Trending: Real-time auditing of e-invoices and e-filing

I mentioned earlier in this blog and also during my webcasts / training sessions that electronic filing and audits will become a big trend over the next few years. The linked article provides a quick overview of the current state of this trend, and some details of the countries that are leading.

It is not just in China and Latin America – European member states are getting interested and are preparing legislative changes to force businesses to upload all relevant details of their Accounts Payable and Accounts Receivable. The purpose is to automate filing and facilitate real-time audits – and other than serious penalties we have not seen many incentives for businesses to cooperate…

The writer omitted Poland from his list- see

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VAT in the U.S. – what is a VAT?

The TaxProf Blog reports on an article in the Wall Street Journal that labels some Republican tax plans as a “Value-Added Tax”. Apparently the “business flat tax” or “business activity tax” are considered Value-Added Taxes, which I believe is incorrect. Of course there is no set definition of a VAT or GST, at least not as the rest of the world know it.

The WSJ then continues to state that

“Almost every country in the world uses a VAT, imposing a tax on middle-class consumers and workers to fund benefits such as parental leave and health insurance.”

which I believe is a rather narrow statement as well. In itself, most VAT systems are regressive, which means in this framework that the tax burden is on the lower income brackets rather than the higher, even though this effect may be neutralized by way of other tax or non-tax subsidies.

Have a look at the article here:

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VAT basics and Puerto Rico slides

The slides that I presented during the webcast on November 11 are below.

As always, I would be happy to address your questions – just send me an email.

Download (PDF, 368KB)

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Zero-rated services in China

China is steadily progressing with their change from business tax to VAT on services. The next confirmed step is to apply the VAT zero-rate on the following services:

  • Television, radio, film and related published services
  • Software, technology design and testing services
  • Offshore services, business process outsourcing of administrative (BPO) or technical (KPO) services

This is all as expected, perhaps a bit late.

On the one hand, there is more clarity, but on the other hand the interpretation of these services may very well vary from inspector to inspector. To that extent, China is not different from any other country!

This change will be incorporated in Circular 118, which is expected to be released in the course of this month.

KPMG has more in the flyer below.

Download (PDF, 1.27MB)

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Final call for the 11/11 VAT webcast

There are still a couple of seats open for the November 11 webcast on VAT. I will discuss how VAT works and how it impacts on businesses. For this webcast the audience will be tax managers of retail and distribution, and they have asked if I could focus on Puerto Rico.

Let me know soonest if you can make it. If you are unable to join us, I would be happy to share the slides.

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Proposed India GST – consultation documents

The introduction of GST in India won’t happen on April 1, 2016, and I believe that it won’t happen in 2016 at all. However, the prospect of a nation-wide GST in India is closer than it has ever been, and 2016 may well be a crucial year for companies doing business there.

If you are so inclined, please have a look at the massive consultation documents that the Indian Department Of Revenue has produced. They offer interesting and relevant insight into the outline of the new GST, complete with input tax refund procedures, registration (for non-residents as well!) steps as well as taxability rules.

There are three documents: on the refund process, the registration process and the payment process. The main link is here:

I assume that updates will be provided on this page in due course.

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VAT fraud: who is liable?

“As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” See here.

An article on the BBC website (see states that Amazon and eBay are jointly “liable” if they ignore VAT fraud committed by sellers on their marketplaces.

This is a timely question, because tax authorities have started looking at online payment platforms (not just at online marketplaces) to account for the vendor’s VAT. The reason is simple: the payment platform collects the money on the vendor’s behalf and therefore the platform would be a great “one-stop-shop” point for collection of VAT revenue. I am sure that more details will be made public about this approach in the course of next year.

The danger is in the “unknown known”: something that we intentionally refuse to acknowledge that we know.

For the liability of fraud, sure, if anyone is aware of VAT fraud being committed and this is not reported to the appropriate authorities, silence in itself is a liability. The question is rather how far online marketplaces should reach to identify VAT fraud committed by third parties (their customers or their customers’ customers) – what should they do to minimize risk?

First, an ongoing check of the VAT registration number (and any other identifying number) provided by the third party is already required and should be the first call of a risk management protocol. This could be tricky in situation where the seller is not a business, but an individual who incidentally sells.

Second, I am a strong proponent of the idea that a prudent online marketplace should have a strong relationship with the tax inspector. In a positive relationship the marketplace provides the inspector an overview of the sellers’ activities. I also believe that the onus is on the inspector to create such a relationship which should be mutually beneficial.

I could even picture a situation where marketplaces create an annual certification requirement for their sellers – to certify that they filed correct and timely VAT returns, if the seller would be legally required to file returns.

However, in my opinion online marketplaces can not be compelled to look into their customers (sellers) wallets to see if they indeed reported output VAT properly.

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