Now that you've settled back to work following the holidays, we wanted to send you our State of Compliance newsletter for the month of December, 2015.
New Smart Brief: 4 Tips for Starting Strong with VAT Compliance in
Starting off 2016 well will simplify VAT compliance for the rest of the year.
Sovos has some ideas about 4 ways you can start this year off with a bang:
- Review 2015's VAT Filings
- Review Timing of Input Tax Claims and VAT Reporting
- Foreign VAT
- Outsourcing as an Integrated Compliance Solution
VAT Compliance Updates: December 2015
Upcoming Reduced Rate Change
As previously reported in our September edition, effective January 1, 2016, a 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 which are presently subject to tax at 12%.
On the same date, the 13% rate will begin to apply to sporting events, which are currently standard-rated. The 13% rate will also apply to cultural events and hotel
accommodations, but that change will not be effective until later this year. The current 10% reduced-rate will continue to apply to sales of certain enumerated products, including food and drugs. The current 20% standard-rate remains unchanged.
Upcoming Change to Reporting of Triangular Transactions
Presently, the Turnover Tax Act requires on the recapitulative statement specific information about each person who transported or dispatched supplies every calendar
quarter. Effective January 1, 2016, the 2015/2016 Tax Reform Act tightens the calendar quarter reporting requirement for the recapitulative statement, changing it to a monthly period.
Change to the Small Taxpayer Threshold
The Belgian Parliament has adopted a bill to increase the threshold for small businesses that are exempt from VAT which is slated to be effective on January 1, 2016. The threshold will be changed from €15,000
Chargeability of VAT
Effective January 1, 2016, VAT on the supply of goods and services in business to business (B2B) transactions, is properly charged at the moment the invoice is issued and remitted with the next applicable periodic
return. If no invoice is issued, tax becomes due on the fifteenth day of the month following that in which the supply of the goods or services occurred.
Czech Republic: Opposition to Upcoming VAT Control Statement Requirements
On November 9, 2015, 13 members of the opposition Civil Democratic Party submitted a bill to Parliament seeking to postpone the mandatory submittal of VAT inspection reports by taxpayers.
These new requirements are scheduled to come into effect on January 1, 2016.
The bill authors contend that taxpayers have not received sufficient information to fully understand the new requirements.
Further, they contend that the requirements create barriers to conducting business and unduly increase administrative costs.
The first reading in Parliament has not yet been scheduled.
If the bill passes, the VAT inspection report mandates will be postponed until January 1, 2017.
Finland: Change to the Small Taxpayer Threshold
The Finnish Tax Administration has announced that, effective January 1, 2016, the VAT exemption threshold for small businesses has increased from €8,500 to €10,000. Businesses with a turnover less than
€10,000 for the applicable period will not have any VAT collection and remittance responsibilities.
Concurrently, they will have no authority to claim input tax credits.
Germany: Tax Treatment of Print/Electronic Book Bundles
In Germany, printed books are generally subject to the reduced VAT rate of 7% while electronically supplied publications such as e-books are generally standard-rated.
A recent decree issued by the Regional Tax Office of Frankfurt confirmed that when a printed book is sold along with an e-book, a transitional rule, which is only applicable through December 31, 2015, provides they may be sold together as a single supply subject to the reduced VAT rate.
Effective January 1, 2016 and going forward, the same supply cannot be sold at the reduced rate, but rather must be apportioned.
Reverse Charge Mechanism Extended to Laptops and Similar Devices
Italy has enacted a law that would extend the application of reverse charge to the sale of laptops, tablets and gaming consoles.
The new provisions will be effective until December 31, 2018 and are intended as a mechanism to combat tax fraud.
This new provisions are based on language contained in Article 199a(1)(h) of the EU VAT Directive that allows a Member State to apply the reverse charge to transactions involving certain goods where the potential for tax fraud is significant.
The new mechanism will not apply to desktop computers.
