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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:

Pundits did not take long to take a VAT entirely out of its context – see

“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:

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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:

And the notice from the Swiss tax authorities (English version):

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U.S. Lawmaker to Release VAT Legislation

“Senate Finance Committee member Benjamin L. Cardin, D-Md., told Tax Analysts December 8 that he will release legislation later in the week proposing a U.S. VAT that he hopes will prompt serious discussion on the matter in the 114th Congress.
“It’s finished,” Cardin said of the bill, adding that he will likely release it on December 10.
Cardin said he is not seeking cosponsors on the bill at this time since it will have to be reintroduced next year but noted that he’s worked with many lawmakers who are interested in the legislation.”

The link is here:

So the Senator releases legislation now, to be discussed next year. I will let you know when it’s time to wake up.

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The prospect of VAT in the U.S.

Reuven Avi-Jonah (Irwin I. Cohn Professor of Law, the University of Michigan) writes about the great consumption vs. income tax debate from a historical perspective.

The focus here is not on which tax base is better, but rather on how this debate evolved over time inside and outside legal academia. As we shall see, there was one point in which the consumption tax came close to being adopted – in 2005, when it was one of two alternatives recommended by the Bush tax reform panel. But the moment passed, and it seems unlikely to return.

Download his paper here

(oddly the paper is marked as a draft)

Hat-tip to Peter Devlin.

And a couple of years ago I co-authored a book on US VAT – feel free to download from the link below.

Download (PDF, 1.69MB)

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Food For Thought: VAT for U.S. companies

Some of the content that I use for my “VAT basics” webcast is now published by the Institute of Professionals in Taxation (IPT).

Enjoy and share!

Download (PDF, 3.09MB)

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UK tax man going after U.S. e-businesses

Taxamo provides a software solution for VAT calculation, storage and reporting. On their blog they interviewed someone from the UK tax authorities, and asked how they are enforcing the VAT rules on B2C sales of online services by non-EU (read: US) businesses.

“What we [HMRC] and other EU tax authorities are doing is if we found that one of these businesses is non-compliant then through treaties arrangements that we have with the jurisdictions, through information exchange or debt recovery, we would then approach the authorities in those other states to take action to help us to get the debt paid.

Those arrangements are going to be reinforced, and strengthened, effectively in the coming months and years to make sure that there aren’t jurisdictions out there where someone could effectively hide and make those supplies without properly declaring.”

Problem is that the UK tax authorities have been saying this for many years, and I have never heard of a successful VAT assessment in this space.

U.S. e-business companies will swiftly pay up at the time of IPO or a thorough due diligence review. If these companies have not paid VAT on the sale of online services to EU individuals, they willfully inflated their gross revenue with about 20% (!). Excluding penalties (at least 10-20%, if not more, of the VAT assessment) and (a little bit of) interest. That is a material misstatement that no auditor will close their eyes for.

Taxamo’s blog entry can be found here:

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The state of online sales tax summarized

Gosh, I never knew that Engadget understood anything about tax, but I was wrong!

Here is a comprehensive and legible summary of the Marketplace Fairness Act – a proposed set of rules that would have a major impact on collecting sales tax in the U.S.

Don’t forget the comments for your reading enjoyment – some are sensible, but most are ludicrous.

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