New VAT Smart Brief: Top 5 Reasons to Automate Your VAT Compliance Process.
Companies that conduct business across international borders often need to submit Value-added Tax (VAT) returns to multiple
This means that they need to gather relevant reporting data, reconcile, analyze and validate the data, prepare and submit returns, and remit payment to the appropriate taxing authorities for each VAT reporting period (which often occurs on a monthly basis). When this process is required for multiple taxing jurisdictions, it can be tremendously challenging to manage manually and in-house.
For more information about ways to streamline that process check out our
new SmartBrief, Top Five Reasons to Automate Your VAT Compliance Process.
VAT Compliance Updates
European Union: Right of Input VAT Deduction for Holding Companies
On July 16, 2015, the Court of Justice of the European Union (“ECJ”) delivered a judgment in joined cases C‑108/14 and C‑109/14 regarding the applicability of input VAT deduction for holding companies.
The full names of the cases are Beteiligungsgesellschaft Larentia+Minerva GmbH & Co.
KG v Finanzamt Nordenham (C‑108/14) and Finanzamt Hamburg-Mitte v Marenave Schiffahrts AGMarenave Schiffahrts AG (C-109/14).
The ECJ ruled that expenditures connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in their management (an active holding company) must be regarded as belonging to its general expenditures and the VAT paid must, in principle, be
deducted in full.
When the holding company does not involve itself in the management of its subsidiaries (a passive holding company), the VAT paid on such expenditures may not be deducted.
When the holding company acts as both an active and passive holding company, the VAT paid on the holding company’s expenditures may be deducted only in proportion to the activities for the subsidiaries it manages.
The criteria for apportioning must be defined by the Member States in a manner which objectively reflects the part of the input expenditures actually to be attributed.
In addition, with regard to the right to form a VAT group, the ECJ ruled that the EU VAT Directive precludes national legislation restricting the right to form a VAT group solely to entities having legal personality and a
subordinate link to the controlling company of that group. Member States may only apply such a restriction only if those two requirements are appropriate and necessary measures needed to prevent abusive practices or behavior, or in order to combat tax evasion or tax avoidance.
The ECJ further ruled that the relevant provision of the EU VAT Directive may not be considered to have “direct effect” thereby precluding taxable persons from claiming the benefit thereof against their Member State in the event that the Member State’s legislation is allegedly
incompatible with EU VAT Directive.
Austria: VAT Reform Enacted
Continuing from our previous newsletter, the Federal Council (Bundesrat) approved the Tax Reform Act 2015/2016 on July 23, 2015. After the authentication from the President and confirmation of the Federal
Chancellery, the Federal Law Gazette promulgated the new Tax Reform Act on August 14, 2015. The Act introduces a new reduced rate of 13% for the next year.
Specifically, effective January 1, 2016, the new 13% rate will apply to many transactions currently subject to tax at the existing 10% reduced rate including animals, seeds, plants, as well as certain wine sales. On the same
date, the 13% rate will also apply to sporting events, which are currently standard-rated. The new rate will also apply to cultural events and hotel accommodations, but that change will not be effective until May 1, 2016. The current 10% reduced-rate will continue to apply to sales of
certain enumerated products, including food and drugs, and the current 20% standard-rate remains unchanged.
Czech Republic: Possible Reduction in VAT Rates
On July 23, 2015, draft bill 558/0 was in introduced in the Parliament of the Czech Republic.
Under the proposal, effective January 1, 2016, the standard and reduced rates would decrease from 21% and 15% to 19% and 14% respectively.
The second reduced rate of 10% would remain unchanged.
In addition, catering and beverage serving services would be subject the revised reduced rate of 14%.
The proposal claims that the reduction in the standard and reduced rates would support the already robust economic growth the Czech Republic is currently experiencing.
Estonia: VAT on Accommodation Services
On June 15, 2015 the Estonian Parliament passed the Act on Amendments to the Social Tax Act, the Income Tax Act and Other Acts.