Latvia: Authorized Derogation Related to Lumber Extended
On March 30, 2015, the Republic of Latvia requested authorization to continue derogating from the provisions of the EU VAT Directive by applying a reverse charge on supplies of timber. On November 10, 2015, the
European Commission (EC) authorized Latvia to continue its derogation.
The primary intent of the Latvia reverse charge is to combat the fraudulent manipulation of EU place of supply rules with respect to intra-Community trade.
A common fraudulent scheme involves transporting high-value goods into a member state, reselling the goods at a discount, and collecting but not remitting VAT before leaving the country. As a result of the
EC’s authorization, Latvia will be allowed to continue the derogation until December 31, 2018.
Lithuania: Authorized Derogation Related to Lumber Extended
On November 10, 2015, the European Commission (EC) authorized Lithuania to continue derogating from the provisions of the EU VAT Directive by applying a reverse charge on domestic supplies of timber. As is the
case with Latvia above, Lithuania applies a reverse charge on domestic supplies of timber as an anti-fraud measure.
Lithuania’s derogation is also set to expire on December 31, 2018.
Luxembourg: New Electronic Filing System
In a Regulation dated November 6, 2015, Luxembourg announces a modification to its electronic VAT filing system.
Currently, taxable persons subject to monthly or quarterly VAT declarations must submit their declaration electronically via the eTVA portal.
Effective January 1, 2016, this system will be replaced by the electronic platform for financial data collection (eCDF), a state-run hub that validates financial data and then transmits the data to the tax administration.
Romania: Additional Tax Decreases to Take Effect on January 1
An emergency ordinance was enacted in Romania that applies a reduced VAT rate of 9% on the sale of water effective January 1, 2016.
This decrease is in addition to the previously enacted reduction in the standard rate from 24% to 20%, which also becomes effective on January 1, 2016.
The law as currently written would call for a further standard rate reduction to 19% on January 1, 2017.
In addition, effective January 1, 2016 a 5% reduced VAT rate will apply to school manuals, books, newspapers and magazines.
These items are currently taxed at 9%.
On October 1, 2015, the National Council of the Slovak Republic Law amended Law no.
on Value Added Tax.
The amendments call for the following substantive changes.
Domestic Reverse Charge for Construction Activities
The introduction of an inland reverse-charge rule for the supply of construction work, buildings and building parts and any installation and assembly goods used during construction.
Accordingly, suppliers will not charge VAT on their invoices while the recipient of the good or service must self-assess tax effective as of January 1, 2016.
If a taxpayer claims, for a given tax period, €3,000 or more in deductions based on simplified invoices, the taxpayer is obliged to indicate separately the total amount of tax base, the total amount of tax and the
total amount of deductions specified per each individual supplier.
The taxpayer must also provide each supplier’s tax identification number.
This new requirement comes into effect on April 1, 2016.
Certain Foodstuffs Now Taxed at Reduced Rate
Effective January 1, 2016, several types of meat, fish, milk, cream, butter and bread will be taxable at the reduced rate of 10%.
Other types of staple food items remain taxable at the standard rate of 20%.
Special Cash Accounting Scheme Goes into Effect
Effective January 1, 2016, taxpayers registered under Article 4 of the VAT law may delay payment of VAT to the Tax Authority until the taxpayer actually receives payment from the customer.
This option is not available to taxpayers that have been declared bankrupt, have entered into liquidation proceeding, or have an annual turnover of € 100,000 or more.
The taxpayer must include on the relevant invoices a clear and legible message stating, "tax applies on receipt of payment.”
Slovenia: Renewal of Small Taxpayer Threshold Derogation
Slovenia currently allows taxpayers with an annual turnover of less than €50,000 to not charge or remit VAT.
This threshold is in derogation of Point 15 of Article 287 of the EU VAT Directive which sets the maximum threshold at €25,000 for Slovenia.
The derogation was initially set to expire on December 31, 2015.
