Taiwan next to implement VAT on e-services

If you are selling electronic services from the U.S. to individuals overseas, your global compliance requirements are about to increase.

We are talking about game and software developers, sellers of online music, video and the like – Taiwan will be added soon to the list of countries where these traders have to register for tax.

Tax-news.com writes:

“Foreign online suppliers selling cross-border goods and electronic services to end consumers will have to register for tax in Taiwan through a permanent establishment, or appoint a VAT or turnover tax representative. The permanent establishment or agent will be required to file the necessary tax returns. Significant penalties are to be imposed for non-compliance.”

See more at: http://www.tax-news.com/news/Taiwans_Parliament_Approves_VAT_On_Online_Retailers____72961.html

PS: Don’t forget: 18% VAT on B2C e-services in Russia starting January 1, 2017!

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Border adjustments: VAT misunderstood

Have a look at today’s NY Times article: http://nyti.ms/2hG3nt6 on U.S. tax reform.

I find it simply amazing that the eminences grises of the U.S. tax scene – folks like Sullivan, Auerbach and Graetz – don’t want to understand that import VAT is NOT a tax cost to importers. In a VAT country, import VAT is almost always recoverable, creditable or otherwise refunded.

An ever increasing number of customs authorities don’t even want to cash your import VAT payment: there are reverse charges all over the place in various forms – speak to importers into the EU, Australia, Singapore and elsewhere. Even China is working on some sort of import VAT relief.

Imports are “taxable” by design, because otherwise individuals would simply buy in another country and avoid tax on their domestic consumption. But that does not mean that imports are taxed for businesses. Because their use the imports for business purposes (typically resales), the import VAT is not a cost.

And yes, there is a zero-rate on exports. The reason for the zero-rate is simple: VAT is not designed to be a cost for businesses.

The NY Times writes:

“A central idea is that goods would be taxed based on where they were consumed rather than where they were produced, meaning that imports would be taxed by Washington while exports would not. Tax experts call this a destination-based consumption tax.”

This is nonsense. Imports are only an intermediary step in a destination-based consumption tax. A destination-based consumption tax is designed to put the final tax burden on consumption by individuals at the place of their residence. “Taxable” imports by businesses (with tax recovery) is merely the first step in a much bigger indirect tax system.

In order to meet the WTO requirements, the import tax must be 100% recoverable, and followed by a Value-Added Tax, or Goods and Services Tax (they are similarly designed) throughout the rest of the domestic supply chain.

Or just increase customs duties into the U.S. already and call it a day.

Auerbach wrote a report on border adjustments – See here: https://www.americanactionforum.org/research/14344/

Or download his paper directly from here:

Download (PDF, 702KB)

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U.S.: Progressive Consumption Tax updated

Politico’s Morning Tax writes:

“IT’S BACK: Sen. Ben Cardin (D-Md.), who has been pushing what he calls a progressive consumption tax for years, is back out with another version. Cardin, a member of the Senate Finance Committee, said he’s tweaked his consumption tax some since last releasing it in 2014 and wanted to release the new measure now so it could influence the tax reform debate next year.

The Maryland Democrat’s framework is designed to be at least as progressive as the current U.S. system, with a 10 percent tax rate on consumption. The tax system would also cut the corporate tax to 17 percent, exempt family income up to $100,000 from the income tax and offer rebates to lower-income taxpayers. Cardin’s also bringing his plan back after consumption taxes played a fairly pronounced role in the most recent GOP primary — think Ted Cruz and Rand Paul.”

See for more here: https://www.cardin.senate.gov/pct and here:

Download (PDF, 115KB)

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2021: No tax exemption for low value imports into the EU

The European Union announced that they plan on removing the exemption for imports of low value by 2021.

The exact amount of the threshold for imports of low value currently depends on the country where the import takes place, and is around US$25.

By and large, this exemption is the most popular way to forego import taxes (VAT and customs duties). Major e-retailers, particularly from the U.S. and China, but also from Switzerland, use this mechanism to import goods into the EU without paying any tax.

From my own experience, non-EU companies also use this exemption to bring bulk goods in an EU port, re-package the goods under customs bond, and then send small packages to individual buyers out of the bonded warehouse. On the small shipments out of the bonded warehouse no import taxes are due.

