New Smart Brief:
Take Control of Your VAT Compliance
With more than 150 countries operating Value Added Tax (VAT) or similar consumption taxes, VAT compliance represents a compelling issue for any company conducting business across international borders. VAT compliance requires special emphasis as the amount involved is far greater than any other taxation system.
In addition to these challenges, regulatory pressures, such as the Sarbanes-Oxley Act in the U.S. and similar legislation elsewhere, are forcing companies to review their VAT processes and related accounting. The following discussion is a high level overview of the VAT system and will demonstrate the complexity of VAT compliance when operating in a global market while illustrating ways to stay in control.
For more information on how these changes might affect your organization, read our new SmartBrief, Take Control of your VAT Compliance, to learn more.
VAT Compliance Updates
Austria: Possible New Reduced VAT Rate
On May 19, 2015, the Austrian Ministry of Finance proposed the Tax Reform Act of 2015, therein introducing a new reduced rate of 13% in 2016. Provided the changes are enacted, the delivery of various goods and services subject to the current reduced rate of 10% will be increased to 13%. This change impacts sales of animals, seeds, plants, hotel accommodations, cultural events, as well as certain wine sales. The new 13% reduced rate will also apply to sporting events, currently standard-rated. The current 10% reduced-rate will continue to apply on defined sales, including food and drugs, and the current 20% standard-rate is expected to remain unchanged.
Czech Republic: New Reporting Obligations
From January 1, 2016, selected entities in the Czech Republic will be required to provide data on tax receipts by submitting a Control Report. This reporting obligation is a special tax claim and is entirely separate from the regular VAT return obligation.
European Union: Study on VAT Exemptions Applicable to the Importation of Small Consignments
Recently, a study has been released for the European Commission analyzing the VAT exemptions applicable to the importation of small consignments that have been implemented in all 28 Member States.
Greece: Possible Increase in VAT Rates
As part of its proposals to the European Central Bank, the European Council and International Monetary Fund, the Greek government offered to increase all VAT rates applied in the country. However, this proposal was rejected by Greece’s creditors who are still requiring accompanying budget cuts. At the time of this writing, negotiations are still ongoing.
Hungary: 2016 Budget Bill
The Hungarian government submitted the 2016 Budget Bill to the National Assembly on May 13, 2015. According to Hungary Ministry for National Economy, changes with respect to VAT include a reduction of the VAT on pork from the current rate of 27% to 5% to take effect next year. The same source also indicates that the government is considering lowering the VAT on other basic food items. The Budget Bill is expected to be considered in the last week of June.
Ireland: Tax Policy Division Publishes Public Consultation Paper|
The Tax Policy Division of the Department of Finance has issued a public consultation paper designed to solicit public comment on possible changes to the 2016 Budget to be issued in October. The intent is to solicit opinions on existing and proposed future measures, including VAT rules, designed to support the growth of small to mid-sized businesses. This consultation will run from June 2, 2015 through July 14, 2015.
Malta: Threshold Change
Previously, taxable persons established in Malta whose annual turnover threshold did not exceed €7,000 were not required to register for VAT. However, the €7,000 threshold has been removed and such taxable persons must now register for VAT in Malta no later than June 30, 2015.
Netherlands: VAT Rate Changes for Labor Costs
A reduced VAT rate of 6% currently applies to the labor charge for renovating, rebuilding, or repairing existing dwellings that are older than 2 years. This rate, however, is set to expire on July 1, 2015. For work to be completed on or after July 1, 2015, the standard rate of 21% will apply. However, the 6% reduced rate continues to apply to painting, plastering, and insulation for houses older than 2 years.
Poland: ECJ Finds Invalid Reduced Rate on Certain Medical Products
On June 4, 2015, the Court of Justice of the European Union issued a decision in Case C-678/13 with regard to application of a reduced rate of VAT to medical equipment, auxiliary equipment and other devices as well as pharmaceutical products in Poland. The Court found that products referred to in positions 82, 92 and 103 of Schedule 3 of the Polish VAT Act do not fall under the list of products for which the EU VAT Directive (2006/112/EC) allows the Member States to apply a reduced rate. At the time of this writing, the judgment is only available in French and Polish.
Portugal: Adjustments of VAT Credits
The Ministry of Finance of Portugal issued Ordinance (Portaria) 172/2015 that defines the procedure for requesting authorization to apply adjustments on VAT credits flowing from bad debts previously reported as normal sales.
Romania: Reduced Rate for Food Products
Romania recently enacted Emergency Ordinance 6/2015 which reduces, effective June 1, 2015, from 24% to 9%, the VAT rate on a number of products including food for human and animal consumption, and ingredients used in the preparation of food products used to supplement or replace foodstuffs. The Romanian government estimates this measure to impact the state budget by up to 4.1 billion euros by 2018.
The Slovak Republic: Proposed VAT Rate Change for Food Products
According to multiple news sources, the Slovak government will propose to reduce the VAT rate on selected basic food items from 20% to 10% effective in 2016. The proposal is one of the measures in the Prime Minister’s second social package. The exact list of qualifying food items is not known at this time.
Sweden: Clarification of Import VAT Rules
On May 13, 2015, the Swedish Tax Agency published new information relating to import VAT liability. The publication clarifies that importers using agents who submit incorrect declarations are liable for paying import VAT when: a valid proxy exists at the time of import; and the importer is VAT registered at the time a decision on assessment duty is taken. However, the agent is liable for the import VAT payments if at the time of import: the power of attorney is invalid; or the importer is not VAT registered at the time of the customs decision.
On May 27, 2015, Her Majesty the Queen delivered a speech to both Houses of Parliament confirming that forthcoming legislation will ensure there are no rises in VAT, Income Tax, or National Insurance rates for the next 5 years.
Reduced VAT Rate for Energy Saving Materials Incompatible with EU Law
On June 4, 2015, the European Court of Justice (ECJ) agreed with the European Commission and held that the reduced VAT rate in the United Kingdom for the supply of installation of energy saving material violates the terms of the EU VAT Directive. The ECJ ultimately decided that the reduced rate applicable to transactions related to social housing does not also apply to energy saving materials. As such, the UK must change its law or face the imposition of penalties.
Haven't signed up for SovosCon yet?
Use Promo Code JulySOC to get $300 off the current registration fee!
SovosCon, October 28-30 in San Diego, features a wide range of CPE-accredited hands-on training classes covering multiple tax compliance issues such as Sales & Use Tax management, European compliance, ACA reporting, customer experience, and more!
These 40 educational sessions will showcase the latest news and best practices as they relate to topics like:
- Sales and Use Tax Compliance, Filing, and Reporting
- Value Added Tax Compliance, Filing and Reporting
- Customer Experience and Technical Tax Challenges
- Optimally Implementing and Troubleshooting Tax Technology
- Tax Information Reporting for 1099s, ACA, and FATCA
Combined with keynote presentations from industry experts, hands-on training, and one-on-one support, you will learn how to leverage Sovos Compliance’s technologies and tax research expertise to maximize your business’ tax reporting security while minimizing cost.
See our agenda to learn more about SovosCon sessions and speakers.
Recently Added Resources on Sovos.com
- Missed our webinar on Managing the Growing Trends in Global Consumption Tax with KPMG? Watch
- Our new EU Place of Supply Smart Brief describes the challenges of compliance with the January 2015 rules and ways to overcome