However, the European Council, on November 10, extended the derogation until December 31, 2018.
Spain: Clarified Rules for Certain Intra-Community Purchases
The Spanish Tax Administration recently released Ruling INF.A/4/59/15, which clarifies the VAT obligations of entities that fall under the Regime of Equivalence Surcharge when making intra-Community acquisition of
This equivalence regime is regulated by Articles 148 to 163 of the Spanish VAT law (37/1992) and applies to certain smaller taxpayers, typically retailers.
According to the law, these taxpayers are required to pay a higher VAT on their purchases of taxable goods, (composed of the standard tax rate plus the charge of equivalence) in exchange for not being required to charge VAT on their taxable sales.
Entities under this regime are required to obtain a special registration number and file special returns when making intra-Community purchases or sales of goods.
Failure to comply with these requirements may result in penalties and possible revocation of their special status.
Post-Skandia VAT Group Changes Effective January 1, 2016
HM Revenue & Customs (HMRC) recently confirmed that changes to the rules affecting supplies to and by non-UK VAT groups pursuant to the ECJ’s judgment in Skandia America Corporation USA (C-7/13) will come into
effect on January 1, 2016.
Under the new rules, an overseas establishment of a UK established entity will be treated as part of a separate taxable person if the overseas establishment is a member of an “establishment only” VAT group in one of the nine Member States identified by the HMRC as having this type of
VAT grouping approach.
These member states are as follows: the Czech Republic, Denmark, Estonia, Hungary, Latvia, Slovakia, Spain and Sweden.
The rules described above will apply regardless of whether the UK establishment is individually registered in the UK or registered as part of a UK VAT group.
Thus, businesses must treat intra-entity services provided to or by such overseas establishments as supplies made to or by another taxable person and account for VAT accordingly.
Please note that at this time, it is unclear how the Skandia judgment will be implemented across the other Member States of the European Union.
However, there is a bill pending in the Belgian Parliament which is also intended to implement the Skandia holding.
HMRC Explains 10-Year Modernization Program
HMRC recently issued a briefing that explains its 10-year modernization program, including plans to consolidate the current 170 offices across the UK into 13 large modern regional centers that will accommodate a new
HMRC Issues Guidance on Penalties for VAT and Excise Wrongdoing
HMRC recently issued Factsheet CC/FS12 ‘Penalties for VAT and Excise Wrongdoings’, which outlines its views on the following:
- What HMRC considers to be 'wrongdoing';
- When penalties will, and will not, be charged;
- Prompted and unprompted disclosure;
- How taxpayers can act to reduce penalties;
- How penalties are calculated and notified;
- When an officer of a company can be penalized personally;
- Deliberate wrongdoing; and
- Appeals against penalties.
HMRC Updates VAT Return Filing Notice
On November 12, 2015, HMRC revised Notice 700/12 on completing VAT returns.
The notice includes new information addressing completing returns when using a special VAT accounting scheme, using the online VAT return, paying electronically, and using an agent to send a return online.
In addition, it contains helpful explanations of some common VAT definitions.
Counties Outside the European Union
Norway: Zero Rate For Electronic News Services Postponed
The proposal to extend the zero rate to electronic news services has been postponed.
A zero rate currently applies to books and newspapers but the Norwegian Tax Administration believes that extension of the rate to electronic news services by January 1, 2016 is not realistic. While adjusted timelines have not been finalized, it is possible that the zero rate will go into
effect in March 2016.
The Swiss Federal Tax Administration recently announced that “SuisseTax”, the e-filing portal for Swiss VAT Returns, is available to all Swiss VAT registered companies.
This portal offers the following functions:
- Electronic submission of VAT returns and corrective returns;
- Electronic submission of the annual corrective return;
- Online extension of time limits to submit VAT returns;
- Overview of awaiting and completed operations, as well as of VAT returns previously submitted online;
- Online management of the users’ rights
Recently Added Resources on Sovos.com