Tim Gillis, KPMG’s Head of Global Indirect Tax summarizes the factors that drive change in indirect tax management.

This is definitely worth your time – and you should probably also take note of KPMG’s global VAT survey and my comments here: http://www.us-vat.com/blog/?p=665

Here are the slides and a link to a NYTimes article that I discussed on May 21 in my presentation for ACT (see http://www.taxact.org/events/Sessions.aspx?id=251506)

http://www.nytimes.com/2013/05/22/business/for-us-companies-money-offshore-means-manhattan.html?smid=pl-share

http://www.nytimes.com/2013/05/23/business/global/european-union-leaders-meet-on-tax-avoidance.html?smid=pl-share

Download (PDF, 856KB)

The European Court of Justice issued an interesting ruling last week in the ongoing saga of the VAT issues of Martens Transport.

Martens is a Belgian group of related companies in the trucking / transportation industry. Like any organization, they had internal charges for various services. Payments were made, but unfortunately the payments were not accompanied by corresponding compliant VAT invoices.

The ‘supplying’ company had to account for the VAT on the charge. The ‘buying’ company did not have the right to reclaim the VAT incurred, because the invoices were incorrect.

I would have thought that the Belgian tax administration should have allowed the invoices to be duly corrected, even when the errors were discovered during an audit. But they didn’t, and the Court of Justice did not have the means to change that policy.

Also, at that time Belgium did not recognize the concept of “fiscal unity” [edited from the original version as per Michel Lambion's comment below]. That facility, which applies for example in The Netherlands, considers related groups of companies as a single taxpayer, and thus inter-company charges between group members are disregarded for VAT.

Shame on the Belgian VAT Man, but also a stark reminder that inter-company charges should be invoiced correctly, and properly accounted for in the VAT filings.

The court ruling is here:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62012CJ0271:EN:HTML

EU member state Slovenia (this is not Slovakia) plans a rate increase from 20% to 22%.

Prime Minister Alenka Bratusek said the package, which includes a rise in value added tax from July 1 to 22 percent from 20 percent, would be enough to prevent the tiny Alpine country following Cyprus in the eurozone queue for a bailout from the European Union and International Monetary Fund.

via UPDATE 3-Slovenia pledges to sell 15 firms, raise VAT to avert bailout | Reuters.

There is a surprising kink in the cable of the VAT / business tax reform in China. VAT is being withheld on royalties paid to foreign companies – see the articles below.

This is a serious matter, and so wide-spread that two of my clients have already complained about it.

Here is the issue: Chinese company uses copyrights/patents etc. from a U.S. company. Chinese company pays the U.S. company royalties. On the licensing service supplied by the U.S. company 6% VAT is due. This is collected by way of a reverse charge (self-assessment), by the Chinese company. So far, this is fine.

The U.S. company agreed that the royalty payment (license fee) would be “exclusive of any taxes”. This means that taxes must be added by the Chinese company. For the VAT, the expectation would be that the Chinese company has the right to credit or deduct the VAT on the license fee. Thus, VAT would not be a cost to the Chinese company. This is not in dispute.

According to the new rules, the Chinese company must withhold 6% VAT from the payment. Again, this VAT is recoverable to the Chinese company.

The solution is of course to change the license agreement in such a way that the U.S. company is compensated for the withheld VAT.

If you have any experience with this, please let me know!

Hollywood surprised by tax from China – L.A. Biz.
Hollywood Studios Clash Over New China Tax – WSJ.com.

I have been following KPMG’s annual VAT survey for a couple of years now, and frankly speaking the results blow me off my feet every year.

Insights from the survey this year include:

• Eighty-three percent of all respondents still have to establish VAT/GST performance goals that are visible and meaningful to the CFO.
• There is a significant shift towards tax departments taking ownership or accountability for VAT/GST globally.
• Sixty-four percent of businesses do not have a Global Head of VAT/GST
• Significant opportunities are being missed
• Businesses with effective VAT/GST management are still in the minority.

The fact of the matter is that I see exactly the same non-developments with most of my own clients. Yes, there might be an uptick in tax departments taking ownership of VAT, but how surprising is that?

Over the past 10 years or so, there have only been a handful (I am not kidding) of global businesses (GE and Amazon for example) that have taken VAT seriously and built a comprehensive strategy. That approach allows them to transition the tax department from a reactive “VAT Fire Department” into a trusted, pro-active business and consulting partner to various stakeholders in the global organization.

Perhaps it is time for auditors (i.e. the Big 4) to start putting more pressure on CFO’s to develop a stronger VAT function. Better VAT management improves shareholder value. In the M&A space I already see positive developments, where potential suitors demand a transparent and efficient VAT implementation.

Download (PDF, Unknown)

For my number-crunching readers:

The average standard VAT rate in the EU27 is 21.3% in 2013, slightly up compared with 2012.

In 2013 compared with 2012, six Member States increased their VAT rate, and only Latvia reduced it.

In 2013, the standard VAT rate varies from 15.0% in Luxembourg and 18.0% in Cyprus and Malta to 27.0% in Hungary and 25.0% in Denmark and Sweden.

EUROPA – PRESS RELEASES – Press Release – Taxation trends in the European Union The overall tax-to-GDP ratio in the EU27 up to 38.8% of GDP in 2011 Labour taxes remain major source of tax revenue.