Puerto Rico – VAT to be introduced on June 1

It has been challenging to get reliable updates on the upcoming introduction of VAT in Puerto Rico. The message linked below indicates that PR is pushing forward and that the June 1 date may indeed be the definitive date when VAT will start.

The VAT in PR is not entirely a mirror of the VAT as we know it in Europe and elsewhere. It is rather a mix of Latin American systems. In particular, note the electronic filing system (“SURI”), and the invoicing rules.

EY hits the nail on the head where they say:

“In tandem, the effect on other areas of the business, such as supply chain, system planning and implementation, and compliance management, among others, needs to be analyzed and addressed as part of a company’s VAT readiness efforts.”


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VAT management – the ‘elevator speech’

My one “VAT under management” slide is an all-time favorite in my VAT training sessions, and my audience at the Avalara seminar in Boston yesterday reminded me that it would be good to share the slide on my blog.

It shows the importance of VAT in your global organization, which may include just one legal entity / trading company or even a big tree of trading companies.

The idea is to figure out your organization’s overseas gross sales, and gross purchases and other costs. These are numbers that you should be able to obtain fairly easily from the finance department. Put the numbers together, use the average standard rate of the countries where the organization is in business, and off you go.

The goal is to show that VAT must be carefully managed on the sales (Accounts Receivable), because if you underpay VAT you will be penalized. And the same applies for input tax (Accounts Payable) – underclaiming VAT is a direct pain in gross profit.

Also, other than with income taxes, the final amount of VAT that is to be paid over to the authorities is irrelevant. This number is simply the difference between output tax and input tax. You must be on top of output and input tax, not only the end payment or refund!

The result is that the VAT man (m/f) is responsible for managing x percent of gross sales in VAT. In my client portfolio, this percentage varies between 21% and 45%. Whatever your organization’s percentage is, it is significant and eye-opening!

This example is deliberately kept coarse and simple. We don’t include imports / exports, and we don’t look at reverse charges. I have more complex calculations available that include these data flows, but my point on this slide that you should be able to show the importance of VAT in a simple and swift ‘elevator speech’ to anyone you happen to meet there…

If you are interested in this approach, you should also have a look at http://globalindirecttaxmanagement.com/. Richard Cornelisse and his team are really good at this.

Download (PDF, 29KB)

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Interesting VAT proposals from the EU

On April 7 the Commission adopted an Action Plan on VAT – Towards a single EU VAT area.

As usual, the EU commission produced a heap of proposals and opinion documents to get the 28 member states aligned on a number of admittedly pressing VAT matters, such as:

  • a future single European VAT system
  • VAT fraud
  • VAT rates
  • further simplification for online sellers
  • more support for small and medium sized businesses

I cherrypick just a couple of proposals that I thought stand out:

  1. No import VAT exemption for low value shipments – either the non-EU shipper or the recipient must pay VAT on imports. This would create a registration requirement for a significant number of non-EU sellers.
  2. “One Stop Shop” for all cross-border transactions. This would mean that for example the current filing requirement for B2C sales of goods (“distance sales”) will be included in the VAT return of the company’s home country. Minimizing filing requirements means minimizing liabilities!
  3. If filing is simplified, the proposal is to move further towards the concept of taxation in the country of destination – but collection in the country of residence of the seller. For example, ship goods from NL to FR, always pay French VAT, but through the NL VAT return.
  4. More freedom for member states to set their own VAT rates. For example, EU-wide the VAT rate on electronic books must be standard, as opposed to the reduced or zero-rate for paper books. The proposal is to loosen the reins on rates. Italy by the way couldn’t wait – they already have a reduced rate for e-publications.

It all sounds pretty revolutionary, which makes sense if you look at the difference between the VAT that is due by companies and the actual VAT collected by the authorities (the VAT “Gap”).

More to follow, but I will share only if it is interesting enough…

BTW – the below pdf is not the sedative that you would expect. If you are interested in EU VAT policy, it is surely worth your time.

Download (PDF, 335KB)

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Vertex webcast replaces Brussels conference

Here is a free opportunity for great VAT training: a Vertex webcast in lieu of their annual European conference. They say:

“Join us 12 April for expert insights on tax trends, regulatory changes and implications, and the latest solutions for managing global tax compliance.

