Online services – Russia widens VAT scope

Timur Feinstein over at Sovos reports on recent proposals in the Russian parliament to capture non-Russian providers of online services to Russian customers.

Timur writes:

“The bill considers the Russian Federation as the place of supply of electronically supplied services (“e-services”) when provided by foreign organizations to Russian purchasers. For supplies to individual taxpayers (“B2C”), the foreign providers would be responsible for collecting and remitting Russian VAT. They would have to register for VAT and file quarterly VAT declarations for such collections by the 25th of the month following the quarter end. For supplies to taxable persons (“B2B”), the purchaser would be responsible for remitting the tax.”

See here for more information:

VAT on E-Services: Change Likely in Russia

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Amazon now enforcing UK VAT compliance

UK media, including The Guardian, have been aggressively reporting on VAT leakage caused by non-UK traders on Amazon and eBay. Apparently, they sell goods from UK-based warehouses without accounting for UK VAT at the correct rate.

From what I understand, the issue is that the warehouses are bonded, and that the value of the purchased goods that are shipped to UK consumers is typically below the threshold for low-value imports. As a result, the imports are exempt from VAT.

I can’t fathom any other way to legally sell imported goods within the UK – if the value exceeds the threshold import VAT will be due. Of course, no doubt that fraudulent filings will happen – there is a reference to non-EU traders illegally under-declaring imports.

Now Amazon demands to see UK VAT numbers from their mainly Chinese traders – I would think that HMRC better recruit additional customs officers to police the import values. These customs officers will come handy with the upcoming Brexit anyway…

More here:

https://www.theguardian.com/business/2016/jun/21/amazon-uk-reviews-chinese-traders-ahead-vat-clampdown

And an earlier story with more investigation:

https://www.theguardian.com/business/2015/nov/01/uk-losing-millions-vat-non-eu-sellers-amazon-ebay

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Brexit: not too bad – for VAT

By leaving the European Union, the Brits have plunged themselves into a cultural fantasy that now becomes a business nightmare.

For international VAT, however, I predict that non-UK companies won’t suffer much. I wrote earlier about this here: http://www.us-vat.com/blog/?p=1154.

The actual Brexit will take many years – first the UK has to write to the EU signaling their intent to leave, which they must do within two years after sending the letter. Then the negotiations start..!

As James Robinson on LinkedIn suggested, the EU is now keen to kick the UK out, so companies better get ready to formulate a EU/UK business strategy.

Here is an initial overview that I will update when I come up with more post-Brexit changes. Feel free to add in the comments!

Before Brexit

After Brexit

No fiscal borders

Probably a free trade agreement with the EU. Similar to Norway, Iceland and other non-EU European countries (the European Economic Area). Since 1993, Switzerland is no longer part of this group.

Intra-EU acquisitions in the UK

Imports into the UK, very likely using a VAT deferment scheme like currently in the Netherlands.

Imports from non-EU countries

Non-UK businesses must register for VAT when making taxable sales in the UK (no threshold)

No change expected – probably even more simplifications, extension of reverse charges.

Most services by non-UK providers to UK businesses are reverse charged – no VAT liability for the service provider

No change expected

Non-UK businesses must charge UK VAT on sales of online downloads etc. Mini One Stop Shop (MOSS) applies: only one single VAT registration needed for filing in the entire EU.

All online service providers must register in the UK for UK VAT – One-stop shop scheme for the entire EU no longer applies to the UK. Filings likely to be entirely online, and simplified filings.

Permanent establishment rules for VAT: “significantly permanent human and technical resources”

Will probably follow the developments in the EU, with an eye to minimizing VAT fraud.

Also, don’t forget to review the UK’s policy towards the EU in “Yes Minister — Why Britain Joined the European Union”:

 

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Etsy sellers – VAT matters!

Etsy is an online selling platform, and the good folks over at Avalara report on some confusing messages that Etsy had dispatched to their sellers about VAT.

The long and short of it is that VAT may be due on sales by Etsy sellers to buyers outside the U.S. Whether VAT is payable by the seller depends on a number of factors, including the import process (who is the importer of record), the destination country and the value of the shipment.

This move by Etsy may be inspired by the most recent UK Budget, that previewed new VAT rules, that seek to hold online selling platforms (“fulfillment houses”) liable for VAT that has not been paid over by their sellers.

More here: https://www.avalara.com/blog/2016/06/07/etsy-and-vat-a-state-of-confusion/

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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.

Download (PDF, Unknown)

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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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