Archive for VAT news

Mandatory e-invoicing gets popular

At the IPT annual conference earlier this month we talked about invoices as the backbone of any VAT system, and also about the efforts of many authorities to address VAT fraud through specific invoicing rules. I highlighted the popularity of the lottery system on restaurant receipts – the scratch “fa piao” that China has had since 2002 – which is now also considered in EU countries.

Where a fa piao works great for forcefully documenting business-to-consumer sales, for business-to-business supplies China uses the so-called Golden Tax system, where VAT sales invoices are pre-certified online by the government. On the buyer’s side, only VAT on these invoices can be considered in the calculation of the input tax recovery.

The EU has struggled for decades to get their arm around the VAT and legal aspects of e-invoicing. I vividly remember that some countries accepted e-invoicing – as long as “an ‘original’ hardcopy of the invoice would be presented at the local post office for certification”.

E-invoicing in the EU has been harmonized since January 1, 2013, so all we need to deal with is the various exceptions and interpretations of the 28 member-states. Although the EU Commission claimed that business would save 18 billion Euro under the new e-invoicing rules, concerns of fraud have muffled that initial enthusiasm. Don’t ever think of implementing multi-country e-invoicing without first speaking to a multinational VAT specialist!

In an effort to fight VAT fraud, Argentina has now mandated electronic invoicing. Starting with specific industry sectors, the expectation is that most Argentinian businesses (and even some individuals) will be required to apply electronic invoicing. There is a currently existing system for e-invoicing in Argentina, but that will be abandoned in favor of the new one.

Edicom has a good summary here: http://www.edicomgroup.com/en_ES/news/5532, and if your Spanish is up to scratch you can find the official text of General Resolution 3749 here, on page 12: http://www.us-vat.com/blog/3749.pdf (Note that this is a 7MB pdf file)

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Again: VAT and holding companies

This is not an item that U.S. companies generally want to spend a lot of time on. But on occasion holding companies incur VAT – predominantly on expenses relating to consulting, legal work, M&A deals etc.

These VAT charges can be substantial, and the question is whether a holding company is “in business” and is therefore a taxable person, and if so, if that taxable person is entitled to a VAT refund of VAT incurred (or “reverse charged” VAT).

Courts have been struggling with this for many years, due to minute differences in facts and circumstances in the various cases brought before them.

There is another such case pending before the European Court of Justice. Larentia + Minerva GmbH & Co. KG (C-108/14) will be published on July 16.

PWC is organizing a webinar on July 20 at 10am Eastern to share their thoughts and comments. Click here to sign up: http://bit.ly/1dkzMm9

Hat-tip to Bart van Osch

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VAT management = data management

Over the past couple of years I have been helping U.S. based multinationals to get a grip on managing their business data and ensure efficient, timely and compliant VAT filings and VAT invoices.

Electronic invoicing and self-billing (or e-procurement) finally seems to be taking off after many hiccups, where not only accounting data but also vendor and customer master data have an important effect on VAT.

It has been a fascinating addition to my old-school job of VAT adviser, and it opened my eyes to practical, day-to-day challenges of in-house indirect tax practitioners – I also recognized how profoundly different sales/use tax filings are from global VAT compliance. IT departments (not a common tax ally) are deeply involved with data management, and some of my clients even have IT specialists embedded into their internal tax organization.

I have spend many a blog post on this challenge, and my new search function will help you identify them on this blog (see the box in the column on the right). Also have a look at http://globalindirecttaxmanagement.com/, where Richard Cornelisse and his team share their views on tax data managament.

In addition, all Big 4 accounting firms have something to say at various levels of complexity. The below pdf from KPMG discusses audit and compliance developments in relation to “Big Data”. I have yet to see a more comprehensive article that includes all aspects (i.e. e-invoicing and e-procurement mentioned above) – but KPMG’s discussion is a worthy addition to your summer reading list.

