KPMG reports on a couple of interesting changes in the Polish VAT rules per April 1. I found it striking that the Polish authorities reiterated that on a reverse charge the input tax is only recoverable if the connected output tax is reported in the same tax period.

Also, a reverse charge for domestic supplies no longer applies when the non-resident seller is VAT registered in Poland. This is a nice one. I will show you the difference with the old rules. Take the example where a U.S. company imports goods into Poland, stores them in a warehouse and subsequently sells them to a Polish business.

Import VAT is due at 23%. On the local sale the VAT was reverse-charged, so no output VAT was payable. The U.S. company was stuck with the 23% import VAT, and had to file a tedious 13th Directive reclaim to get the import VAT refunded. A cash flow matter at best, and a lost cause at worst.

Under the new rules the U.S. company can register for VAT, file VAT returns and offset the paid import VAT against the VAT due on the local sales. No significant cash flow disadvantage, and no risk that the refund request will be rejected.

Wish Italy would do the same.

This, and more in the pdf below.

Download (PDF, Unknown)

Through LinkedIn, Amir Pichhadze shares his recent article in Tax Notes International on a global “acte eclaire” – judges using other countries’ case law ti support their decisions. In Canada, a lower court’s judge did exactly that, but the ruling was rejected on appeal because ”Canada’s GST system is “somewhat different from” the UK’s VAT system”.

Amir contemplates whether the Canadian system is indeed “somewhat different from” the UK system, and he also discusses

the importance of having courts exercise diligence when considering the law of foreign jurisdictions; otherwise they may miss the opportunity of reaping the benefits of judicial globalization, just as the FCA missed the opportunity of learning from the UK’s VAT system in the CIBC case.

It would have been interesting if Amir would also have considered the so-called “acte clair” and “acte eclaire” doctrines that apply in the European Union. Acte clair means: if the case is obvious, there is no point for a judge to refer to the European Court of Justice. An acte eclaire is when the ECJ already ruled in a similar case – then the national judge must not refer the case. Some member states allow interpretations of the supreme or even lower courts in other member states to be used as arguments for “substantially similar” cases.

It’s a long and academic article, but a must-read for tax attorneys and anyone interested in global legal processes.

Input Tax Credits: What Canada’s Federal Court of Appeal Could Have Learned from the U.K. VAT by Amir Pichhadze :: SSRN.

While we are still awaiting word from Italy about their potential VAT increase per July 1, Luxembourg has announced a VAT rate increase from 2015.

This increase has been widely expected, and is in relation to the change of supply rules of e-services. See here for more information on that.

Ernst & Young says:

The Luxembourg Prime Minister, Mr Juncker, has announced, in its “State of the Nation” speech, that Luxembourg will raise as from 2015 its VAT rate to help reduce its deficit and to cope with the loss of the VAT receipt linked to the changes of rules applicable to the E-commerce services (taxation at the place of the private consumer as from 2015 instead of the place of the supplier).

The standard VAT rate is currently 15% and is the lowest in the European Union. The Prime Minister has indicated the wish of the government to maintain the lowest standard VAT rate in the EU even after this increase. In this respect, the lowest VAT rates, after the Luxembourg one, are applied by Cyprus and Malta (18%, to be increased to 19% in Cyprus as from 2014). The Prime Minister has given no further indication.  At this stage, it is difficult to anticipate what will be the rate (due to budget constraints, 17% or 18% is however more likely than 16%) and whether this increase will be gradual or not.

I don’t expect Italy to announce VAT rate news soon – first they have to sort out the results of the recent elections.

China Daily reports:

The reform program to replace the business tax with a value-added tax will be expanded nationwide on August 1 in pilot sectors, Premier Li Keqiang said during a key meeting on Wednesday.

The expanded pilot program will also include enterprises in the radio, film and television industries, alongside those in the transport industry and some modern service sectors, Li said during an executive meeting of the State Council.

The nationwide expansion will eliminate policy differences between pilot and non-pilot regions. The program will help cut 120 billion yuan ($19.37 billion) in levies for companies in the pilot sectors in 2013.

The Chinese must laugh at the bickering and snail’s pace of tax reform in the EU – not to mention in the U.S.!

Note that this is not only a relief for Chinese resident businesses, but also for non-residents that – for example – charge license fees to Chinese companies. Under the old rules, these fees (depending in the nature of the license) were taxable with non-recoverable business tax. Under the new rules the VAT is recoverable to the Chinese licensee. This is of course assuming that the licenses are directly used for sales or manufacturing.

As most of you know, I am actively following the VAT developments in China. Feel free to reach out if you have any questions or comments.

VAT reform set to go nationwide in August |Economy |chinadaily.com.cn.

KPMG reports that according to the Bahamas Ministry of Finance a VAT system would be introduced by July 1, 2014.

It is anticipated that with the introduction of a VAT regime, there would be reductions in import tariff and excise tax rates. The VAT measures would also include a repeal of the hotel occupancy tax.

Bahamas – Update on proposed VAT regime | KPMG | GLOBAL.

Tax-News.com has dedicated an editorial to summarize the current position of the reduced VAT rate in the EU. This essay puts a number of actions of the European Commission (the de facto governing body of the EU) into the perspective of a simplified VAT system. In addition, a number of cases of the European Court of Justice are discussed.

The conclusion is that, as with so many other European action points, real change will take another few years. Not only because “changes to EU fiscal laws tend to move at a snail’s pace”, but also due to the time the European Court of Justice takes to develop case law.

VAT Review: The End of Reduced Rates in the EU?.

An interesting news item today out of Scotland. Awarding medals is a supply of goods, and VAT is due on the value.

The SFL (Scottish Football League) contended that the award of medals was a “disposal of goods”, and a part of “business assets”, and not liable to a tax.

But they lost this match.

League bosses lose medal VAT battle – Hamilton Advertiser.