Archive for VAT news

Online cash registers?

I routinely report about governments developing new tools to close the “VAT Gap”, and this is one that fits neatly and logically. It is about retailers being required to use cash registers that are online connected to the tax authorities – think similar to the Chinese Golden Tax System and also the invoice pre-approval systems in various countries in Latin America.

Hungary, Portugal, France and other countries either have already legislation in place, or are considering to propose legislation shortly that would mandate these cash registers in certain retail industries.

I am somewhat skeptical about all this – every retailer knows that whatever amount he enters into any cash register must be reported, whether online or offline… The black economy doesn’t work with cash registers!

See the attached link.

http://marosavat.com/resources/vat_news/real-time-cash-registers-in-hungary-a-success-story

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Wrapping up the Puerto Rico VAT debacle

I have seen many botched implementations of VAT, or clueless last-minute VAT rate changes, but the non-VAT implementation in Puerto Rico underperforms the lowest of expectations.

Companies, particularly retailers, have spent ten of millions of dollars on IT and consultants support over the past 12-18 months to prepare their ERP systems and tax determination processes. Only to see Puerto Rico negate their plans to implement a VAT at the very last minute.

Gosh, the last clarification provided by the PR Treasury – without any indication that VAT may not happen – dates from May 25 – 6 days before the non-event.

Anyway, below is a final update. Nothing new in here, other than implementation of the SURI tax filing system has not been cancelled. Yet.

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Local contractors can give you a p.e. headache

Crummy headlines are among the worst PR disasters, and certainly the likes of Google, Priceline/Booking.com and McDonalds are suffering from bad press in Europe. This is due to complex tax minimization structures, Panama Papers or BEPS, and authorities having seen the light to pursue every angle to improve tax revenue.

This is not a new trend. Authorities have always been auditing non-resident companies, but they have certainly stepped up the vigor and tenacity of going after non-resident companies. France and Italy are currently the fiercest, but don’t be surprised if other countries go along soon.

The recent pursuits focus on U.S.-based companies having a “permanent establishment” overseas. There is a lot to say about this subject, simply because tax collection is largely dependent on whether a company is a resident business or rather a more distant operator.

Collecting tax from a resident company is relatively straight-forward, because tax liability rules are generally the same as those for local businesses. Collection from non-residents is a much more remote concept, in income tax often covered by tax treaties and withholding taxes and in VAT this is often facilitated by reverse charges.

For VAT, the definition of a “permanent or fixed establishment” has been subject to court cases and interpretations for many years. The base definition is a “sufficiently permanent establishment of human and technical resources” – and immediately questions pop up such as “What does “sufficiently permanent” mean?” and “What are human and technical resources?”.

In the day-to-day practice of VAT “sufficiently permanent” means “longer than it takes to simply set up and run a local business”, so I always use 3 months as an initial threshold – beyond that period I start asking more questions. “Human and technical resources” are easier to define. People and machines. A lady with a laptop, a guy with a wrench.

The “establishment” is relatively easier. A hotel room or corporate apartment or warehouse (owned or rented) are all examples of an establishment. Is storage space on a rented computer server a permanent establishment? Not under the current dogma, because there is no hands-on human involvement. But tread carefully here! The definition doesn’t say that the “human” must be a dependent employee – the datacenter operators who are instructed by the non-resident customer may very well be regarded as agents, and fulfill the requirement of the human element.

The “human and technical resources” and “establishment” questions are relatively unambiguous – particularly for installation projects, where the “p.e.” question pops up most often. In those cases, the “p.e.” question boils down to what extent the establishment is “sufficiently permanent”.

But for companies like Google, Booking.com and McDonalds the issue is rather whether local contractors (like sales people or marketeers) can be considered the human element of the permanent establishment. If these operators are not very independent from their giant, U.S. based customer, the p.e. issue for VAT is a real one.

And I bet that if you are a business developer / consultant in France or Italy, and you have Google as your client, you don’t have time for many other clients…

So take a minute and consider your company’s overseas business strategy. Is it based on locally operating, independent contractors? Or perhaps regional entities that use these contractors across their geographies? When you have a permanent establishment for VAT, your tax liability is vastly different from merely being a non-resident.

http://fortune.com/2016/06/01/france-taxes-booking-com-priceline/

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No VAT for Puerto Rico any time soon

The Puerto Rico Senate has overridden the veto of the Governor – there will be no introduction of VAT in Puerto Rico on June 1. The current Sales and Use Tax as well as the Business Tax will continue after June 1.

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EU ministers agree on VAT Action Plan

All good news from the group of finance ministers of all 28 member states (“ECOFIN”): they enthusiastically embraced the VAT Action Plan that the EU Commission came up with recently (see http://www.us-vat.com/blog/?p=1184).

They have a couple of comments that aim to accelerate the process, which makes sense given that the focus of the VAT Action Plan is on minimizing the “VAT gap” (see http://www.us-vat.com/blog/?p=1065 and http://www.us-vat.com/blog/?p=897). The faster these proposals get implemented, the more VAT revenue flows in the ministers’ coffers!

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No go for Puerto Rico?

Preparing for the planned VAT implementation in Puerto Rico has been a total nightmare for businesses. Many IT departments are currently trying to make sense of the Day 1 requirements, which is assumed to be June 1, i.e. next week.

In the meantime, the PR House and Senate has passed legislation that stops the entire idea of a VAT in PR. Currently, the wait is for the governor to veto. But even if the would do that, there is a procedure for Congress to override the governor’s veto.

But as long as the governor has not signed the legislation that abolishes VAT, we must assume that VAT will happen.

Difficult position to be in, but I’m not ready to advise my clients to call it off…

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EU VAT compliance: list of recent changes

Sovos published a list of recent changes in VAT compliance rules in the European Union – have a look here: http://sovos.com/blog/recent-vat-compliance-updates-may-2016/.

Like The VAT Blog, Sovos has a free subscription service, that automatically sends an email at the time of a new publication. You can sign up for Sovos’ emails through the above link.

Sign up for once-weekly VAT Blog emails here: http://eepurl.com/bcRipD

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