Little hope for Puerto Rico VAT

Without much support from the legislature, the Puerto Rico governor is fighting for the life of a new Value Added Tax.

Developments are going fast: first a 16% VAT was rejected by parliament, then a new proposal a 14% VAT looked feasible but could not get the required votes. More is in the link below, but this news may be outdated by the time you read it!

https://news.yahoo.com/puerto-rico-governor-revives-value-added-tax-proposal-150024311.html

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Australia taxes e-services from July 1, 2017

They call it the “Netflix tax” – from July 1, 2017 non-resident providers of digital services will be required to register for Australian GST and account for 10% GST on their sales to individuals. The Australian States and Territories are likely to approve this proposed measure.

It is interesting to see how the Australian government shows that they only need to invest AU$ 700,000 upfront and AU$100,000 each year to collect AU$150 million in the first year, AU$ 200,000 in the second and so on.

Revenue ($m)
2014‑15 2015‑16 2016‑17 2017‑18 2018‑19
Australian Taxation Office 150.0 200.0
Australian Taxation Office 0.7 0.1 0.1
Department of the Treasury 150.0 200.0
Total — Expense 0.7 150.1 200.1
Australian Taxation Office 0.8

(from The Australian Budget Paper no. 2, under Part 1, see http://www.budget.gov.au/2015-16/content/bp2/html/bp2_revenue-07.htm)

Australians currently don’t pay GST on online purchases of goods under AU$1,000, and this is not expected to change.

A good bit of background is here: http://www.uthinki.com/articles/australia-to-charge-gst-on-digital-products/

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Arab Gulf states take a step towards a VAT

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates have signed an agreement containing common principles of a VAT, that each country should implement.

No dates were mentioned, and it should be noted that these so-called GCC-countries (Gulf Cooperation Council) have had the intention to implement a VAT for a while.

Read more here: http://www.menafn.com/1094208708/AlSaleh-GCC-officials-adopt-valueadded-tax-agreement and here: http://www.meed.com/sectors/economy/government/prospect-of-sales-tax-revived/3209172.article

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Greece: single 18% VAT rate in the works

As part of their economic bailout, Greece is contemplating a flat 18% VAT rate on all sales of goods and services (well, that’s except the exempt, non-taxable and zero-rated supplies). Greece would be the only EU country to have a single VAT rate.

See for more economic background here: http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_07/05/2015_549825

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Of old posts, and new

I will be traveling in the Netherlands from May 4 to May 10 and will be unable to spend much time, if any, on updating the VAT Blog.

But not to worry, there are 450 (!) VAT Blog posts to read and review.

As always, let me know if you have comments or questions.

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VAT is the main money maker

Interesting stats here – for academically inclined readers rather than day-to-day VAT practitioners. VAT and duties rule!

“According to the most recent data from the OECD (2012), consumption taxes are the largest source of tax revenue for OECD countries. On average, countries raise approximately 32.8 percent of their tax revenue from consumption taxes.”

The report is here: http://taxfoundation.org/article/sources-government-revenue-across-oecd-2015

 

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MOSS is a mess

Turns out that the EU has created a nightmare scenario for the smallest of EU-based e-commerce businesses. The “Mini One-Stop Shop” (“MOSS”) was supposed to be a simple way to account for VAT liabilities in other member states, but the cost of calculating the foreign VAT is an unexpected roadblock for the “micro-businesses”, with minimal sales outside the country of residency.

The International Tax Review (http://www.internationaltaxreview.com/Article/3445165/VAT-MOSS-EU-to-review-B2C-digital-services-rules.html) writes that the core of the issues is that determining the location of the customer is difficult. Also, authorities themselves are weary of auditing micro-businesses that only have a few hundred euros in sales.

In the article, one of the VAT leaders of the Irish Revenue Authorities is quoted as declining companies that ask for a registration, because the cost of administration is disproportionate to the revenue generated. This statement requires some explanation: The VAT registration threshold in Ireland for services is an annual turnover of Euro 37,500. However, under the MOSS rules, the registration thresholds do not apply. This leads to the strange situation that micro-businesses are now required to register for VAT, even if their turnover is below the threshold of their own country.

The Irish civil servant is quoted as supporting a new, low, pan-European registration threshold.

In the meantime, the UK has already officially allowed UK-resident micro-businesses to skip the registration requirement. But to still encourage UK micro-businesses to register, HMRC says:

“If you are below the UK VAT registration threshold (currently £81,000) you can register for UK VAT to use the UK VAT MOSS. You can charge and account for VAT in respect of your EU cross-border B2C supplies but won’t have to charge and account for VAT on your UK domestic supplies. In addition, you will also be able to reclaim any VAT charged on business expenses directly related to your cross-border digital service supplies.” (my underlining)

See http://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers. (HMRC has these crazy web addresses)

I can understand the difficulties on the authorities’ and businesses’ sides. A European registration threshold for MOSS would be helpful, even if it takes a while for the bureaucracy to digest. Remember – first a new threshold must be agreed upon with 28 member states, then included in a new version of the VAT Directive and finally implemented in local legislation (even though in the final phase taxpayers could claim direct effect of a beneficial rule in the Directive). 

I could even envisage a temporary relief where micro-businesses won’t have to register if the revenue generated from another member-state doesn’t exceed that member state’s existing threshold (currently varying across the board from a few thousand to tens of thousands of Euros). This would go contrary to the ruling of the European Court of Justice in the Schmelz case, C‑97/09 (see http://tinyurl.com/9l4v89j for a pdf of the ruling).

That Schmelz ruling applies for U.S.-based e-businesses as well – VAT registration thresholds do not apply to non-residents. U.S. businesses must always register for VAT under MOSS if they sell downloads to EU-resident individuals.

But I still don’t understand the issue that business seem to be having with the location of their customers. Everybody pays with PayPal or a credit card – and the details provided by the payment platform contain location data, right?

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