Archive for VAT news

Zero-rated services in China

China is steadily progressing with their change from business tax to VAT on services. The next confirmed step is to apply the VAT zero-rate on the following services:

  • Television, radio, film and related published services
  • Software, technology design and testing services
  • Offshore services, business process outsourcing of administrative (BPO) or technical (KPO) services

This is all as expected, perhaps a bit late.

On the one hand, there is more clarity, but on the other hand the interpretation of these services may very well vary from inspector to inspector. To that extent, China is not different from any other country!

This change will be incorporated in Circular 118, which is expected to be released in the course of this month.

KPMG has more in the flyer below.

Download (PDF, 1.27MB)

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Proposed India GST – consultation documents

The introduction of GST in India won’t happen on April 1, 2016, and I believe that it won’t happen in 2016 at all. However, the prospect of a nation-wide GST in India is closer than it has ever been, and 2016 may well be a crucial year for companies doing business there.

If you are so inclined, please have a look at the massive consultation documents that the Indian Department Of Revenue has produced. They offer interesting and relevant insight into the outline of the new GST, complete with input tax refund procedures, registration (for non-residents as well!) steps as well as taxability rules.

There are three documents: on the refund process, the registration process and the payment process. The main link is here:

I assume that updates will be provided on this page in due course.

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VAT fraud: who is liable?

“As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” See here.

An article on the BBC website (see states that Amazon and eBay are jointly “liable” if they ignore VAT fraud committed by sellers on their marketplaces.

This is a timely question, because tax authorities have started looking at online payment platforms (not just at online marketplaces) to account for the vendor’s VAT. The reason is simple: the payment platform collects the money on the vendor’s behalf and therefore the platform would be a great “one-stop-shop” point for collection of VAT revenue. I am sure that more details will be made public about this approach in the course of next year.

The danger is in the “unknown known”: something that we intentionally refuse to acknowledge that we know.

For the liability of fraud, sure, if anyone is aware of VAT fraud being committed and this is not reported to the appropriate authorities, silence in itself is a liability. The question is rather how far online marketplaces should reach to identify VAT fraud committed by third parties (their customers or their customers’ customers) – what should they do to minimize risk?

First, an ongoing check of the VAT registration number (and any other identifying number) provided by the third party is already required and should be the first call of a risk management protocol. This could be tricky in situation where the seller is not a business, but an individual who incidentally sells.

Second, I am a strong proponent of the idea that a prudent online marketplace should have a strong relationship with the tax inspector. In a positive relationship the marketplace provides the inspector an overview of the sellers’ activities. I also believe that the onus is on the inspector to create such a relationship which should be mutually beneficial.

I could even picture a situation where marketplaces create an annual certification requirement for their sellers – to certify that they filed correct and timely VAT returns, if the seller would be legally required to file returns.

However, in my opinion online marketplaces can not be compelled to look into their customers (sellers) wallets to see if they indeed reported output VAT properly.

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UK food – the strangest VAT of all

My co-presenter Andy Hallsworth shared about VAT rate oddities: a small pumpkin is considered food, and therefore subject to the zero-rate. But you are not supposed to eat a large pumpkin. These are for carving and therefore subject to the standard rate.

Another telling example is the VAT liability of the sale of snowballs – see

The Telegraph has summarized these strange rate choices in an article – and they have included dog food for good measure:

Some U.S. sales tax jurisdictions have similar odd rate rules.

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Trading in BitCoin is exempt, of course

In a rightfully wholly unsurprising decision, the European Court of Justice recently ruled that BitCoin (the online “virtual” currency) is a currency and therefore the trading in this currency is exempt from VAT.

This does not mean that purchases made with BitCoin as a payment are VAT free! If, for example, an EU individual purchases online software, music, video, games etc., VAT is still due at the rate of the country of residence of the buyer. Only the trading in BitCoin is exempt from VAT.

I have posted my thoughts on BitCoin earlier here: and also here (two years ago!), where I predicted the outcome of the ECJ ruling.

If you are so inclined, the ruling is here. Actually, it’s an interesting read.

Download (PDF, 817KB)

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IPT VAT conference round-up

U.S. based VAT specialists met in Palm Springs, CA last week – the IPT VAT conference was an excellent opportunity to catch up on the latest VAT developments and network with like-minded professionals. The VAT experience of the audience varied between total newbie to the most seasoned VAT veterans, and there were sessions and development opportunities for everyone.

In the previous blog posts I already included some takeaways from the conference – there are four more that I should mention:

  • The UK authorities have started penalizing companies that submitted incorrect 13th Directive reclaims. I.e., not only was the request for a refund denied, but these companies received a penalty for wasting HMRC’s time. (This one I found very odd – would be interested to hear more…)
  • There is a tendency to off-hand reject refund claims that are filed incompletely. Tax authorities tend to be less flexible in situations where refunds are claimed without correct documentation – adding correct documents later on is not always possible.
  • Multiple speakers mentioned about the German authorities. They are getting very strict as to mentioning the exact description of goods / services sold on invoices. Without a detailed description on the invoices input VAT claims may be rejected.
  • People, Processes and Systems are the critical elements of a VAT organization. All speakers strongly suggested that building relationships across the global business (Finance, Legal, Logistics, Business Development, Sales) is crucial for managing the global VAT footprint.

See here for the program brochure and speakers list:

Next conference for me is the Vertex Exchange Conference in Orlando, FL, from October 25-28. See here for more:

I created this image in the desert of Death Valley, on my way to the IPT Conference. Click to see a bigger version.

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Archiving your electronic documents

EU businesses can store electronic documents anywhere in the EU and outside the EU, if there is a bilateral agreement with the non-EU country. Not every EU country has such an agreement with the U.S. – so EU companies that digitally store their electronic documents only on servers (“the cloud”) in the U.S., must first check if there is a data exchange treaty between the EU country of residence and the U.S.

Similarly, U.S. companies that have VAT registrations overseas, must check if the country of registration if they have a treaty with the U.S. for data exchange. If not, the U.S. company must keep their records in the country of registration.

No one will tell you this at the time of registration, but at the time of an audit this issue may pop up.

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