e-Books: Continued Evolution of the European Court of Justice Decision
What is a book and how should VAT be applied seems a simple question.
However, since the March 2015 European Court of Justice (ECJ) decision, countries have been making decisions about how to manage the implications.
For more information on how these changes might affect your organization, read our new blog post to learn more.
VAT Compliance Updates
European Union: Applicability of VAT to Bitcoin Exchange Transactions
On July 16, 2015, the Advocate General (“AG”) of the Court of Justice of the European Union (“ECJ”) delivered a recommendation regarding the applicability of VAT to foreign exchange of the virtual currency "Bitcoin"
against conventional currencies.
The AG concluded that the activity of exchange of Bitcoins against a national currency constitutes a taxable event under Article 2(1)(c) of the EU VAT Directive (2006/112/EC).
However, the exemption under Article 135(1) applies where, as in this case, a currency that constitutes legal tender, is converted in another currency (Bitcoin) that is not a legal tender but which participates in the flow of payments as a pure means of payment.
The final decision by the ECJ has yet to be issued.
Austria: Continuing Debate on VAT Reform
As noted in our last newsletter, debate continues with respect to VAT reform in Austria.
On July 7, 2015, the first chamber of the Austrian Parliament, the National Council (Nationalrat) approved the Tax Reform Act 2015/2016 with minor revisions.
As this newsletter goes to print, the second chamber, the Federal Council (Bundesrat) is debating the bill. If the Bundesrat approves and the President authenticates the measure, the Act would introduce a new reduced rate of 13% effective January 1, 2016.
The new 13% rate would apply to many transactions currently subject to tax at the existing 10% reduced rate including animals, seeds, plants, hotel accommodations, cultural events, as well as certain wine sales.
The 13% rate would also apply to sporting events, which are currently standard-rated.
The current 10% reduced-rate would continue to apply to sales of certain enumerated products, including food and drugs, and the current 20% standard-rate is expected to remain unchanged.
Belgium: A Poster is Worth a Thousand Words
The Belgian General Administration of Taxation issued Decision E.T.
127.539 on June 16, 2015.
The decision clarifies the appropriate VAT to be applied to sales of posters.
Posters printed and intended for informational purposes are properly subject to the reduced 6% VAT rate imposed on printed materials.
Examples include posters relating to humanitarian campaigns or those announcing cultural or social events.
Posters sold for private use or for decorative purposes are subject VAT at the standard rate.
Croatia: English Language Registration Form Issued
The Croatian Ministry of Finance has released an English language VAT registration form: http://www.porezna-uprava.hr/en/EN_obrasci/Documents/P-PDV(English).pdf
Cyprus: Reduced 5% Rate Applies to Certain Home Improvements
The Cyprus Ministry of Finance of issued Interpretive Circular #192 of June 24, 2015 entitled, “Imposition of reduced VAT rate of 5% on renovation services and repair of private dwellings.” The Circular clarifies that insulation services, including thermal insulation and
water-proofing, constitute a renovation and repair of private dwellings, which falls under the provisions of paragraph 11 of Table B of the Fifth Schedule within the Cyprus VAT Act.
As such, they are subject to tax at the reduced rate of 5%.
Czech Republic: Updated Guidance on Application of Domestic Reverse Charge
On July 13, 2015, the General Tax Directorate of Czech Republic published a set of Frequently Asked Questions regarding the Application of Article 92f of the Czech VAT Act.
235/2004 Coll.) Under Article 92f, when specified items are sold to a taxable person in the Czech Republic, the supplier will not collect VAT from the buyer as the the buyer must account for VAT.
These items include but are not limited to metals, mobile phones, integrated circuits and video game consoles.
As implemented, the domestic reverse charge applies only when the total tax base for such goods exceeds 100,000 Czech crowns (CZK).
The Frequently Asked Questions provide a number of clarifications on how the domestic reverse charge applies and how the tax base is determined:
- Incidental expenses, such as cost of packing, transport, insurance and commissions, billed in connection with the goods sold, are considered part of the taxable base, and therefore when the reverse charge applies on the good sold, it also applies on the incidental expenses.
- When determining whether the tax base exceeds 100,000 CZK for the reverse charge threshold, incidental expenses are added to the value of goods.
- The 100,000 CZK threshold applies to each delivery.
