Puerto Rico – are you ready for VAT?

A Value-Added Tax is still looming for Puerto Rico: from April 1, 2016 a wide range of supply of goods and services will be subject to a 10.5% or 0% VAT. Switching to a VAT from the current sales and use tax system (and other indirect taxes) is a major change for all parties involved.

Richard Cornelisse and his team share a blueprint to support companies that do business in Puerto Rico with the VAT implementation. Richard draws from his experience supporting a company in the Bahamas with the VAT implementation there on January 1, 2015.

Have a look at Richard’s webpage here:


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EY: digital economy taxation

EY produced an interesting piece of thoughtware on e-business and tax. This is broader than just indirect tax, but I know many of you will find this an interesting read. EY says:

“Multinational technology companies need to be fully aware that global effective tax rates are trending upward — how much remains an open question. Those tax practitioners and international finance executives that prepare now will be in the best position to influence the answer for their own companies.”

Download (PDF, 198KB)

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Italy has a VAT Gap of 48 BILLION Euro

Not all is well in the finances of the European Commission. VAT collection is important for the Commission, because the Member States’ contributions to the budget of Commission is partially measured on the VAT revenue in that Member State.

The VAT Gap is defined as the difference between the amount of VAT actually collected and the VAT Total Tax Liability (VTTL), in absolute or percentage terms. The VTTL is an estimated amount of VAT that is theoretically collectable based on the VAT legislation and ancillary regulations.

And not every country is equally diligent in collecting VAT. Countries like Romania and Lithuania are high on the naughty list, and larger economies like Italy is a (very!) bad apple as well.

Imagine a country that is unable to collect one-third of its indirect tax revenue – Italy has a VAT Gap of 48 BILLION Euro, which is more than the gaps in the UK and Germany together. Germany’s gap of 24 billion Euro is a good reason to worry.

The only reason for the UK’s relatively minor gap (15 billion Euro) is the relatively extensive use of zero-rates and reduced rates on UK sales of goods.

Remember: the VAT gap is created by lack of audits and enforcement, and straight-forward non-payment and tax fraud by domestic businesses.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: “This important study highlights once again the need for further reform in VAT collection systems across the EU. I urge Member States to take the steps needed to fight tax evasion and tax fraud at all levels. This remains a burning issue and is at the top of this Commission’s agenda.”

The entire report (a rather dry write-up of macro-economical stats) is here for your download pleasure.

Download (PDF, 1.1MB)

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No GST in India any time soon

India’s introduction of a nation-wide Goods and Services Tax (GST) has once again been postponed. The idea of integrating all indirect taxes into a single GST is too big of a step for a significant number of politicians. Currently, parliamentary approval is not in the cards.

The proposed introduction date of April 1, 2016 was too soon anyway for government authorities and businesses to set up new audit, compliance and accounting systems.

Introduction of a GST in one of the biggest countries in the world is a big deal. It is significantly different from the April 1, 2015 introduction of GST in Malaysia – not only politically but also from an integration perspective (Malaysia only had a sales tax on goods and a handful other indirect taxes).

It is also quite different from the VAT revision in China. China’s politics are more persuasive to local and regional authorities than India’s, and both companies and authorities were familiar with the VAT system (on goods) that previously existed,

In the meantime, the indirect tax system in India remains a significant burden for India’s domestic and global trade. (see http://www.gstindia.com/indias-plan-to-introduce-gst-will-boost-indo-uk-trade-says-british-government/)

Also see here for more background info:



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Vertex Exchange conference – more info

If you are working with VAT and sales tax in the U.S. and you are interested in tax automation, you don’t want to miss the Vertex Exchange Conference in Orlando, FL from October 25-28.

Vertex produced a nice overview the contains a number of reasons to attend, and a detailed overview of the conference schedule in the website here: http://www1.vertexinc.com/exchange-us/ and in the pdf below.

I will teach there too!

Download (PDF, 133KB)

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Pay your ‘fair share’ of tax, or else…

Reuters reports that Mexico is slow in repaying VAT refunds to companies that (per the Mexican authorities) don’t pay their fair share of Mexican income tax.

It appears that since 2012 Mexico has focused on a handful of very significant VAT refunds to review the company’s Mexican income tax position. Typically the authorities find that ‘not enough’ income tax has been paid to the Mexican coffers, and negotiations follow. Unilever has reached a deal, Reuters says, but Colgate and Procter & Gamble are still waiting for their refunds.

I assume that these companies got into a VAT refund position because they procure raw materials on the domestic market, or import goods without suspension of import VAT. Then they manufacture products locally, and export most, if not all finished goods outside of Mexico. Because exports are zero-rated, the companies have an excess amount of input tax credit and need to claim the excess from the government.

Mexico is not at all unique in stalling such VAT refunds. Outside of the EU and other major economies, there are very few countries that would provide blanket payments of input tax credits. Some allow input tax credits to be offset against income or wage tax liabilities.

Italy and other EU countries have similar VAT refund challenges.

A partial solution to this issue would be to move or expand operations in free trade zones, or under some sort of customs control. This would minimize the amount of input tax incurred.

Mexico is well-known for their VAT-free export ‘schemes’, and every country has similar simplifications. Even though the scope of these schemes is sometimes a bit fuzzy, if input tax becomes a cost of doing business it is worth exploring these and other alternatives.

See the Reuters article here: https://tinyurl.com/orcx52b

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The 500th post

Gosh, the 500th already. 500 posts in 5 years, an average of two posts every week – that is not too shabby. When I kicked off in August 2010 (see http://www.us-vat.com/blog/?p=69), I expected to produce one or two updates a week – goal accomplished!

I receive VAT updates from various resources every day, and I am trying to filter and annotate the news items that I believe are interesting for the VAT Blog readers. The focus is of course on international VAT matters, and I particularly pay attention to U.S.-headquartered multinationals. Many a European VAT manager has forwarded VAT blog posts to the U.S. based headoffice to explain a VAT situation!

As a result, instructional blog postings have been the most popular, like the posts on reverse charges and new-year-prep in November 2010 – see http://www.us-vat.com/blog/?p=170 and http://www.us-vat.com/blog/?p=185.

Global management of indirect taxes is popular as well – see this post of February 2011: http://www.us-vat.com/blog/?p=234.

And more recently the post about Uber hit home – this is the one where I discussed the VAT liability of companies doing business through employees versus companies using independent contractors. See http://www.us-vat.com/blog/?p=1035.

Also, you may have been unaware that there are hundreds of readers that every Monday receive a brief digest of the previous week’s postings. The number of subscribers is steadily increasing – just this morning someone signed up saying “I am very impressed by your blog…wish I knew about it sooner.”!

So there you have it – the VAT Blog needs better marketing! You could help for starters by signing up for the weekly update here: http://eepurl.com/bcRipD, and once you have done that, you could forward that link to co-workers, clients or VAT advisers. Competitors are welcome! (Even though I consistently get kicked off Big 4 mailing lists.)

Finally, I would like to recognize my readers and thank you for the kind words of encouragement that I regularly receive! I only know a relatively insignificant number of readers personally and if I could just have one fruitful conversation out of every 1000 ‘hits’ on my website, business development would be so much easier!

Thank you. And email me. mark@us-vat.com


P.S.: See you at one of the upcoming VAT conferences – http://www.us-vat.com/blog/?p=1053

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