Webcast on 11/11: VAT basics for retail + Puerto Rico

I will present a webcast on Wednesday November 11, at 12 noon Eastern, 9am Pacific, where I will provide an introduction to VAT, with a specific eye to retail. I will also spend time on discussing the possibly new VAT in Puerto Rico, which may (or may not) be implemented on April 1, 2016.

The webcast is free of charge, but the number of attendees is limited.

If you are interested, please send me an email now – mark@us-vat.com – so that I can provide dial-in details shortly before the webcast.

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UK food – the strangest VAT of all

My co-presenter Andy Hallsworth shared about VAT rate oddities: a small pumpkin is considered food, and therefore subject to the zero-rate. But you are not supposed to eat a large pumpkin. These are for carving and therefore subject to the standard rate.

Another telling example is the VAT liability of the sale of snowballs – see https://www.gov.uk/government/publications/revenue-and-customs-brief-36-2014-vat-liability-of-snowballs/revenue-and-customs-brief-36-2014-vat-liability-of-snowballs

The Telegraph has summarized these strange rate choices in an article – and they have included dog food for good measure: http://www.telegraph.co.uk/finance/personalfinance/money-saving-tips/11959884/VAT-loopholes-how-to-save-around-the-supermarket.html

Some U.S. sales tax jurisdictions have similar odd rate rules.

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Senator Cruz proposes a tax that is not a VAT

As you all know, this is the time that Republicans float tax proposals, and they come in various degrees of detail and seriousness.

Senator Cruz, who as per today polls at 6.6%, launched a proposal for a “Business Flat Tax”.

Alan Cole from the Tax Foundation has a nice write-up here: http://taxfoundation.org/blog/ted-cruz-s-business-flat-tax-primer – he calls it a “tax-inclusive subtraction-method value-added tax”.

Cole says:

“Ted Cruz has proposed combining the corporate income tax, the payroll tax, and some of the income tax into a single, larger, broader tax assessed on businesses. While the tax would be new in many respects, it would produce revenues from the same general kinds of economic activity taxed by the things it replaces.

It would not be similar to existing sales taxes, or the VATs in Europe, because it would not be levied on a transaction-by-transaction basis. Be skeptical of analysis that assumes this tax would be like a sales tax, or that it wouldn’t apply to nonprofit salaries like mine, and so on.”

The Tax Foundation has an estimate of the tax plan here, which is interesting from an academic and social-economic perspective: http://taxfoundation.org/article/details-and-analysis-senator-ted-cruz-s-tax-plan

Finally, the Senator has the entire plan here: https://www.tedcruz.org/tax_plan/

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Trading in BitCoin is exempt, of course

In a rightfully wholly unsurprising decision, the European Court of Justice recently ruled that BitCoin (the online “virtual” currency) is a currency and therefore the trading in this currency is exempt from VAT.

This does not mean that purchases made with BitCoin as a payment are VAT free! If, for example, an EU individual purchases online software, music, video, games etc., VAT is still due at the rate of the country of residence of the buyer. Only the trading in BitCoin is exempt from VAT.

I have posted my thoughts on BitCoin earlier here: http://www.us-vat.com/blog/?p=823 and also here http://www.us-vat.com/blog/?p=806 (two years ago!), where I predicted the outcome of the ECJ ruling.

If you are so inclined, the ruling is here. Actually, it’s an interesting read.

Download (PDF, 817KB)

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Slides from the Vertex conference

Apologies for missing two weeks of posting – I was too busy! I was teaching VAT earlier this week in Orlando, FL at the annual Vertex Exchange Conference.

The turnout was good and the questions asked during the sessions were excellent – many thanks to all attendees for making this a success.

As you have seen, my teaching buddy Andy Hallsworth and I enjoy presenting the most when we can pull up a flipboard and talk through your questions with drawing arrows, lines and boxes!

The slides of the VAT basics presentation:

Download (PDF, 535KB)

and the slides of the VAT advanced presentation:

Download (PDF, 228KB)

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Using algorithms to detect tax evasion

This is a fascinating read for if you want to step back from the daily grind of case law and business issues. The writers have no relationship to tax at all, and provide a refreshing and original approach to early detection of tax fraud.

“Tax evasion schemes are sequences of transactions where each transaction is individually compliant. However, when all transactions are combined they have no other purpose than to evade tax and are thus non-compliant.

Our method consists of an ownership network and a sequence of transactions, which outputs the likelihood of conducting an audit, and requires no prior tax return or audit data.

We adjust audit procedures for a new generation of evolved tax evasion schemes by simulating the gradual change of tax evasion schemes and audit points, i.e. methods used for detecting non-compliance.

Additionally, we identify, for a given audit scoring procedure, which tax evasion schemes will likely escape auditing.”

Download (PDF, 804KB)

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Don’t store EU user data on a U.S. server

Are you collecting personal data from EU online or retail customers on a U.S. server? You should reconsider your data storage policies!

The European Court of Justice – the court that I often refer to on this blog for its VAT rulings – today issued a judgement that basically says that U.S. servers must not store personal data / user data of EU residents.

The reason is that the U.S. legislation does not provide adequate protection from ‘snooping’ government agencies.  The NSA security leaks that Edward Snowden exposed are specifically mentioned in the ruling.

I wrote earlier that some countries have bi-lateral treaties with the U.S. that would allow such data sharing. See here: http://www.us-vat.com/blog/?p=1075.

It now seems that these bi-lateral agreements are invalid, at least to the extent that they cover personal data. Company data (like financial data used for the VAT returns) seems safe from what I can read from the judgement (but don’t rely on that!).

Credit card data, IP addresses, email addresses etc. of EU residents is considered personal data and can no longer be stored on U.S. servers. If your company is doing that, for example because your are a online seller of downloads to EU customers, or because your are a retailer that keeps the EU customer data on a U.S. server, you may run into legal trouble soon.

The entire ruling is here: https://tinyurl.com/oogq5zo

And the press release is here:

Download (PDF, 44KB)

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