Brazil: States must return excess ICMS

Indirect taxes in Brazil are widely considered as difficult, confusing and costly. Bloomberg BNA now reports that overpaid ICMS on estimated profit margins must be refunded:

“Brazil’s supreme court [on] Oct. 24 ruled that states must return excess tax collected when companies prove their products sold for less than prices the state estimated in setting the VAT (ICMS).

The decision goes further than the court’s previous position that permitted reimbursements only when sales weren’t completed. The court stated that its ruling is binding and applies to the 1,300 lawsuits now before lower courts on this question.

Brazilian states set ICMS taxes for selected sectors on estimated profit margins at the final point of sale set by states rather than having the VAT charged on real prices at every stop along the product chain. The states charge companies VAT on these estimates at the point of manufacture before the final sale price is known leading to complaints that the state sales estimates are unrealistically high and lead to inflated taxes.

The ruling primarily affects sectors with long production and delivery chains such as the auto industry, pharmaceutical and beverage manufacturers, sectors dominated by multinational firms in Brazil. At present only two of Brazil’s 27 states permit the reimbursement of ICMS taxes paid in excess by companies.”

See the entire Bloomberg BNA article here: http://www.bna.com/brazil-supreme-court-n57982079209/

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Designing an indirect tax function: KPMG

KPMG published a brochure that describes the process of “Designing an indirect tax function that is fit for the future”.

They say:

“The components of the indirect tax operating model include three strategic components and three enabling components:

— Strategic components

1. Governance and risk

2. People and capabilities

3. Organizational model

— Enabling components

4. Process and responsibility

5. Data and information

6. Systems and technology”

KPMG’s process is, of course, based on Big Data and KPIs, and I have attached another KPMG publication that provides (a bit) more detail on their approach.

Download (PDF, 202KB)

 

Download (PDF, 135KB)

 

 

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Shipping Overseas: The Import Process Reviewed

Just out: an article that I wrote with Amy Morgan (Avalara) – see http://www.smallbizdaily.com/shipping-overseas-import-process-reviewed

 

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India GST registration portal opens soon

As I mentioned earlier, now is a good time to start your preparations for implementing India GST in your finance systems.

This is a requirement for India-based businesses, and also non-resident companies that trade with India may want to be aware of the new GST rules that could have an effect on prices.

The online portal that deals with GST registrations will open in November, but it is still unclear if this portal will also function as an online deposit for GST returns.

“With the GST council finalizing the threshold levels for GST’s applicability as well as the contours of the compounding scheme, taxpayers now have more clarity on the operational aspects of this tax reform, which is expected to be implemented from 1 April 2017.”

More is here:

http://www.livemint.com/Politics/Vg4KXkvEpoMXHtlfC5gE6M/GST-Network-to-launch-registration-portal.html

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China’s Golden Tax system evolves

Grant Thornton reports on recent developments in China’s Golden Tax system. If you are not a Chinese-resident company, Golden Tax will not have any impact on your business. Yet, this article is interesting for those who are following the developments in online filing requirements, SAF-T and similar legislation that mandates transparency.

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Trump and a Democrat want a retaliatory tariff against VAT

Here in the U.S., VAT remains a strange and scary beast. There is now a proposal in Congress for a bill that imposes a fee on imports from a country where VAT is “border adjusted”. Yes, crazy!

The idea is that U.S. companies that import goods in VAT countries (i.e. almost every other country in the world) are being charged with import VAT. This import VAT is creditable / recoverable for domestic importers, but not for U.S. importers. Therefore, U.S companies that imports goods elsewhere are significantly worse off than domestic traders. This is protectionism and must be retaliated against.

And thus the House Representative Bill Pascrell, Jr. (see http://pascrell.house.gov/) is introducing legislation that would impose a “tax” on imports into the U.S. from countries with a VAT.

The proposal is nonsense, because no U.S. trader would substantially import goods in another country if he couldn’t get the VAT back. There are multiple alternatives to streamline this type of transaction in the company’s supply chain. For example:

  1. The U.S. company can sell to a local customer with the provision that the customer is the importer of record. This is the most common structure. The U.S. company would ideally transfer ownership of the goods to the customer before import, and the customer pays all the import taxes, fees etc. Typically the import VAT is recoverable for the customer.
  2. The U.S. company can appoint a local middleman, commissionaire or a distributor in-between the sales transaction. The middleman would be the importer of record.
  3. In some countries (like in the Netherlands) the U.S. company can even appoint a fiscal representative – a local rep that only reps for the import, and can reclaim the VAT on the U.S. company’s behalf.
  4. In the EU and in some other countries, the U.S. company can simply register for VAT. This would make sense if the U.S. company wants to retain control of the goods, for example when the goods are price-sensitive. If the U.S. company registers for VAT, he can potentially reclaim the import VAT.

Anyway, plenty of alternatives are available for a VAT and pain free import.

The interesting aspect of this nonsense is that the Congressman is a Democrat, but this “Border Tax Equity Act” is straight out of Republican presidential candidate Trump’s Economic Plan. Even better, there is a memo from a Trump adviser who says:

“[…] the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay. Thus, under the WTO system, American corporations suffer a “triple whammy”: foreign exports into the US market get VAT relief, US exports into foreign markets must pay the VAT, and US exporters get no relief on any US income taxes paid.”

(see the attached document “Scoring the Trump Economic Plan: Trade, Regulatory, & Energy Policy Impacts”, page 12/13).

I already spent enough time on this crap – enjoy yourself reading the documents below.

Download (PDF, 70KB)

Download (PDF, 719KB)

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Amazon, eBay must now enforce VAT compliance

The UK’s “VAT Notice 700/1: should I be registered for VAT?” has been updated with a couple important changes for US-based traders. This notice tells you when you must register for VAT and how to do it.

“Changes have been made to the June 2016 edition to reflect:

  • the introduction of new powers which enable HM Revenue and Customs (HMRC) to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas seller thats trading goods in the UK via that online marketplace

  • the power to direct some non-established taxable persons (NETPs) to appoint a VAT representative who is based in the UK”

In other words, if you are selling through Amazon, eBay or similar marketplaces, the online marketplace will force you to get yourself registered and organized for VAT.

It is expected that other countries will introduce similar measures soon.

The link to the HMRC website with the new Notice is here: https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat

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