Thus, if there are multiple deliveries of qualifying goods and the total delivery is over 100,000 CZK, but each individual delivery is under 100,000 CZK, the reverse charge procedure does not apply.
Denmark: Exemption Applicable to Medical Treatments at a Rehabilitation Center
On July 6, 2015 the Danish Tax Authority published a binding ruling addressing the proper application of VAT to treatments performed at a Rehabilitation Center.
The sum and substance of the ruling is that such treatments may be exempt when the following conditions are met.
- The service is to be performed in the exercise of the medical or paramedical professions.
- The service must be fairly characterized as a medical treatment, meaning that it is intended to prevent, diagnose, treat or cure the medical condition at issue.
The ruling goes on to provide examples of situations indicating when the above mentioned criteria may be considered to have been met.
New Published Guidance on the Mini One Stop Shop
The Finnish Tax Administration has published guidance in English on the special scheme for VAT (Mini One Stop Shop).
Of particular note are the instructions related to Small Entrepreneurs contained in Sec.
As a general rule, small entrepreneurs established in Finland whose turnover of the financial year is at most €8,500 are not obligated to register for VAT purposes.
However, this threshold is not applicable to foreign entities selling broadcasting, telecommunication and electronically supplied services (BTE) to non-taxable persons in Finland.
Additionally, if a small entrepreneur opts to register directly for VAT in Finland, then they would be obligated to collect tax on all taxable supplies and not just with respect to BTE services.
VAT Registration Requirement for Non-Profit Organizations
The Finnish Tax Administration has updated its VAT registration requirements for non-profit organizations.
Currently, under Finnish law, a non-profit organization is not subject to VAT for any activities associated with its non-profit purpose.
The Finnish Tax Administration has stated, however, that non-profit organizations are subject to VAT on the following activities:
- Business activity for income tax purposes that exceeds EUR 8,500 for the annual accounting period
- Real estate management services for private use
Incorrect VAT Invoices
The German Finance Ministry issued a modified decree explaining, based on practical considerations; VAT invoiced in error can be corrected within the same reporting period as the original supply.
Previously, Germany held that VAT billed in error was due on issuance of the incorrect invoice.
However, the Finance Ministry now recognizes that a supplier issuing an incorrect invoice will generally not be aware of the error at that time of issuance.
Accordingly, the supplier may make the necessary adjustments to account for and correct the error in the same reporting period.
On July 16, 2015, the ECJ issued a judgment in joined cases C108/14 and C109/14.
The decision holds that entities without “legal personality” (e.g.
partnerships) can be included as part of a VAT group unless an exclusion is necessary to prevent abusive practices or to combat tax evasion.
As such, existing German rules that restrict participation in VAT Groups are incompatible with the EU VAT Directive.
Greece: Required Austerity Measures Enacted
On July 16, 2015 the Parliament of Greece passed Law 4334/2015 which was immediately followed by Ministry of Finance Decree POL 1154/2015.
The result of this legislative change as it relates to VAT is as follows:
- The 23% standard VAT rate remained unchanged.
- The special reduced rate of 13% applicable to most food items was modified such that many food products are now subject to the standard rate of 23%.
- The super reduced rate applicable to items such as medicines and publications was reduced from 6.5% to 6%.
Additional changes will take effect on October 1, 2015, including an increase to the rate applicable to accommodations.
Hungary: Reduced Rate on Pork Moves Forward
The Hungarian Ministry for National Economy announced on July 23, 2015 that the National Assembly adopted the 2016 Budget Act.
As reported in the last newsletter, the Budget includes a reduction of VAT on pork from the current rate of 27% to 5% next year.
Ireland: Provisions Relating to the Proper VAT Treatment of Betting Activities
Effective August 1, 2015 the provisions of section 60(1)(c) of the Finance Act 2011 take effect.
These provisions provide for changes to the Value-Added Tax Consolidation Act of 2010 with respect to the VAT treatment of certain types of betting activities.
The Irish Revenue Division explains that the terms of the Commencement Order are interpreted to apply an exemption from VAT to bets that are subject to excise duty and are entered into by remote bookmakers with persons in the State.
The Order also provides that commissions earned by betting exchanges from bets executed on the exchange by persons in the State and are subject to excise duty are also exempt from VAT.
