India issues FAQ on GST

The introduction of Goods and Services Tax (GST) in India is for real. They may not make the intended go live date of April 1, 2017, but it will be close.

If you are doing business in India, or with Indian companies, it makes perfect sense to prepare for this new tax. To help, The India government issued no less that 276 pages of GST frequently asked questions.

I have yet to review the entire document, but from what I have seen this is a pretty comprehensive explanation of what will happen, the scope of the changes and a host of other important considerations.

If you are into India GST, this is a must-read.

Download (PDF, 1.52MB)

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VAT conference notes: Supply Chain Optimization

From the VAT conference, organized by the Institute for Professionals in Taxation last week in Indianapolis, here are my brief notes of the session on Supply Chain Optimization.

Paula Borhauer (Starbucks):

  • Tax needs a ‘seat at the table’ with business development. Customs, Transfer Pricing, Income / Withholding Tax and indirect taxes are key drivers for supply chain efficiency – and therefore they they can potentially hit a project’s bottom line. Indirect taxes are not just VAT / GST but also sales tax, excise or retail / food taxes, receipts taxes etc.
  • The “six questions” (Why was what sold, for how much, where, when and by whom) drive broad tax liability. They determine operational and financial impacts for any planned business activity.
  • Communicate and be consistently involved with cross-functional communications BEFORE transaction terms are finalized. “The Tax Department always asks these six questions.”
  • Incoterms are not meant to determine ownership transfer, but they can be used for tax. Make sure that the agreements spell out that the Incoterms dictate ownership transfer.

Conny McCauley (EY):

  • Most optimization projects start with a “current state” analysis of the supply chain. This analysis is based on available data, no longer using workshops and interviews.
  • If the tax department collects the supply chain transaction data, their role gets more valuable for the business organization. The ‘seat at the table’ is easier to obtain.
  • BEPS: In practice, the application of a permanent establishment (“p.e.”) for income tax gets closer and closer to that of a fixed establishment for VAT.
  • EY survey says the countries often have a direct link between vat and income tax p.e. even if the definitions do not overlap. Click here (the link to the EY survey results is too long to insert in text).
  • Recent phenomenon: a ‘virtual’ p.e.: is a server a p.e. for VAT? Needs scrutiny – it depends on activities of the server.
  • The p.e. definition for income tax and VAT is fluid and expected to get even closer in the future.
  • EY’s Digital Tax Updates Map has an up-to-date list of digital tax developments:

Download (PDF, 332KB)

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VAT conference note: China

One session at the VAT conference, organized by the Institute for Professionals in Taxation last week in Indianapolis, discussed the VAT implementation in China.

Robert Smith (EY):

  • China VAT implementation now finalized – some transitional business tax liabilities remain.
  • Business tax was not creditable – now replaced by a creditable VAT at a higher rate.
  • Still China lost US$ 35 billion on additional VAT credits and missing business tax revenue in the first 7 months of 2016. (!!!)

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VAT conference notes: India

From the VAT conference, organized by the Institute for Professionals in Taxation last week in Indianapolis, here are my brief notes on the introduction of GST in India. 

Robert Smith (EY):

  • India is now past the point of no return – GST implementation is going to happen. Unlikely that they will meet the proposed introduction date of April 1, 2017.
  • Currently many indirect taxes in India are not creditable. GST will be a VAT-like credit system. Government tax revenue will decrease.
  • GST compliance will be mostly electronic and online: electronic invoicing and e-auditing along the lines of SAF-T.
  • Customers will start asking for invoices – limit the reach of the black economy.
  • Indian authorities will not be as easily accessible as the Chinese have been during the Chinese VAT implementation.

Chris Hall (Ford):

  • Premier Modi was the driving force behind the GST as a means to streamline business taxes. 
  • Many US-based multinationals drive India GST implementation from the US HQ. 
  • Central and state GST will be based on a set of umbrella rules. Potentially lots of exceptions per state.
  • Rates are expected to be harmonized.

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Progress! India GST law ratified and signed

The “federal” GST in India made another big leap today towards realization. One of the outstanding major issues to be resolved is now the rates.

Next is implementation of the umbrella-rules into each State’s tax law. This is expected to work broadly similar to the European VAT Directive, with various exemptions and differences of interpretation by State.

Also, the planned implementation date of April 1, 2017 is perceived by many as challenging, with July 1 being mentioned as more realistic.

For more see here: http://www.realityviews.in/2016/09/gst-becomes-law-president-gives-assent.html.

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Russia: VAT on e-services from January 1, 2017

Just a reminder that providers of electronic services (as you know, that is provision / downloads of video, music, games, apps etc.) must charge 18% Russia VAT to their Russian customers. Registration is required, and the Russian tax authorities are still working on setting up the infrastructure.

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When to register for VAT in the EU

Maora provides a comprehensive overview of the situations when VAT registration is required in the EU.

They say:

“For every other business without a permanent establishment, these are some of the transactions that will oblige you to register for VAT in a country:

  • Imports: If you import goods into a country, you need to register and pay VAT and customs duties at the border. There are many simplifications around importation, but as a general rule you will need a VAT number if you want to import goods and sell them in any given EU country.

  • Exports: Exporting goods will also oblige you to register and comply with all documentation requirements in order to zero rate your supply.

  • Domestic sales of goods: Selling goods within a country would normally oblige you to register and pay VAT to the tax authorities on those sales. However, foreign companies need to consider reverse charge rules. When reverse charge applies, you do not charge VAT on the supply and the customer manually calculates the VAT in its VAT return. In those cases, a domestic sales of goods does not require you to register. Contact us if you want to know if reverse charge applies in any country (or if this whole paragraph sounds like Chinese).

  • Intra-Community movements: When you supply goods from one EU country to another or when you receive goods sent from another EU country, you need to get a VAT number. You also need to get registered in the VIES system, which is automatic in some countries but it can take time and efforts in other member states.”

More information is here: http://marosavat.com/hot_vat_topics/when-do-you-need-an-eu-vat-number-vat-registration-requirements-in-europe

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