Learn about critical issues impacting global tax management, including:

• VAT automation, tax engines and the global, indirect challenges that drive businesses to automate
• How the regulatory landscape is expected to shift, as well as how to strategically manage your people, tax technology, tax data and processes to support efficient business operations
• How to target and analyze subsets of at-risk transactions—even in high volume situations—to find problems prior to close and filings
• The challenges of VAT remittance as part of the compliance process
• Vertex solutions for SAP including existing solutions, product roadmap and planned innovations
• Emerging trends and best practices for tax risk management
• Driving value through VAT data analytics

Registering once gives you access to the entire series of webcast sessions. Be sure to view the Agenda At-A-Glance and feel free to drop in and out of sessions as your schedule permits.”

The detailed agenda is here: http://www1.vertexinc.com/exchangeeurope/sessions/

And registration (free!) is here: http://vertexinc.adobeconnect.com/ve2016/event/event_info.html

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Featured in Avalara’s blog

Avalara writes in their blog:

“With CRUSH 2016, Avalara’s national tax compliance conference coming up May 9-11 in New Orleans, we sat down with one of the conference speakers, Mark Houtzager, principal of U.S. VAT, Inc., to learn more about his sessions, business outlook on value added tax (VAT) and what he is most looking forward to at the conference.”

Read all of it here:


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UK: No more tampon tax

The EU agreed on allowing the members states the option of zero-rating women’s sanitary products – these were previously optionally reduced rated.

The UK had pushed for zero-rating, and the zero-rate was announced in last week’s UK Budget.

See here: http://www.theguardian.com/money/2016/mar/18/tampon-tax-scrapped-announces-osborne

Why the rate of zero and not simply a straight-forward exemption? An exemption would block input tax recovery for sellers of women’s sanitary products. This would lead to a major admin burden for every part of the supply chain (manufacturers, distributors, retailers) and would probably lead to price increase.

A rate of zero doesn’t impede the overall right of input tax credit, so it will be interesting to see if tampons actually see a price reduction of 5% in the UK. Other EU member states may follow.

As expected, others are now claiming that there are more goods that should be zero-rated, like energy-saving products. Also, paper books are zero-rated in the UK, but not e-books.

Who’s next?

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Odd new VAT rule for B2C sales into the UK

VATlive reports on the UK Budget, which introduces a strange new VAT rule. In practice, this will almost exclusively apply to eBay and Amazon. It is all about “fraudulent” sales of goods (not online services!) from China into the UK, where the seller does not report any VAT to HMRC.

VATlive says that the new rules will include:

  1. “The obligation of fraudulent sellers to appoint UK VAT agents;
  1. The agents will be responsible for UK VAT registering the e-commerce sellers, and filing VAT returns and remittances [I would be surprised if eBay and Amazon would take on that liability, MH];
  1. If no agent is appointed, then the UK may make the e-commerce platforms [read: eBay and Amazon, and potentially PayPal, MH] liable for any missing VAT;
  1. Fulfilment houses [read: eBay and Amazon (or do they mean the freight forwarders?), MH] to apply a new due diligence regime to detect VAT fraud in this area on behalf of HMRC

It is believed that millions is being lost each year as largely China-based online sellers of goods to consumers have failed to UK VAT register, as required. This has resulted in heavy losses of VAT. It is also putting UK domestic sellers at a severe competitive disadvantage since they must charge 20% UK VAT.”


I must have misread this news. It only seems to apply to the B2C supply of goods, where a non-EU seller ships from outside the EU into the UK. Errrr… what about UK Customs? They capture import VAT on goods that exceed the threshold for items of low value, right? What is the “fraudulent” leakage of “millions”? Does HMRC now expect eBay / Amazon to force the seller to be the importer of record, pay import VAT, deduct import VAT paid and then account for domestic VAT at the same rate and same amount? Sounds really odd.

The issue could not be about fulfilling orders to the customers out of a domestic UK warehouse – those locally warehoused goods have passed UK Customs as well and import VAT has been paid on them.

The only thing that I can think of is that HMRC tries to circumvent the VAT exemption for imports of low value. But this exemption is entirely optional for Member States and can be fairly easily removed, particularly using the anti-fraud argument.

Someone please enlighten me.

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