Archive for VAT news

Italy’s blacklist updated

Did you know that there is an additional VAT report in Italy – commonly referred to as “The Blacklist Declaration”? This “Modello Polivalente” is an annual filing with an overview of transactions between Italy-registered businesses (i.e. resident and non-residents) and businesses in over 40 “blacklisted” countries. There is also a limitation of on the tax deductibility of costs incurred from the countries.

Recently Italy removed Malaysia, Singapore and Philippines from the list. Other than that, there is not much guidance from the Italian authorities.

For more, see here: http://www.vatlive.com/european-news/italy-reduces-countries-blacklist-vat-reporting/

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Everyday VAT: the Tampon Tax March

The UK has always been particular about the application of reduced and zero-rates. Children’s shoes? Heated pastries? From what I see at one of my clients, sales of these goods are difficult to process in an automated VAT system. See for example here for catering and take away food: https://www.gov.uk/government/publications/vat-notice-7091-catering-and-take-away-food/vat-notice-7091-catering-and-take-away-food

But the UK people seem to be very proud of their odd system of reduced and lower rates and are more than willing to take it to the streets. Rather different from citizens of the 27 other member states, who generally don’t seem to care one way or another.

Currently there is some discord in the UK about the application of the reduced rate (5%) on sanitary products. Ladies in the UK believe that the sale of these goods should be “VAT free” (i.e. zero-rated), and, to demonstrate their earnest concern, the “Tampon Tax March” was organized last week in Downing Street, London.

To their credit, the protesters recognize that the UK is unable to apply the zero-rate on sanitary products, even if politicians were open to the idea, because of the mandatory rate restrictions in the EU VAT Directive. More on the UK VAT treatment of sanitary products is here: https://www.gov.uk/government/publications/vat-notice-70118-womens-sanitary-protection-products/vat-notice-70118-womens-sanitary-protection-products#products-and-rates

After a quick jurisdictional analysis, I found that there is no member state that allows a zero-rate on the domestic sales of sanitary products – the state would be required to have a special allowance from the EU Commission to do so. The ladies in places like Denmark and Germany should be particularly upset, because they pay the standard rate. However, most member states allow for a (super) reduced rate on women’s sanitary protection products. (See the column on the right, under “VAT Resources”, for a link to a list of the most recent EU VAT rates.)

An article with interviews and images of the Tampon Tax March is here: https://www.vice.com/read/we-went-to-yesterdays-tampon-tax-march-on-downing-street

And you can sign an online petition here: https://www.change.org/p/george-osborne-stop-taxing-periods-period

To my fellow Dutchies: Yes, the Dutch VAT law is called “Wet OB“. But I vividly recall that my VAT professor (Mr. Reugebrink), who co-wrote the law, insisted that this abbreviation of “Omzetbelasting” should in no way be interpreted as a veiled reference to any preferential VAT treatment of tampons.

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Overview of e-services taxation rules

Tax blogger Tom Borec pulled together a pretty comprehensive overview of the world’s jurisdictions that tax electronic services. He also writes about OECD rules and he provides four basic principles that facilitate taxation of electronic services.

Tom says:

“The worldwide e-commerce taxation is ultimately possible only if a single harmonized tax regime is introduced globally. This does not mean that the jurisdictions have to relinquish their right of taxation and fiscal sovereignty. Just the opposite – they should exercise their right to tax in a way that will make it easy for e-businesses to simultaneously comply with all the rules imposed by all jurisdictions worldwide.”

Have a look at Tom’s overview here: http://ebiz.tax/overview-global-digital-ecommerce-tax/

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Romania may decrease the VAT rate

VAT is a great tool to steer the economy, and publicly toying with the idea of a VAT rate decrease helps in politics, not to mention that it plays to the electorate and to the IMF, that oversees big loans to the government.

Earlier this year, Romania suggested that a VAT rate decrease may be in the works for 2016, which is at the very least helpful for the 2016 national elections there. Now word on the street is that the Romanian government considers lowering the rate on July 1, 2015. The current rate is 24%, and the idea is to cut this with a whopping 4% to 20%. With another cut on the horizon, scheduled for 2018.