This legislation includes amendments to the Estonian Value Added Tax Act, which increases the VAT on accommodation services from 9 percent to 14 percent starting in 2017.
The raising of this tax rate is expected to generate an additional 10.2 million euro of tax revenue in 2017.
Greece: VAT Implications of the Third Bailout Deal
Greece and the European Union have come to an agreement on a third bailout, which among other items, includes a commitment to reduce spending, the privatization of some non performing public enterprises, and a number of required
improvements in the administration and structure of the Greek VAT.
Specifically, in short order, Greece has been required to enforce the requirements relating to the issuance of retail receipts for VAT purposes and improve the prosecution of perpetrators of tax fraud.
Additionally, by March 2016 Greece will be required to make changes to their VAT legislation directed at eliminating existing loopholes, criminalizing certain cases of gross tax avoidance, and shortening the VAT payment period.
Greece enacted further amendments to its VAT Act that were published in Gazette A 94 on August 14, 2015.
Under these additional amendments:
- Beef is subject to a reduced rate.
- Private education is subject to the standard rate
- The current special reduced rates applicable on certain islands will be abolished over time.
Ireland: VAT MOSS Reminders to be Corrected
By way of background, since January 1, 2015, VAT on the supply of telecommunications, broadcasting and e-services to consumers has been subject to the VAT rules of the Member State where the consumer resides.
Suppliers of such services are normally obligated to register, charge, and account for VAT at the rate applicable in that Member State; however, to simplify these obligations, 2 special schemes are available.
The 2 schemes, the non-Union scheme (for businesses established outside the EU) and the Union scheme (for businesses established in the EU) allow businesses to file and pay the VAT due, with respect to relevant supplies, to all Member States through a web portal of one Member State.
This web portal is known as the Mini One Stop Shop (MOSS).
On August 17, 2015, the Irish Office of the Revenue Commissioners (“Ireland Revenue”) issued a Notice to VAT MOSS Customers.
In the Notice, Ireland Revenue clarified that the approximately 2,000 payment reminder letters issued to providers of electronically supplied services, who registered for the VAT MOSS scheme in Ireland, contained incorrect information.
The nature of the inaccuracy was not immediately clear.
Ireland Revenue is in the process of correcting the errors, but in the meantime taxpayers are being informed that these payment reminders can be ignored.
Ireland Revenue will ultimately be issuing new and accurate reminder letters to any customers who have not made the required payments under the VAT Moss Scheme.
Italy: Ancillary Services Associated with Import of Low Value Items
In response to infringement proceeding No.
2012/2088 initiated by the European Commission against Italy, on 18 August 2015, the Italian Parliament enacted law No.
The law includes changes to provisions of the Italian VAT Act that amend provisions related to the treatment of ancillary services associated with import of small value items used for non-commercial purposes.
The intent of the change is to bring Italian law into conformity with the EU VAT Directive.
The overall intent of the measure is to exempt (with right of deduction) such ancillary services.
Luxembourg: Reduced VAT Rate on Antiques, Extended Profit Margin Scheme, and New Warehousing Provisions
Luxembourg published the Law of 24 July 2015, formerly Bill No.
6713, in Memorial A No.
145 of 29 July 2015. Effective August 1, 2015, the Act has three primary features related to VAT:
- The VAT rate on antiques and collectors’ items has been reduced from 17% to 8%.
- The profit margin regime has been extended as an option for organizers of sales by public auctions for the supply of second-hand goods, art works, antiques and collectors' items.
Under this regime, tax will only be due on the realized profit margin.
- New exemptions for supplies placed in warehouses are available because Luxembourg is adopting several options available in the EU VAT Directive (2006/112/EC).
More specifically, Luxembourg is seeking to avoid double taxation in situations where the goods leave the VAT suspension regime by exempting the import of goods in this particular case.