From 2021, these shippers must register for VAT in the country where the import takes place, and account for import VAT and customs duties at the time of import of the goods. Alternatively, they must let the customer import the goods. In both cases, the seller will want to know exactly the amount of the VAT and customs duties – either to calculate the final cost of the goods, or to communicate to the buyer that delivery can only take place if he pays amount x to the customs authorities.

By that time, it is likely that the seller must account for the VAT rate of the customer’s country. Importing the goods into a low-rate country (like Luxembourg) will probably not be helpful.

And err… by 2021 the UK will be well on its way to be a non-EU country. For UK based e-retailers the same rules will apply as for any non-EU seller.

More compliance and more calculations – add the upcoming, BEPS-inspired transparency rules (“SAF-T”) to  this mix, and you will find out soon that data is king. Managing tax data will no longer be a nice-to-have element of your ERP implementation, but rather a strict requirement.

More here – with a hat-tip to Avalara: http://www.vatlive.com/vat-news/non-eu-e-retail-faces-40-eu-vat-customs-hikes/.

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Trump’s tariff: a U.S. VAT on the horizon?

The post-election weeks have not been easy on most Americans: Democrats see their worst post-election nightmares materialize, and Republicans still believe that the future won’t be as crazy as Trump indicates.

In terms of U.S. tax reform there has been a barrage of media reports recently, most of them pouring over the Republican tax plan from last July and Trump’s considerations for his Cabinet.

The proposal for a “border adjustment” tariff has hit the news often – apparently this is simply a 30% import duty plus no income tax deduction on the cost of imported goods. That latter element is often disregarded, but some U.S.-based companies that have their wares manufactured overseas, have already raised a red flag – see http://www.oregonlive.com/business/index.ssf/2016/12/sneaker_makers_surprise_losers.html.

“A Republican aide told Bloomberg BNA previously that the import tax provision is starting to trigger more negative attention from companies and industry groups, and members who aren’t on the Ways and Means Committee are starting to get calls complaining about how the tax could damage their business models.”

See the entire BNA article here: https://www.bna.com/koch-industries-takes-n73014448261/

So there is a significant concern for U.S. multinationals that Trump will severely constrain free cross-border trade. Also, the World Trade Organization (WTO) is likely to reject a 30% import tariff.

Republicans seem to incorrectly believe that the WTO will approve the tariff, because “adjusting the import taxation does not amount to an indirect tax” and “all other countries have an import VAT, so we can have a tariff” – obviously discounting that an import VAT is recoverable.

I wrote earlier about the nonsense behind a “border-adjusted” import (indirect) tax. I can understand that U.S. companies feel over-taxed (although in practice the effective tax rate of U.S. multinationals is minimal), but there are other solutions for tax reform.

What if this talk of a “border-adjusted” tariff is simply a precursor (or a warm-up) for a serious discussion on a federal VAT or GST? At some point, some lawmaker will probably stand up and say “Hey, this 30% tariff is not palatable for my constituency, but let’s make it so that companies can reclaim the tax – and, while we are at it, let’s allow companies to take a tax deduction for their imports as well”.

A federal VAT as a next step is perfectly acceptable for the WTO – this blog discusses good reasons why every other country has a nationwide indirect tax (VAT/GST/consumption tax).

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More on India e-commerce service tax changes

Radha Arun has more on the upcoming changes in e-commerce taxation in India. Radha is a leading India indirect tax consultant, with a background in the Union Internal Revenue Service.

She summarizes the changes in the article below. One of the main takeaways for U.S. e-businesses that sell online downloads to individuals in India is that they must appoint a local agent, who is liable for filing and payment of the Service Tax.

https://www.linkedin.com/pulse/service-tax-reverse-charge-downloads-radha-arun

(you don’t need to be signed-in to LinkedIn to access the article)

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Urgent: India taxing B2C online sales

Aside from their ongoing GST implementation news, India announced a new service tax on online sales to individuals. Start date is December 1 (!).

U.S.-based e-commerce vendors should take heed: compliance rules are likely to be onerous.

From the details that I have obtained, the new service tax rules look very similar to the EU VAT rules that govern online sales to individuals. The scope, filing requirements and impact all look similar. A simplified tax filing process for non-residents, however, does not seem to be in the cards.

I am still digesting the practical impact of this news. The link to the government website with more details is below.

Do drop a note (mark@us-vat.com) if you would like me to help out. My e-commerce clients are all over it.

http://www.cbec.gov.in/htdocs-servicetax/st-circulars/st-circulars-2016/st-circ-202-2016

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