But they may also limit the intended decrease to the lower VAT rate only. The IMF is happy with Romania. Bloomberg says that:

“The government brought the budget shortfall back to 1.8 percent of GDP last year from 7.2 percent in 2009, using measures including cuts in state salaries, limits in public employment and tax increases.”

Austerity clearly works there, and now they are planning on giving back and spurring spending even more by cutting VAT. Makes sense.

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The neverending story of holding companies

The VAT position of companies that only (or substantially) hold shares has been an open issue for ages. If holding shares is an economic activity, then these companies would be considered taxable persons, And the VAT that they incur on acquisitions and dispositions (like legal fees) would be recoverable. If not, then VAT on the company’s expenses would be a cost.

The question is not so much whether passive shareholding (doing nothing but holding shares and receiving dividends) is a business activity for VAT – because the answer is no. The EU Court of Justice (ECJ) has been very clear on that in their landmark “Polysar” ruling (C-60-90, see http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:61990CJ0060).

The Big Question is rather if holding shares with a goal to manage the subsidiaries (and receive management fees) is an economic activity that creates the right to recover VAT.

When I went to law school in the late eighties the Dutch authorities had a very forward-thinking policy on holding companies that was later codified in a public ruling (for you Dutchies: de holding-resolutie van 18 februari 1991, VB 91/347). They said that if the holding company performs some degree of management for the group, then the holding company is not a taxable person for VAT (the 6th VAT Directive did not allow this). However, they allow this company to be part of a Dutch fiscal unity. And thus the VAT on the holding’s business expenses is recoverable (to the extent that the unity has the right to recover).

That approach made total sense. By the way, Switzerland (not an EU member state) has similar rules.

In the meantime, other member states have been wrestling with this matter as well. Even if holding companies had a management role, it was not always considered an “economic activity” – because the supplies were aimed only at the group companies, and “not a commercial activity”. Countries then denied the reclaim of VAT on acquisition expenses on the basis that acquisition are “directly connected” to shareholding (not an economic activity) and not “directly connected” to management services.

Even though the ECJ has issued half a dozen ruling on the matter (think Cibo Participations, C-16/00), the VAT treatment of holding companies varies throughout the European Union.

There is currently a case at the ECJ – “Beteiligungsgesellschaft Larentia + Minerva mbH & Co. KG” (C-108/14 and C-109/14), where the Advocate-General simply states that if the holding company acquires shares and provides management services for the group, then the VAT on the expenses is recoverable as being directly connected to management services.

Obviously, this is “just” an opinion and the ECJ is not required to mirror this in its judgement.

Have a look at the opinion below, which is nicely annotated and provides a good historical and legal perspective.

Download (PDF, 1.67MB)

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Brazil – tax on exported services

Brazil leads the “BRIC” countries in indirect tax complexity – and for a good reason. One of the indirect taxes levied is ISS – municipal service tax – and Brazilian service providers struggle in particular with the situation where the service is performed in Brazil but “enjoyed” overseas, by a non-resident party.

The correspondents in Brazil of the International Tax Review make the case for exempting these services that are enjoyed overseas – a good read and summary of how ISS works: http://www.internationaltaxreview.com/Article/3437108/Brazil-Municipal-service-taxcontroversial-aspect-of-the-exports-of-services.html

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EU VAT and e-businesses – country overview

The VAT liability of online sales of services (i.e. downloads of music, video, games etc. etc.) has been in the spotlight lately – to a point where the UK Prime Minister is pushing for even further simplifications (see my earlier post here).

U.S.-based e-sellers have been facing similar challenges for a couple of years already, and it is good to see developments to streamline VAT compliance.

In the meantime, the European Commission has issued an overview of how individual EU countries deal with VAT on B2C online sales. The overview is in Excel format:

http://tinyurl.com/jwnmadv
(had to abbreviate the web address because it did not fit in this column)

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