation date of April 1, 2016 – which seems a bit tight to me.

KPMG India is organizing a webcast on Tuesday,  June 30 2015  at 3pm GMT – 10am Eastern with the following agenda:

  • Is 1 April 2016 deadline for implementation of GST realistic, given that the bill has been now referred to a select committee?
  • Likely timelines for critical milestones such as draft GST legislation, setting up of IT infrastructure, etc.
  • Impact of GST on businesses and how corporates should plan for this transition?

Register here: http://kpmg.wstream.net/30062015/register.asp
Sorry to report that KPMG has not scheduled a similar webcast at a more West Coast-friendly time.

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Why no VAT in the U.S.?

Earlier this week I attended a speech by Professor Michael Graetz from Columbia Law School. Mr. Graetz is one of the developers of a framework for a VAT or GST in the U.S.. It comes down to a broad-based GST like in New Zealand, with added support for lower incomes, to combat the regressive effect of a VAT/GST. (Regression here means that the burden of the tax is disproportionately carried by the lower incomes, because the spend (not save or invest) a high percentage of their income.)

One of the questions, of course is why there is no VAT/GST in the U.S., given that every other country has a VAT/GST?

The answer is that VAT/GST or similar consumption taxes became popular after the Second World War in countries that urgently needed money to rebuild their society. The U.S. was rich at the time, both in absolute terms as relative to other countries’ economies. So the U.S. missed the boat on implementing a consumption tax, which later on became politically unacceptable.

The reason why there is no VAT now is only politically driven. Politicians are concerned that introducing a federal consumption tax would be extremely unpopular – even when included in a major overhaul of both personal and corporate income taxes. From Graetz’ proposal, however, it is clear that the introduction of a VAT/GST would not have a major economical impact on consumers.

As Graetz put it, the Democrats have to understand that VAT/GST is not regressive, and the Republicans have to understand that VAT/GST is not a major money maker to fund a big government.

Slides similar to those presented are here: http://www.law.yale.edu/documents/pdf/News_&_Events/Graetz_Tax_Plan.pdf

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The Dutch revolt on VAT rates

The Dutch political scene is still very much governed by the so-called “polder model” (have a look at Wikipedia if you are interested in the background), and as it turned out the Dutch government is contemplating limiting the extent of the lower VAT rate (currently 6%) to food only.

It comes down to a move to the standard rate (currently 21%) for books, clothes, alcoholic drinks and some entertainment services, as well as the services of hairdressers.

Although the Dutch are throwing a fit, the government’s proposal is not that surprising, given that earlier this year they were thinking of integrating the lower rate with the standard rate, and have a single VAT rate of 17-or-so %.

The current proposal would create a nice and useful windfall. There is not much chance that the proposal will live through the parliamentary approval process, but the writing is on the wall – something will happen with the VAT rates either now or soon after…

For a little more info see here: http://www.dutchnews.nl/news/archives/2015/06/dutch-tax-reforms-may-mean-rise-in-value-added-tax-to-raise-e5bn/ – this is an interesting website to browse anyway.


Fruit stand on the Koornbrug, Leiden, The Netherlands

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