Malta: VAT on Subscription-Based Road Assistance Services
The Malta Ministry of Finance published Legal Notice 227 of 2015, which amends the Fifth Schedule to the Malta VAT Act by providing that subscription-based road assistance services are exempt from VAT effective July 17,
2015. Legal Notice 227 was published in response to the European Court of Justice decision in Mapfre Warranty (Case C-584/13).
Under the EU VAT Directive, Member States shall exempt insurance and re-insurance transactions, including related services performed by insurance brokers and insurance agents. In Mapfre, the CJEU ruled that:
The supply of services whereby an economic operator which is independent of a second-hand motor-vehicle dealer provides, in return for payment of a lump sum, a warranty covering
mechanical breakdowns which may affect certain parts of that vehicle constitutes an exempt insurance transaction.
In addition to Legal Notice 227, the Ministry of Finance published Guidelines for the VAT Treatment of Road Assistance Services to provide further guidance on the matter. As explained in the Guidelines, if an operator
of road assistance services sells only road assistance services on a subscription basis, their supplies are exempt without credit. In other words, they do not charge VAT on the subscription fee, but cannot claim input VAT incurred in the course of rendering such service.
If an operator sells road assistance services ad hoc, i.e.
not on a subscription basis, and possibly other taxable supplies, then their supplies would be taxable.
Lastly, if an operator sells a combination of the above, then they have a mixed result wherein they cannot claim input VAT credit on purchases that are directly attributable to those supplies falling under exempt subscription based services, while they can claim credit on purchases directly
attributable to those supplies falling under taxable ad hoc services.
Portugal: Expedited VAT Refund Procedures for Exporters
The Portuguese government recently announced the initiation of a set of procedures intended to accelerate the process whereby exporters may obtain a VAT refund related to taxable purchases.
Under the revised refund procedures, payments are intended to be effectuated in less than 30 days for any exporters who are subscribed to the monthly VAT system.
The Slovak Republic: Proposed VAT Rate Change for Food Products
According to an August 4, 2015, press release posted to the the Slovak Government’s website, the Administration will introduce a bill that reduces VAT on selected food items from 20% to 10%
effective in 2016.
The proposal is one of the measures in the Prime Minister’s second social package and is expected to be discussed in the September Parliamentary session.
While the Government is finalizing the exact list of qualifying food items, multiple news sources indicate that the items would include, at a minimum, fresh meat, bread, and milk.
to Continue Reduced VAT Rate for Energy Saving Materials
As a follow-up to our previous newsletter, HM Revenue & Customs (“HMRC”) has announced that the U.K.
government will continue to apply a reduced rate of VAT to the installation of energy-saving materials while it reviews the implications of the recent European Court of Justice (ECJ) judgment (C-161/14), in which the Court found the reduced U.K.
rate violated the EU VAT directive.
Brief Explains VAT Treatment of Printed Direct Marketing Supplies
HM Revenue & Customs (“HMRC”) recently issued a brief on its approach to supplies of printed matter combined with other services which it considers as having been wrongly
treated as zero-rated supplies of delivered goods.
HMRC considers these supplies to be a single supply of standard-rated 'direct marketing' services.
As such, the brief lists the circumstances where HMRC will not assess VAT for past errors and describes the available settlement terms for businesses that fall outside transitional arrangements.
It remains to be seen whether HMRC's policy will be challenged.
Single Use Plastic Carrier Bag Charge
HM Revenue & Customs (“HMRC”) recently issued a brief explaining the new compulsory charge on single-use plastic carrier bags provided with goods supplied in or to England.
Effective October 5, 2015, all retailers with 250 or more full-time equivalent employees must charge a minimum of 5p for the single-use plastic carrier bags that they provide.
Any amount charged for a bag is tax inclusive at the standard rate of VAT.
Compulsory charges for such bags already exist in the rest of the United Kingdom.
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.
about managing through these regulations with help from Sovos Compliance.
Recently Added Resources on Sovos.com