Archive for VAT news

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 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:

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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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VAT conference note: China

One session at the VAT conference, organized by the Institute for Professionals in Taxation last week in Indianapolis, discussed the VAT implementation in China.

Robert Smith (EY):

  • China VAT implementation now finalized – some transitional business tax liabilities remain.
  • Business tax was not creditable – now replaced by a creditable VAT at a higher rate.
  • Still China lost US$ 35 billion on additional VAT credits and missing business tax revenue in the first 7 months of 2016. (!!!)

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Russia: VAT on e-services from January 1, 2017

Just a reminder that providers of electronic services (as you know, that is provision / downloads of video, music, games, apps etc.) must charge 18% Russia VAT to their Russian customers. Registration is required, and the Russian tax authorities are still working on setting up the infrastructure.

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When to register for VAT in the EU

Maora provides a comprehensive overview of the situations when VAT registration is required in the EU.

They say:

“For every other business without a permanent establishment, these are some of the transactions that will oblige you to register for VAT in a country:

  • Imports: If you import goods into a country, you need to register and pay VAT and customs duties at the border. There are many simplifications around importation, but as a general rule you will need a VAT number if you want to import goods and sell them in any given EU country.

  • Exports: Exporting goods will also oblige you to register and comply with all documentation requirements in order to zero rate your supply.

  • Domestic sales of goods: Selling goods within a country would normally oblige you to register and pay VAT to the tax authorities on those sales. However, foreign companies need to consider reverse charge rules. When reverse charge applies, you do not charge VAT on the supply and the customer manually calculates the VAT in its VAT return. In those cases, a domestic sales of goods does not require you to register. Contact us if you want to know if reverse charge applies in any country (or if this whole paragraph sounds like Chinese).

  • Intra-Community movements: When you supply goods from one EU country to another or when you receive goods sent from another EU country, you need to get a VAT number. You also need to get registered in the VIES system, which is automatic in some countries but it can take time and efforts in other member states.”

More information is here:

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Cash is king: Import VAT in Spain deferred

A couple of years ago Spain introduced a rule that allows for importers to skip payment of VAT at the time of import, but rather defer that payment to the next VAT return.

The beauty of such an arrangement is that the import VAT can be reported and reclaimed at the same return, so no cash is due.

The Spanish authorities have now clarified that this arrangement also applies to non-resident businesses that are registered for VAT in Spain.

If the non-resident is not an EU resident, fiscal representation is often still required.

See here for more:

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