Italy: Derogation Relating to VAT Payments by Public Entities
At its meeting on July 14, 2015, the European Union's Economic and Financial Affairs Council (ECOFIN) adopted a decision authorizing Italy to require VAT payments made by public authorities to be paid to a separate and blocked bank account as opposed to being paid to the supplier.
This measure derogates Articles 206 and 226 of the EU VAT Directive.
The derogation is intended to address fraud-related concerns.
As public authorities are not taxable persons, the application of the reverse charge mechanism, also intended to combat fraud, is not possible.
Malta: Refund of VAT Paid on Vehicle Registrations in 2004
On June 22, 2015, the Malta Transport Authority announced it would be continuing the initiative to refund the full amount of VAT paid on the registration tax charged to vehicle owners who registered a vehicle between May 1, 2004 and December 31, 2004.
As initially announced in 2014, the refunds are a result of a previous registration duty regime, which was determined to contravene EU law.
Transport Malta will notify individuals qualifying for the refund. However, vehicle owners who receive this notification must respond with the requested information no later than July 31, 2015.
Netherlands: Proposed and Rejected VAT Reforms
On June 19, 2015, the Secretary of Finance submitted a letter of tax reform to the Netherlands House of Representatives.
The measures included a proposal that would cause supplies currently subject to the 6% reduced rate to be subject to the standard rate of 21%.
While the proposal would not have applied to food, it would have impacted the tax applicable to books and other qualifying publications.
However, on June 24, 2015, Motion 32 140, No.
15 was submitted to the House, calling on the government to refrain from eliminating the reduced VAT rate.
On July 1, 2015, the House adopted the motion.
As a result, the reduced VAT rate of 6% on all currently qualifying supplies will continue to apply.
Revised and New VAT Forms
The Polish Minister of Finance announced two new regulations on June 19, 2015 (poz.
849) and on June 29, 2015 (poz.
Under the regulations, a new form VAT-27 has been created and the following VAT declarations have been revised:
- VAT-7 (monthly VAT return)
- VAT-7K (quarterly VAT Return for small businesses)
- VAT-7D (quarterly VAT return for other eligible taxpayers)
- VAT-8, and
914 also contains detailed explanation of the relevant fields for forms VAT-7, VAT-7K, and VAT-7D.
The requirements contained in both regulations became effective July 1, 2015.
Extension of Domestic Reverse Charge for Certain Transactions
Under the Public Procurement Law (Dz.
605), which amends the Polish VAT Act, effective July 1, 2015, the scope of domestic reverse charge has been extended to additional goods including gold, mobile phones, portable computers and video game consoles.
Please note that the reverse charge mechanism as it relates to electronics, applies only when the total value of these goods within a single economic transaction exceeds 20,000 Polish zloty.
Derogation to Exempt Taxable Persons with Low Annual Turnover
At its meeting on July 14, 2015, the European Union's Economic and Financial Affairs Council adopted a decision extending by three years, an existing derogation from Article 287 of Directive 2006/112/EC.
The derogation allows Poland to exempt from VAT taxable persons with annual turnover no higher than EUR 30000.
The decision will apply until December 31, 2018.
Portugal: Changes to the Reduced and Super Reduced Rates in Azores
Portugal enacted Law nr.
63-A/2015, which became effective as of July 1, 2015.
Under the law, the existing 10% reduced rate applicable in the Azores further decreased to 9%.
Likewise, the existing 5% super-reduced rate further decreased to 4%.
Examples of items now subject to the 4% rate, include but are not limited to, books, magazines and newspapers.
Romania: Fiscal Code in Flux
Recently, the President of Romania rejected the newest version of the Fiscal Code approved by the Chamber of Deputies within the Romanian Parliament.
The proposal had overwhelmingly passed the Chamber with 309 votes in favor, two votes in opposition and one abstention.
The measures contained in the proposal were aimed at simplifying the financial system and easing the compliance burden on taxpayers.
Most notably, it proposed to reduce the standard VAT rate from 24% to 19% effective January 1, 2016. In rejecting the measure, the President claimed to be concerned about the economic disruption that would be associated with a sweeping change to Romanian fiscal policy.
The Slovak Republic: Domestic Reverse Charge and Triangulation
Government Bill 1569/2015 is currently under consideration in the Slovak Parliament.
