Archive for VAT news

Online sellers to register in Switzerland, Israel

Switzerland is the latest country to jump on the fast train of taxing online purchases.

Like in the EU and an increasing number of non-EU countries, online sellers of video, music, software, games etc. will be required to register for Swiss VAT and pay over 8% of the sales to Swiss customers.

The details will still have to be ironed out, it seems. The one report that generated this news did not specific that the tax requirement only applies to sales to individuals, and also reported that the registration threshold would be CHF 100,000 ($100,345) in annual profit – not sales. Seems incorrect to me.

Same thing for Israel. Their e-commerce VAT rules are still a proposal, but likely to be passed through Parliament swiftly.

So if you are currently working on configuring the global tax calculation for a company that makes online sales, it would make sense to consider the upcoming Swiss requirements – as it would be for a dozen or so other countries outside the EU.

Global VAT management for online sellers doesn’t get any easier – but thus far it seems like the EU VAT determination template for these sales broadly works in other countries as well.



Stay tuned for more on online sales.

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Emirates: VAT from scratch in 2018

Yesterday I mentioned during a webinar that there are hardly any countries left that do not have a VAT/GST or a similar indirect tax. Even the committed tax-free zone of the United Arab Emirates have now formally announced the introduction of a VAT, in 2018.

The interesting thing is that the UAE currently does not have a revenue authority that would be able to collect and audit a VAT. The challenge to implement a new VAT is therefore not only on the business side – the governments definitely have to shore up their capabilities. This is not an integration of a set of sales taxes into a VAT (like we have seen in China, Australia, Malaysia and shortly in Puerto Rico), but rather building a VAT from scratch!

I will spend more blog time on this development in the coming weeks and months. For now, here are a few good write-ups from Thomson Reuters:

and thoughtware from Deloitte:

Download (PDF, Unknown)

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Puerto Rico VAT? Not yet…

Just a quick note to let you know that April 1 will not see a VAT implemented in Puerto Rico.

The new date is June 1, but my sources mutter that there is little doubt that the government will postpone the introduction of VAT even more, or make substantial changes in the rules, rates and/or calculation and compliance processes.

If the new VAT in Puerto Rico has an impact on you, I have a few brief slides that provide high-level tips for a smooth transition. Let me know please if you are interested.

The press release that announces the implementation delay is here: (in Spanish)

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How to catch the VAT crooks

One of the major challenges of the border-free European Union is VAT fraud, and in particular the variance where input VAT is claimed based on fraudulent invoices for non-existing business activities. This carousel (“Missing Trader”) fraud goes beyond the fairly academic discussion about tax evasion vs. tax avoidance; we are talking here about the mob:

“According to Europol’s representatives, it is estimated that 40-60 billion euro of the annual VAT revenue losses of Member States are caused by organised crime groups and that 2 % of those groups are behind 80 % of the missing trader intra-community (MTIC) fraud.”

The European Court of Auditors has recently issued a sensible set of recommendations to both member states and the European Commission.

Typically this is not the type of document that I would promote on this blog, but this paper is actually worth its salt and the conclusions make sense.

Download (PDF, 1.02MB)

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Crippled by VAT penalties

Almost every time that I teach a seminar, someone asks a question like “What are the chances of getting caught?” or “I have never been penalized – why would I bother with a VAT strategy?”.

My former colleague Jim Burberry, who is now a VAT partner at RSM in the UK, commented on the following – unfortunate – situation.

A UK VAT group had an annual VAT liability of 4 billion sterling (!), but nevertheless ran a deficit in that year of 9 million. The year was 2012, a leap year (like 2016!). The VAT payable over the preceding filing period was due on February 29, but the company missed that date and paid the VAT only one day late, on March 1.

HMRC imposed a routine penalty, which is a percentage point of the unpaid VAT. Depending on the circumstances (think recidivism), the percentage can be anywhere between 5% and 25%. But in any event the penalty – like everything in VAT – does not depend on the profitability of a company.

The penalty was UKP 277,185 was probably relatively small compared to the company’s total expenses. But it was still an unnecessary expense, incurred in a loss situation where the company was probably in cost-cutting mode anyway.

Jim says:

‘Every case is determined on its merits, but the tribunal’s decision underlines how important it is for companies to be on top of all their VAT payments to the taxman.

‘This decision also suggests that it would be extremely hard to identify a situation in which the size of a penalty could be challenged on the basis of proportionality. This should serve as a warning to others, particularly businesses with significant VAT liabilities.’

In this day and age, I find it unbelievable that a company with billions in sales does not have the capability to monitor their VAT position in real time, and ensure timely payment (or reclaim) of the correct VAT amount.

With the various competing tax monitoring tools that are available, all ERP systems can be upgraded to include at least the barest of reporting tool or dashboard. Implementing these tools are not invasive upgrades that take months to get running, but these are rather straight-forward databases. All depending on the scope and breadth of the organization, of course.

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VAT focus on U.S. online sellers

PWC Denmark writes about the Danish tax authorities being mindful and going after “remote vendors” – but this is a global trend. If you are selling online downloads (apps, music, games, video etc.) to individuals in the EU, Russia, South Africa etc. etc. you must be VAT registered and pay VAT at the destination country’s rate.

PWC writes:

“In order to ensure that a more systematic approach is applied to the tax authorities’ enquiries, the new law authorises the authorities to request information from providers of payment solutions (e.g. credit card companies, banks etc) including the total amount received by a remote vendor from sales made to private individuals in Denmark.”

Again – Denmark is just an example. All countries that impose VAT on online sales to individuals will come after U.S. e-businesses – it’s easy money!

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Gulf States: 5% VAT by 2018

The tax-free Nirvana will come down soon – the Gulf States expect to introduce a 5% VAT by 2018. Like the potential Brexit, this will be an interesting scenario, where countries that have no history of levying tax will need to set up a tax collection infrastructure. At the exact same time, traders will have to get acquainted with indirect taxes – and VAT being a tax that is collected throughout the supply chain, no trader will be able to escape.

It is expected that the Gulf States learn from other jurisdictions that have recently started collecting VAT. Malaysia springs to mind, where VAT was introduced in April 2015. And also Singapore would be a useful example, particularly where they implemented a fairly high registration threshold. This threshold ensured that small businesses (with gross sales below US$ 800,000) would be exempt of Singapore’s GST compliance.

History dictates that managing compliance, both on the business as well as the government’s end, is the biggest challenge of implementing a new VAT / GST. This is where Malaysia is struggling most, and an area where the Chinese authorities have been most strict.

In addition, the Gulf States would be wise to look at countries like Brazil as well, where the administration pulls financial data directly from the businesses, and mandates pre-approved invoices.

With the Islamic financial system and cultural differences added to the mix, it will be an interesting process!

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