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.”

http://www.vatlive.com/european-news/uk-tackles-e-commerce-vat-fraud-on-ebay-and-amazon/

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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India Finance Minister: Pass GST bill in April

The proposals for an integrated Goods and Services Tax (a VAT, really) in India seem to come to fruition. Implementation no longer seems a question of “if”, but rather “when”. Passing the GST law by Parliament is only an intermediary step – ratification by at least half of the states is next.

Obviously the devil will be in the details. Transition rules, tax determination, inter-state sales, compliance / filings and invoice requirements have not been sufficiently addressed – at this time there is not much to prepare for businesses.

http://www.business-standard.com/article/economy-policy/gst-bill-might-be-passed-in-april-fm-116031400037_1.html

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Online sellers to register in Switzerland, Israel

Switzerland is the latest country to jump on the fast train of taxing online purchases.

Like in the EU and an increasing number of non-EU countries, online sellers of video, music, software, games etc. will be required to register for Swiss VAT and pay over 8% of the sales to Swiss customers.

The details will still have to be ironed out, it seems. The one report that generated this news did not specific that the tax requirement only applies to sales to individuals, and also reported that the registration threshold would be CHF 100,000 ($100,345) in annual profit – not sales. Seems incorrect to me.

Same thing for Israel. Their e-commerce VAT rules are still a proposal, but likely to be passed through Parliament swiftly.

So if you are currently working on configuring the global tax calculation for a company that makes online sales, it would make sense to consider the upcoming Swiss requirements – as it would be for a dozen or so other countries outside the EU.

Global VAT management for online sellers doesn’t get any easier – but thus far it seems like the EU VAT determination template for these sales broadly works in other countries as well.

Switzerland: http://www.swissinfo.ch/eng/parliamentary-decision_foreign-companies-to-pay-vat-in-switzerland/41998784

Israel: http://www.haaretz.com/israel-news/business/.premium-1.708667

Stay tuned for more on online sales.

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Emirates: VAT from scratch in 2018

Yesterday I mentioned during a webinar that there are hardly any countries left that do not have a VAT/GST or a similar indirect tax. Even the committed tax-free zone of the United Arab Emirates have now formally announced the introduction of a VAT, in 2018.

The interesting thing is that the UAE currently does not have a revenue authority that would be able to collect and audit a VAT. The challenge to implement a new VAT is therefore not only on the business side – the governments definitely have to shore up their capabilities. This is not an integration of a set of sales taxes into a VAT (like we have seen in China, Australia, Malaysia and shortly in Puerto Rico), but rather building a VAT from scratch!

I will spend more blog time on this development in the coming weeks and months. For now, here are a few good write-ups from Thomson Reuters:

https://tax.thomsonreuters.com/blog/onesource/vat-gst-management/vat-new-hot-commodity-gcc-members/

and thoughtware from Deloitte:

Download (PDF, Unknown)

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Things people say about a VAT in the U.S.

I thought that this was an interesting set of comments. Some writers are clearly well-educated about how a VAT works and its impact on the economy.

Enjoy at: http://blogs.wsj.com/briefly/2016/03/03/time-for-a-value-added-tax-in-the-u-s-readers-have-their-say-at-a-glance/

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Puerto Rico VAT? Not yet…

Just a quick note to let you know that April 1 will not see a VAT implemented in Puerto Rico.

The new date is June 1, but my sources mutter that there is little doubt that the government will postpone the introduction of VAT even more, or make substantial changes in the rules, rates and/or calculation and compliance processes.

If the new VAT in Puerto Rico has an impact on you, I have a few brief slides that provide high-level tips for a smooth transition. Let me know please if you are interested.

The press release that announces the implementation delay is here: http://www.hacienda.gobierno.pr/sobre-hacienda/sala-de-prensa-virtual/comunicados-de-prensa/secretario-del-departamento-de-hacienda-extiende-la-implantacion-del-iva-hasta-el-31-de-mayo-de-2016 (in Spanish)

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