Archive for VAT news

Finally more import simplifications in the EU

VAT is not just due on supplies of goods and services, but also on imports of goods into the EU. Normally, VAT is payable to the Customs authorities at the time of import, and the same VAT amount can be recovered as input tax on the importer’s VAT return. This can be a rather significant cash flow burden (think 20% of the gross value of the imports).

The Netherlands has been a pathfinder in streamlining this process. Many years ago they allowed domestic business to defer the liability of VAT on import to the next VAT return. As a result, and subject to obtaining a license, Dutch import VAT can reported on the VAT return instead of paid to the Customs and the same VAT can be reclaimed on the same VAT return.

Even more, the Dutch authorities allowed the same simplification to non-resident importers (for example U.S. companies doing business in the EU), on the condition that the importer would appoint a local fiscal representative.

This so-called article 23 license has been a key driver for simplifying Dutch import VAT compliance. In addition, it created significant efficiencies on the government’s side for both internal revenue allocations and tax audits.

Recently other EU countries have established similar simplifications for import VAT compliance. Most notably the UK and Belgium apply somewhat similar systems.

From January 1, 2015 Spain, France and Sweden have started to accept applications for a deferment of import VAT liability along the same lines of the Dutch model. France allows non-resident importers to appoint a local rep (exactly the same as the Dutch). Spain and Sweden have yet to issue further guidance on import VAT simplification for non-residents.


The Port of Amsterdam

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China: lower VAT rates are consolidated

Circular 57 has the new rules covering to adjust the simplified VAT rates for goods sales from 6% or 4% to 3%. Grant Thornton reports on page 2 of this bulletin http://www.slideshare.net/AlexBaulf/china-tax-bulletin-2015-issue-1

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UK: Prompt payment discounts

(This is the first post that is emailed to my former VAT Newsletter subscribers. New posts, if any, will appear in a weekly email, sent on Mondays, 11am Eastern. The same change applies to the followers of The VAT Blog).  

Interesting developments in the UK VAT scene for prompt payment discounts:

  • at present, suppliers making PPD offers are permitted to put on their invoice, and account for, the VAT due on the discounted price, even if the full price (i.e. the undiscounted amount) is subsequently paid. Customers receiving PPD offers may only recover as input tax the VAT stated on the invoice.
  • after the change per April 1 2015, suppliers must account for VAT on the amount they actually receive and customers may recover the amount of VAT that is actually paid to the supplier.

If I understand correctly, after the change the VAT on the invoice will differ from the VAT paid and recovered. HMRC has a couple of important suggestions in relating to the invoicing.

More details are here: https://www.gov.uk/government/publications/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts

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It’s not easy to get to the European court

Under European law, taxpayers are unable to appeal to the the European Court of Justice (ECJ) directly. The ECJ only responds to “questions” asked by national courts (these can be either supreme courts or lower courts).

PWC UK took a long shot and nudged a UK court to refer a question relating to input tax credit to the ECJ. Their point was that the current UK law stating that VAT on “business entertainment” expenses is not recoverable is illegal. The 6th Directive (nowadays called VAT Directive) slightly changed the a small part input tax credit rules on August 1, 1988, and the UK has been caught with improperly implementing this change. This is the so-called Danfoss case (C37-07) in 2008.

PWC basically said that the partially incorrectly implemented rule on reclaiming VAT on business entertainment nullified the entire input tax block on these expenses.

PWC only wanted the UK court to refer the question to the ECJ, in order to get the ECJ to clarify what the EU VAT rules were. But the judge in the first-tier tribunal court was not swayed by PWC’s argument and rejected the request. PWC can still appeal.

Even if you are not into UK VAT, I still recommend this document because it is a clearly written decision tree, and provides lots of considerations and references to other court cases.

Download (PDF, Unknown)

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Canada to intro EU-like GST on e-commerce

“Canada’s government is considering new tax rules to level the playing field for e-commerce vendors that complain foreign giants such as Amazon.com Inc., Apple Inc. and Netflix Inc. have an unfair edge when selling digital products.”

A sensible and interesting article in The Globe and Mail about Canada following in the footsteps of the EU and other countries by taxing online services provided by non-residents to Canadian individuals.

More to come!

http://www.theglobeandmail.com/technology/digital-tax-crackdown-against-industry-giants-could-sting-consumers/article22371670/

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Any progress on GST in India? – UPDATED

Update:

“Prime Minister Narendra Modi has given directions for Goods and Services Tax to be rolled out by April 2016.” 

http://indianexpress.com/article/business/business-others/modi-fixes-april-2016-deadline-for-gst-launch/

 

There seems to be some movement in getting India to a federal GST, but the chances of survival are slim. AM Legals writes:

“GST will ultimately create a unified market by ending up the multiple levies of taxes by the Centre and the States. Consequently, it will lower the costs for business and more revenue for  the government.The states were afraid of loss of flexibility but it is said that this meeting has cleared many such fears. Broad agreement has been arrived between the Centre and various States.”

See here for more: http://amlegals.com/goods-service-tax-gst-to-roll-out-in-april-2016/

Indian VAT experts are sceptical, and rightfully so. A EY partner gave an extensive interview with great comments that is worth your consideration here: http://www.financialexpress.com/article/fe-columnist/record-cafe-states-not-prepared-for-gst-27-rate-cant-work/16698/. He says:

“VAT payable to a government is the output tax minus the input tax. Now, these states say that VAT is the output tax minus the restricted input tax deduction. And restricted input tax deduction means no credit up to 4% of the tax. The moment input tax credit is restricted, there is no longer a VAT. The worse thing is when input tax is collected and no input tax credit is given. Then, it becomes a turnover tax; and VAT was designed to get rid of the turnover tax.

Nothing destroys an economy like a turnover tax. When the customs union was formed in the EU, the first thing they did was to get rid of the turnover tax and replace it with the VAT.”

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Buon anno – Italy to increase their VAT rate!

Italy did not waste any time to announce new VAT rate increases, starting in 2016 to a whopping 25.5% in 2018. The current standard rate in Italy is 22%.

This is not as crazy as it sounds: the OECD has long been trumpeting VAT as the ideal revenue instrument to improve the economy – and countries like Sweden, Denmark have had a rate of 25% for ages.

There is more news from Italy – please see the KPMG leaflet below.

Download (PDF, 321KB)

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