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 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.

Also, 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 over 500 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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Heads up for SAF-T!

Regular readers know that I have been somewhat alarmist about additional filing requirements as a part of your routine VAT filings, see for example here http://www.us-vat.com/blog/?p=938, here http://www.us-vat.com/blog/?p=1102 and here http://www.us-vat.com/blog/?p=1110.

In summary, the current status is that a couple countries in the EU are now starting to require more business data than fits on the VAT return. They use Brazil as an example, where the Nota Fiscal and other mandatory filings provide the tax authorities with a granular overview of the business data. It is like an ongoing, almost real-time audit.

The format that companies must use for submission of the business data has been agreed upon between the OECD member states – it is referred to as “SAF-T” – Standard Audit File for Tax.

Recently Poland has issued a manual for Polish businesses to comply with the new rules. The required data submission roughly includes

  • Accounting transactions;
  • Bank transactions;
  • Profit & loss transactions; and
  • VAT purchases and sales – including details of intra-community supplies.

It is only a matter of time before all EU member states – and tax authorities outside the EU – will start requiring online submission of similar business data in the SAF-T format.

I am pretty sure that this will be one of the main drivers of tax policy over the next 2-5 years – smart VAT managers ensure that upcoming ERP / tax engine implementations and shared service center planning include these SAF-T requirements!

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VAT in the Arab nations – Saudi Arabia too

After news coming from the UAE that VAT is on the horizon, Saudi Arabia seems to be interested in a VAT as well. These two articles make the case for a VAT, now that the oil prices are not expected to increase any time soon:

http://www.zawya.com/story/VAT_could_yield_around_SAR35bn_to_Saudi_government-ZAWYA20160201031640/

https://tax.thomsonreuters.com/blog/onesource/vat-gst-management/vat-coming-saudi-arabia/

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Trying to understand a VAT in the U.S.

Over the past couple of weeks we have seen an uptick in chatter about a VAT in the U.S.

First, one of the Republican presidential hopefuls, Ted Cruz, floated an indirect tax on businesses. He called it a Flat Business Tax.

Then, Cruz’ nemesis Marco Rubio blasted Cruz during a televised debate for trying to introduce a VAT. Both Cruz and Rubio have no idea what a VAT is, and in particular they don’t understand why 99% of the other countries are actually quite happy with their VAT or VAT-like indirect tax.

The Cruz-Rubio exchange magically relieved some columnists from their writers’ block. Here are a couple examples for your reading enjoyment:

“VAT appears in places such as Europe and Canada, and it is a useful tool in funding social welfare programs. Governments of those countries routinely impose a tax on the amount an employer pays to workers, which is one of the reasons why Rubio links Cruz’s ideas with a European-style VAT. ” (http://www.economywatch.com/features/The-Ted-Cruz-Tax-Plan-Realistic-Feat-or-Campaign-Hot-Air0118.html)

That is a payroll tax, not a VAT.

“Our current tax system should be simplified, and should not be vilified as an oddity because we’re the world’s only major non-VAT economy. Being different is not a bad thing. It’s kept the lid on our spending for years, and accounts for much of our dynamism and competitive advantage.” (http://fortune.com/2016/01/18/ted-cruzs-tax-plan-vat/)

Hmm… Really? Not having a VAT but rather a heavy burden of income taxes “accounts for much of our dynamism and competitive advantage”? Sounds a bit short-sighted to me.

“[…] the VAT tax is embedded in both the prices that business that are charging and in the wages they pay their employees.” (https://www.washingtonpost.com/blogs/right-turn/wp/2016/01/15/can-we-kill-the-idea-of-a-value-added-tax-now/)

VAT does not have to be embedded – it is perfectly acceptable for retailers to make VAT visible on cash receipts. And broadly speaking VAT is not a cost in business-to-business transactions. And still I don’t get that idea of VAT being embedded in wages paid to employees, as a payroll tax. That is not the VAT as we know it.

“In Britain, hot food is exempt from tax, so some stores have microwaves to heat the food, which then exempts it from VAT.” (http://www.economics21.org/commentary/value-added-tax-plan-vat-bad-cruz-paul-01-14-2016)

Oh those snarky Brits!

VATinfo.org featured a nice slide:

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The impact of a VAT introduction

The UAE still plans on introducing a VAT in 2018 – currently the thinking is that the rate will be in the range of 3-5%.

I sometimes get questions about the impact of the greenfield introduction of a VAT – this article has a couple of interesting thoughts: http://gulfnews.com/business/economy/vat-an-inevitable-transition-for-uae-economy-1.1654543

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Your user data belongs on a EU server

I wrote earlier about the Safe Harbor ruling of the European Court of Justice – have a look at http://www.us-vat.com/blog/?p=1080. In that post I wrote:

Credit card data, IP addresses, email addresses etc. of EU residents is considered personal data and can no longer be stored on U.S. servers. If your company is doing that, for example because your are a online seller of downloads to EU customers, or because your are a retailer that keeps the EU customer data on a U.S. server, you may run into legal trouble soon.

The writer of this post has the same conclusion, and adds examples: https://titan-learning.com/vat-consequences-of-the-ecj-safe-harbour-judgement/

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More details on e-business VAT in Russia

EY Russia shares more details on the upcoming VAT on online services in Russia.

Download (PDF, Unknown)

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Italy: reduced rate for all digital publications

Never much bothered by case law of the EU court of Justice (ECJ), Italy extended a comprehensive reduced rate on digital “publications” – this not only includes books, but also digital magazines. Italy already had a reduced rate on e-books only.

The ECJ recently ruled that under the current text of the VAT Directive, the reduced rate can only apply on the sale of physical books, not books and magazines in electronic form.

The current dogma is that the Italian authorities can not use the ECJ ruling against taxpayers that claim the reduced rate under Italian local law.

As you know, the EU Commission is working on a EU-wide optional reduced rate for e-publications. I hear that these negotiations are more difficult that initially expected so don’t hold your breath…

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