Download (PDF, 2.97MB)

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VAT increase vs. economic growth

When Japan recently increased its consumption tax rate, it seemed to hinder economic growth. We have seen the same in Spain and to a certain extent also in Italy.

The Washington DC-based Tax Foundation now makes the case that VAT increases do not necessarily lead to recession, at least not in the case of Japan. Japan cut the corporate tax rate at the cost of a set of Consumption Tax increases and thus substituted tax on companies for tax on individual consumption.

This move towards taxing consumption vs. taxing income is an ongoing trend and theme in most countries’ tax reform. In practical terms, VAT/GST continues to increase in popularity, and its global impact becomes more tangible.

Did you know that the average company in a VAT jurisdiction must manage an amount somewhere between 20%-45% of its gross sales in VAT only? Imagine what would happen if a company miscalculates input VAT or output VAT.

The brief item of the Tax Foundation is here: http://taxfoundation.org/blog/japan-s-pending-vat-increase-context

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EU VAT refunds for U.S. companies

It’s that time of the year again – June 30 is coming right up. Two more weeks to submit your VAT refund in any EU country except the UK (they have odd refund deadlines).

EY has a nice and comprehensive overview – linked below.

A couple of additional notes:

  • You will need a Form IRS 6166 to show that you are a U.S. company registered with the IRS. This will take some time to acquire from the IRS. If you don’t have the form in hand, make sure to file the refund request without it to preserve the firm deadline, and submit the 6166 as soon as possible. Some countries accept this, other don’t.
  • Similarly, not all countries accept VAT refunds from U.S. based companies. Italy and Spain are the biggest culprits.
  • Don’t file for refunds that would expose you to a registration requirement. For example, if you purchased goods locally for onward local delivery, you will have incurred VAT on the purchase. If you request a VAT refund, the answer will be that you are liable for local VAT registration.

I do not file VAT refunds on clients’ behalf – that is too easy and you should be able to do that yourself. But I am always happy to help – let me know!

Download (PDF, 141KB)

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VAT audits and controversy revisited

Risk management and internal controls seem to be the flavors of the year – here is a “thought piece” by EY about managing VAT audits. As I mentioned before – this is nothing new, but good to see a comprehensive summary of do’s and dont’s.

EY discusses:

  • The nature of modern indirect tax audits and the rise of the electronic audit (e-audit)
  • Common errors and audit triggers as well as practical suggestions for reducing the risk of unexpected assessments, penalties and sanctions by actively preparing for tax and customs inspections
  • Ways in which taxpayers can avoid assessments and sanctions by removing uncertainty, preparing for audits and improving end-to-end compliance
  • How taxpayers can resolve disagreements with tax and customs authorities, both in and out of court

See here for the website (it is sometimes a bit challenging to read on my Chrome browser): https://webforms.ey.com/GL/en/Services/Tax/VAT–GST-and-other-sales-taxes/ey-managing-indirect-tax-controversy-home

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“VAT, the only answer that is a real answer”

Join me at this seminar featuring Professor Michael Graetz (Columbia Law School). He will speak in the Grand Hyatt in NYC on Wednesday, June 17, 2015.

Synopsis:

Representatives of large U.S. MNCs are pressing Congress to lower the corporate tax and exempt dividends received from foreign subsidiaries. Tech firms want to add a special low tax rate on innovation income to the list. Representatives of small businesses, notably the politically powerful NFIB, object to funding these changes by base broadening unless individual income tax rates—applicable to partnerships, LLCs, and subchapter S corporations—are also reduced significantly.

Democrats in Congress insist that these measures cannot be funded by cutting spending on health insurance, social security, food stamps, or assistance to needy families.

So while the direction of income tax reform is clear, paying for it currently seems impossible. There is, however, one clear path, one taken by more than 160 other countries around the world: enact a national tax on sales of goods and services. In fact, this may be the only way to overcome the current stalemate.

See http://www.internationaltaxinstitute.org/

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