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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Dutch courts on webcam sessions and VAT

The Advocate-General at the Dutch Supreme Court has announced that she has asked clarification of the European Court of Justice of the VAT implications of erotic webcam sessions.

The issue is whether these entertainment services are taxable at the place where the services are consumed (the place of residence of the customer), or at the place where the services are performed (in this particular case: the Philippines).

Importantly, the Advocate-General and the two lower Dutch Courts that have reviewed this case, all agree that these services are not “electronic services” – and therefore the simplified registration rules for non-residents does not apply.

The ruling is only available in Dutch, unfortunately. Let me know if you want to discuss.

http://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:PHR:2016:754

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Pharma on the VAT radar

There is an interesting development in Romania concerning an unnamed pharma multinational. The Romanian tax authorities allege that the company has illegally underpaid VAT on drugs that were provided for free – as samples – to doctors and hospitals.

“In this way the collection of VAT was avoided drugs given for free as donations towards hospitals, shelters, foundations or as samples for doctors, which were actually designed to generate orders for pharma distributors”

It is difficult to get to the bottom of the matter reading the attached article – apparently it has something to do with a much broader bribery investigation.

It looks to me however as a common way of doing business in the pharma industry and in others as well.

http://www.business-review.eu/news/anaf-blames-pharma-multinational-for-eur-10-mln-loss-to-romanias-budget-116238

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Update on VAT in the Gulf countries

Deloitte recently reported on consequences of the introduction of VAT in the Gulf countries. Governments will see a stable source of revenue, the common man won’t feel much of the VAT implementation, and business should start preparing for the introduction.

“We will need a number of practitioners that understand not just VAT, but more particularly, the intricacies of the implementation process. For those businesses that do not act at an appropriate time, they will find resource constraints as there is a limit to the number of VAT specialists who have necessary skill sets.”

http://www.khaleejtimes.com/business/economy/vat-set-to-be-a-stable-revenue-source-in-gcc

More reporting on VAT in GCC is here:

http://www.khaleejtimes.com/business/economy/uae-businesses-must-gear-up-for-vat-regime

And a progress report on Oman:

http://timesofoman.com/article/90064/Business/Value-added-tax-framework-agreement-expected-in-October

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SAF-T: Poland is the first in the EU

On July 1, 2016, Poland was the first country to mandate monthly online VAT filings using the SAF-T protocol. A number of European countries will roll out this  “Standard Audit File for Tax” requirement over the next months and years. More on SAF-T in Poland is here: http://www.vatlive.com/european-news/poland-saf-t-guidance/.

Lithuania is next on October 1, 2016.

The idea behind SAF-T is that companies provide governments with full transparency towards the company’s business transactions.

In the SAF-T protocol, authorities require more than just all transactional data. There are six reporting requirements:

  1. The full general ledger and journals,
  2. Accounts payable, with vendor master data, payment ledgers and softcopy vendor invoices;
  3. Accounts receivable with client master data, payment ledgers and copies of customer invoices
  4. Warehouse inventory product master files, inventory movements
  5. Inbound and outbound flow of goods
  6. fixed assets ledgers, depreciation, amortizations

Companies now need to get ready for SAF-T, and tax, finance and IT staff need to be prepared to implement the data extraction frameworks. Businesses that currently have a Tax Control Framework (“TCF”), which supports and maintains a detailed overview of all business activities in an organization, will use the TCF to help identify the data sources on a country-by-country basis.

Richard Cornelisse and his team (see http://globalindirecttaxmanagement.com/) have been working with a number of companies to prepare them for the Polish SAF-T submissions, and are now testing SAF-T readiness in other countries, such as Portugal, Luxemburg and Austria. To facilitate data extraction and submission, Richard has developed an add-on to SAP.

Have a look at his website for more details.

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VAT on e-services: Taiwan is next

Countries are rapidly introducing legislation that compels non-resident sellers of online downloads to register and account for VAT.

Taiwan is next and will introduce laws that are similar to the EU e-commerce VAT laws by January 1, 2017. Area countries such as Japan and South Korea already have this legislation in place.

Let me know if your are selling subscriptions, video, apps, music, games etc. online.

Chances of getting caught in the long list of countries that require VAT registration may be slim, but at the time of due diligence (for an acquisition, for example), lack of tax compliance puts significant pressure on the value of the company…

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India – GST impact on the economy

I have seen and read a couple of article that address the plans to introduce a GST in India. Unfortunately, the trend seems to be to panic rather than developing a sensible and pragmatic approach to whatever may be ahead. On the other hand, at this time, there are simply too many uncertainties to plot a course forward, and we will just have to keep our communications with the authorities open.

The attached article is written by an economist, who provides interesting insight in some numbers and kpi’s. Mr. Renu Kohli says:

“As of now, the expected gains from replacing numerous indirect taxes at central (excise and customs duties, service tax) and state (VAT/sales, purchase, entertainment, luxury and entry taxes, octroi, etc.) levels are, inter alia, lower prices and transportation costs; improved efficiency and compliance, lower administration costs, a wider base and more tax revenues. As a result, productivity is to get a boost, with a 1.5-2 percentage point addition to gross domestic product as per some estimates.”

Interesting indeed! He continues with naming three features that will impact the economy under a federal GST. Worth reading.

http://www.livemint.com/Opinion/aB0D3PZaFfIaGdRkmpZFrL/GST-Farreaching-reform-major-adjustment-costs.html

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Post-Rio: input tax reclaim for professional athletes disputed

Since 1996 professional athletes are allowed to compete in the Olympic Games (because – hey – a number of contestants, particularly east of the Iron Curtain, were professionals anyway), and if you are a professional, you are in business. If you are in business, you are liable for VAT, unless an exemption applies.

And, typically, competing in a sport and earning prize money is VAT exempt.

But prize money is only a relatively small element of most professional athletes’ revenue. They are mostly paid for broad marketing and advertising services by big brands. The supply by the athlete of that kind of services is not VAT exempt, and therefore taxable.

So, following the input tax allocation rules in most countries, the VAT that is directly attributable to exempt revenue is not recoverable. VAT directly attributable to taxable supplies is entirely recoverable. And the VAT that is connected to “mixed” activities is creditable on a prorata basis. For example the VAT on the use of a car to travel to sports events, where prize money is collected and marketing services are provided.

Apparently, HMRC is

“increasingly arguing that enjoyment of a sports activity automatically equates to an element of ‘private use or enjoyment’, thereby justifying a restriction on the re-claiming of VAT on costs.”

That is just ridiculous. They say “if you enjoy your work, you can’t claim full VAT credit”. Did you enjoy drafting that VAT advice on your office laptop? Gotcha! No VAT credit on the laptop’s purchase VAT!

See more here: https://www.accountancyage.com/2016/08/09/sports-professionals-in-line-for-vat-clampdown-uhy-hacker-young-claims/

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