Under the proposal, a number of significant changes would apply to the Slovak VAT Act (Act No.
222/2004 Coll.) effective July 1, 2016.
Two of the proposed changes in the bill include an expansion of domestic reverse charge mechanism and an additional restriction for applying triangulation simplification.
A provision in Bill 1569/2015 amends Article 69(2) of the Slovak VAT Act and would extend the application of domestic reverse charge for sale of all types of goods by foreign suppliers to established Slovak customers by removing a restriction that the goods be supplied together with
installation or assembly services.
If this provision is enacted, foreign companies making local supplies of goods in the Slovak Republic to established Slovak customers would not be collecting VAT as the Slovak customer would account for VAT under the reverse charge.
Another provision in Bill 1569/2015 amends Article 45 to the Slovak VAT Act and would create an additional requirement for triangulation simplification to apply.
Under the proposed requirement, triangulation simplification will no longer apply if the middle party is registered for VAT in the country of the first supplier.
Additionally, under the proposal there would be changes to the required language on the invoice from the middle party to the final customer when the simplification requirements are met.
United Kingdom: Summer Budget 2015: No VAT Rate Increases; Use and Enjoyment Provisions
According to the UK Summer Budget 2015 (“the Budget”) announcement and confirmed in the Finance Bill 2015, the standard and reduced rates of VAT will not exceed 20% and 5%
respectively for the duration of this Parliament.
In addition, no items will be removed from the scope of the current reduced and zero rates of VAT.
In sum, all rates will remain the same.
The Budget also provides that the VAT "use and enjoyment" provisions will be applied to all repairs made in the UK under UK insurance contracts, starting on January 1, 2016.
It appears that the Government also likely to further expand the use and enjoyment provisions to include other services, such as advertising, beginning in 2017.
Join Us At the VAT and SAP Summit
This summit will be held at the Kensington Close Hotel from 25th – 27th November.
If you are involved in the indirect tax compliance process in SAP, we would like to extend to you an exclusive Invitation to join us at the conference at a 25% discounted rate. Some of the key learnings that you might benefit from:
- As VAT departments do not usually have ownership of the data sources, how can you help ensure data is accurate and complete? This event will address how you can incorporate both structured and unstructured data into your system so you have improved visibility for your reporting and audits.
Sovos Compliance is offering a specific learning lab on this topic “The Importance of Data Extraction in SAP for VAT Process Optimisation” on the 25th of November, which you can sign up for separately.
This session will outline automation capabilities to reduce your information gathering process by up to 80% for a more efficient VAT process.
- Mapping out complex VAT flows, including triangulation, and indirect exports.
Gain insight into mastering the art of Intrastat reporting.
- Establishing your VAT requirements to ensure effective reporting and compliance.
With so many moving pieces, it can be difficult to communicate your requirements to IT, Finance, Procurement and the wider business.
However unless you take the time to make your case to the key stakeholders, you will continue to fire-fight instead of driving continuous improvement.
Learn how to establish and communicate your requirements to optimise the process.
- Organisational design for process excellence.
What operational models can best help VAT align with the business and be as effective and efficient as possible? This event will look at Centres of Excellence for VAT, VAT in Shared Services and offshoring the transactional elements of VAT.
To learn more about the event, please access the conference website.
If you would like to attend this conference, you can reach out to the Shared Services Link team at +44 (0)207 377 1907 and mention SOVOS2015 for your 25% discount.
Global Information Reporting Beyond VAT
Businesses everywhere are facing an increasing need to be compliant with new and complex regulations.
For financial services companies, there are new regulations that impact the ways they report to governments and their clients.
- The first significant step toward international reporting started with the US implementing the Foreign Account Tax Compliance Act (FATCA) with reporting deadlines in early 2015.
- This will be followed by the UK enacting CDOT (Crown Dependencies and Overseas Territories) reporting, commonly referred to as “UK FATCA,” with reporting starting in 2016.
- CRS (Common Reporting Standards) will represent the final step toward full transparency by facilitating the reciprocal exchange of account information between countries throughout the world resulting in a substantial increase in complexity.
Even if organizations have no obligations to FATCA and CDOT, key learnings from their implementation will be critical in understanding and meeting the obligations of CRS, with reporting set to begin in 2017.
Learn more about managing through these regulations with help from Sovos Compliance.
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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
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
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- 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
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