Robert Tsang on Malaysia GST

Robert Tsang, Deloitte’s AsiaPac VAT Leader, discusses the upcoming Malaysia GST introduction on YouTube.

I worked directly for Robert during my 4 years at Deloitte in New York, and I vouch for his technical prowess – watching this video is the best background info on Malaysian GST that is currently available.

Although I recommend that you set aside half an hour to view the entire discussion, you may want to jump to certain topics of interest.

Time Topic
0:31 Are businesses ready for the Malaysian GST?
1:53 Customs as the administrating body
3:36 Issues to be resolved by 1 April 2015
5:21 Elements in the proposed Malaysian GST
7:07 Functional currency
9:06 Business transfers and refunds
13:44 Leniency in regard to penalties
15:43 Free Trade Zones in Malaysia
18:52 Prevention of profiteering
24:52 Expectations after the introduction of GST
28:21 Grouping capability
31:42 Export of services
34:15 Reverse charge mechanism
35:10 Inbound digital supplies
36:40 Key message to businesses

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Accounting for VAT on discounts

Discounts remain a sticky issue in  the world of VAT. I reported earlier on new UK rules on discounts for prompt payment; see

Eveline Beer from the German law firm KMLZ now reports on a new regulation regarding the VAT treatment of discounts in  Germany:

“A reduction of the taxable base is not given in the case where a taxable person, acting as intermediary, grants discounts to customers of the services procured by him.”

and also that

“The German Ministry of Finance has explicitly stated that the customers of the procured services are not obliged to reduce their input VAT due to the discounts granted by the intermediaries. With regard to discounts granted by purchasing associations, their members are not obliged to reduce their input VAT deduction accordingly.”

Eveline’s recommendations are good, as is the newsletter – please see below to download.

Download (PDF, 324KB)

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VAT rate reductions on the horizon

It has been a long time since we have seen any news on rate reductions. Romania has suggested that there might be a pretty significant rate decrease in sight. Meridian reports:

“The Romanian Government plans to reduce the rate of VAT in Romania from 24% to 20%, from the 1st January 2016. There could also be a reduction in the VAT rate applied to fish, fruit, meat and vegetables from 24% to 9%. The changes are not yet confirmed.
Also being considered is a further cut from January 2018, from 20% to 18%.”

The link is here:

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EY: 2015 country summaries

EY published a bulky overview with VAT changes, by country. Claudio Fischer from EY Zurich wrote an interesting editorial with an unsurprising tag line:

“Ignoring recent developments in indirect taxes or not being compliant with indirect tax obligations has definitely become an expensive oversight for companies of all sizes, whether they are active in the local market or on a global level.”

Save a few trees, and don’t print this pdf:

Download (PDF, 2.93MB)



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ECJ: No reduced VAT rate on e-books

“Courts don’t make laws” is a pretty strict rule that applies in most countries. The role of justices is limited to explaining existing laws – this separation of powers between the legislative function and the judicial function of a government (championed by Montesquieu in the mid-18th century) applies in most developed jurisdictions.

So once again the European Court of Justice (ECJ) issued a predictable ruling: there is no rule in the EU VAT legislation that allows EU member states to apply the reduced rate on electronic services, including e-books. And countries are not free to make their own VAT rules. Alas, people from Luxembourg and France, your e-books will be taxable at the standard rate.

By the way, Italy applies the reduced rate on e-books as well. They changed rates on January 1, 2015 (click here for more info), and were not included in the Commission infringement procedure against Luxembourg and France.

Luxembourg had been charging 3% VAT on e-books, which will now increase to 17%. France had been charging 5.5%, which will now increase to 20%. Italy’s new reduced rate for e-books was 4% and will now be the standard rate of 22%.

Two things will happen now:

1. Member states will push for adding e-books to the list of supplies that can be taxed at a reduced VAT rate. This is an “annex” to the VAT Directive. Reuters reports that a EU Commission spokeswoman said:

“The Commission appreciates that member states may want to define their own priorities, including on culture policy, in their taxation policy. This should be done within the EU legal framework. This is why the Commission will address this matter through the extensive overhaul of the VAT system which is currently being prepared. We hope to be able to communicate on this next year.”

2. France, Luxembourg and Italy will have to think about what to do with supplies of e-books that in the past have been incorrectly charged with the reduced rate. There is plenty precedent for businesses to successfully take the position that they could rely on communications by the local tax authority that the reduced rate applies.

So I don’t fear for the past e-booksellers’ profit margins – but from now on these e-businesses will either have to absorb the additional tax  (14% additional in Luxembourg, 14.5% in France and 18% in Italy) as a cost, or they will have to increase their selling prices.

This change applies to US-based e-sellers as well. They too will now need to start charging the standard rate to their Luxembourg, French and Italian customers.

The ECJ decisions are below.

Download (PDF, 782KB)

Download (PDF, 782KB)

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Imports in Spain

Are you importing goods into Spain as a non-resident? From January 1, 2016 your customs rep won’t be able to claim import VAT on your behalf. See the news item here:

As a result, you should start the process of VAT registration in Spain (which is a pain as a non-resident – US companies need a local agent), get your customer to import the goods or – if you were planning to expand your Spanish business anyway – establish a local legal entity. That entity (Sociedad Anónima or S.A.) will then purchase the goods and subsequently import, warehouse and on-sell the goods as your local distributor.

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Get ready for SAF-T

SAF-T (Standard Audit File for Tax) is slowly but surely finding its way to tax authorities. This is a standardized communication between taxpayers and authorities. Initially this was limited to the submission of tax returns (and accessory filings, like the EU sales listings), but authorities increasingly use this standard for broader audit requirements, like submission of invoices and VAT worksheets.

SAF-T is generally part of an even broader effort of authorities to nudge companies to embrace a “Tax Control Framework” (TCF). The idea behind this is that companies have the tools available to better manage their VAT position. In addition, companies that apply TCF generally look for a more transparent relationship with the tax authorities. If you google “Tax Control Framework” you will find lots of reports and sample processes. Also see here: for a comprehensive overview.

Taxback now reports on a new filing requirement in Hungary, which is in line with what we have seen in countries like Austria, Portugal (link in Portuguese) and Luxembourg, that have specific legislation on SAF-T requirements.

Starting January 1, 2016, business that are registered for VAT in Hungary (this includes non-residents) will be required to use specific software that will allow them to export invoices or data required to the tax authorities. The purpose of this is to ensure facilitation of audits for control purposes and to speed up transactions.

If you want to know more about improving global VAT management, please drop me a note. Over the past years I have been working with a couple of my global clients specifically on this matter. I will then talk you through the slide below, which is a great example of how important VAT management is for your global organization.

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