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. When I am behind my computer, a chat function is available.

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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Shipping Overseas: The Import Process Reviewed

Just out: an article that I wrote with Amy Morgan (Avalara):

Shipping Overseas: The Import Process Reviewed



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India GST registration portal opens soon

As I mentioned earlier, now is a good time to start your preparations for implementing India GST in your finance systems.

This is a requirement for India-based businesses, and also non-resident companies that trade with India may want to be aware of the new GST rules that could have an effect on prices.

The online portal that deals with GST registrations will open in November, but it is still unclear if this portal will also function as an online deposit for GST returns.

“With the GST council finalizing the threshold levels for GST’s applicability as well as the contours of the compounding scheme, taxpayers now have more clarity on the operational aspects of this tax reform, which is expected to be implemented from 1 April 2017.”

More is here:


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China’s Golden Tax system evolves

Grant Thornton reports on recent developments in China’s Golden Tax system. If you are not a Chinese-resident company, Golden Tax will not have any impact on your business. Yet, this article is interesting for those who are following the developments in online filing requirements, SAF-T and similar legislation that mandates transparency.

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Trump and a Democrat want a retaliatory tariff against VAT

Here in the U.S., VAT remains a strange and scary beast. There is now a proposal in Congress for a bill that imposes a fee on imports from a country where VAT is “border adjusted”. Yes, crazy!

The idea is that U.S. companies that import goods in VAT countries (i.e. almost every other country in the world) are being charged with import VAT. This import VAT is creditable / recoverable for domestic importers, but not for U.S. importers. Therefore, U.S companies that imports goods elsewhere are significantly worse off than domestic traders. This is protectionism and must be retaliated against.

And thus the House Representative Bill Pascrell, Jr. (see http://pascrell.house.gov/) is introducing legislation that would impose a “tax” on imports into the U.S. from countries with a VAT.

The proposal is nonsense, because no U.S. trader would substantially import goods in another country if he couldn’t get the VAT back. There are multiple alternatives to streamline this type of transaction in the company’s supply chain. For example:

  1. The U.S. company can sell to a local customer with the provision that the customer is the importer of record. This is the most common structure. The U.S. company would ideally transfer ownership of the goods to the customer before import, and the customer pays all the import taxes, fees etc. Typically the import VAT is recoverable for the customer.
  2. The U.S. company can appoint a local middleman, commissionaire or a distributor in-between the sales transaction. The middleman would be the importer of record.
  3. In some countries (like in the Netherlands) the U.S. company can even appoint a fiscal representative – a local rep that only reps for the import, and can reclaim the VAT on the U.S. company’s behalf.
  4. In the EU and in some other countries, the U.S. company can simply register for VAT. This would make sense if the U.S. company wants to retain control of the goods, for example when the goods are price-sensitive. If the U.S. company registers for VAT, he can potentially reclaim the import VAT.

Anyway, plenty of alternatives are available for a VAT and pain free import.

The interesting aspect of this nonsense is that the Congressman is a Democrat, but this “Border Tax Equity Act” is straight out of Republican presidential candidate Trump’s Economic Plan. Even better, there is a memo from a Trump adviser who says:

“[…] the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay. Thus, under the WTO system, American corporations suffer a “triple whammy”: foreign exports into the US market get VAT relief, US exports into foreign markets must pay the VAT, and US exporters get no relief on any US income taxes paid.”

(see the attached document “Scoring the Trump Economic Plan: Trade, Regulatory, & Energy Policy Impacts”, page 12/13).

I already spent enough time on this crap – enjoy yourself reading the documents below.

Download (PDF, 70KB)

Download (PDF, 719KB)

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Amazon, eBay must now enforce VAT compliance

The UK’s “VAT Notice 700/1: should I be registered for VAT?” has been updated with a couple important changes for US-based traders. This notice tells you when you must register for VAT and how to do it.

“Changes have been made to the June 2016 edition to reflect:

  • the introduction of new powers which enable HM Revenue and Customs (HMRC) to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas seller thats trading goods in the UK via that online marketplace

  • the power to direct some non-established taxable persons (NETPs) to appoint a VAT representative who is based in the UK”

In other words, if you are selling through Amazon, eBay or similar marketplaces, the online marketplace will force you to get yourself registered and organized for VAT.

It is expected that other countries will introduce similar measures soon.

The link to the HMRC website with the new Notice is here: https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat

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India issues FAQ on GST

The introduction of Goods and Services Tax (GST) in India is for real. They may not make the intended go live date of April 1, 2017, but it will be close.

If you are doing business in India, or with Indian companies, it makes perfect sense to prepare for this new tax. To help, The India government issued no less that 276 pages of GST frequently asked questions.

I have yet to review the entire document, but from what I have seen this is a pretty comprehensive explanation of what will happen, the scope of the changes and a host of other important considerations.

If you are into India GST, this is a must-read.

Download (PDF, 1.52MB)

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VAT conference notes: Supply Chain Optimization

From the VAT conference, organized by the Institute for Professionals in Taxation last week in Indianapolis, here are my brief notes of the session on Supply Chain Optimization.

Paula Borhauer (Starbucks):

  • Tax needs a ‘seat at the table’ with business development. Customs, Transfer Pricing, Income / Withholding Tax and indirect taxes are key drivers for supply chain efficiency – and therefore they they can potentially hit a project’s bottom line. Indirect taxes are not just VAT / GST but also sales tax, excise or retail / food taxes, receipts taxes etc.
  • The “six questions” (Why was what sold, for how much, where, when and by whom) drive broad tax liability. They determine operational and financial impacts for any planned business activity.
  • Communicate and be consistently involved with cross-functional communications BEFORE transaction terms are finalized. “The Tax Department always asks these six questions.”
  • Incoterms are not meant to determine ownership transfer, but they can be used for tax. Make sure that the agreements spell out that the Incoterms dictate ownership transfer.

Conny McCauley (EY):

  • Most optimization projects start with a “current state” analysis of the supply chain. This analysis is based on available data, no longer using workshops and interviews.
  • If the tax department collects the supply chain transaction data, their role gets more valuable for the business organization. The ‘seat at the table’ is easier to obtain.
  • BEPS: In practice, the application of a permanent establishment (“p.e.”) for income tax gets closer and closer to that of a fixed establishment for VAT.
  • EY survey says the countries often have a direct link between vat and income tax p.e. even if the definitions do not overlap. Click here (the link to the EY survey results is too long to insert in text).
  • Recent phenomenon: a ‘virtual’ p.e.: is a server a p.e. for VAT? Needs scrutiny – it depends on activities of the server.
  • The p.e. definition for income tax and VAT is fluid and expected to get even closer in the future.
  • EY’s Digital Tax Updates Map has an up-to-date list of digital tax developments:

Download (PDF, 332KB)

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