VAT and Electronic Supplies - An Update:
New Sovos Smart Brief
One of the main areas of development in the VAT world is buying and selling over the Internet.
This article addresses the current state of the indirect taxation of electronic business in EU and non-EU countries. Since 1 January 2015, the new e-business rules in the VAT Directive have extended the Mini One Stop Shop (“MOSS”) for non-EU online suppliers to EU suppliers.
This means that EU companies that sell online services to EU individuals must account for VAT at the rate of the country of the buyer.
If the seller is not VAT registered in any other EU country than his country of residence, he can use the MOSS simplification.
Under the MOSS rules, the seller reports the VAT of the country of the buyer that is due on the electronic sale on his own VAT filings.
For more information about VAT and Electronic Supplies read our new Smart Brief.
VAT Compliance Updates: March 2016
European Commission to Publish Action Plan on VAT
According to a statement from the European Council, the European Commission will publish a new action plan for VAT in the spring of 2016.
The plan will reportedly include a proposal to give Member States increased flexibility in setting reduced VAT rates. Should this proposal be adopted, the minimum standard VAT rate of 15% would likely be removed.
The Council also indicated that Member States could be given the option to zero rate sanitary products, an issue that has been especially contentious in the United Kingdom.
A “roadmap” for the action plan, published on January 1, 2016, acknowledged the need to respect State Aid laws and the fundamental freedom of Member States when reviewing rate rules, but warned that too much flexibility could lead to a non-level playing field within the Single Market.
European Court of Auditors Issues VAT Fraud Report
On March 3, 2016, the European Court of Auditors published a report examining intra-Community VAT fraud within the EU.
The report states that information exchange systems between Member States must be improved in order to effectively combat VAT fraud, which is often linked to organized crime.
The report also recommends instituting on-the-spot visits by the Commission to national tax authorities, in order to improve oversight.
This change has necessitated updates/clarifications in national VAT law for several countries.
For example, on February 10, 2016, Austria amended its VAT implementing regulations to exclude photo books from its reduced VAT rate.
This change is scheduled to be enacted on April 1, 2016.
Similarly, Slovenia recently published a notice clarifying that photo books would no longer be considered “books” as defined by its reduced VAT rate schedule effective immediately.
Belgium: Imposition of VAT on Legal Persons Serving as Directors Could Take Effect on June 1
In November of 2014, the Belgian Federal Ministry of Finance announced that VAT charged on the activities of legal entities serving as directors, administrators, or liquidators of companies would no longer be optional, but instead would be collected normally. Implementation of this decision, however, has been
postponed multiple times, in light of the new compliance burdens it would impose. Recently, in a post dated February 24, 2016, the Ministry of Finance declared that the VAT scheme on legal entities serving as directors would take effect on June 1, 2016, and that an administrative circular would soon be published to clarify the new rules. Affected entities will have the option of
forming or joining a VAT group to prepare for the new scheme.
Czech Republic: Reduced VAT on restaurant services and new law on the registration of sales
On March 16, 2016, the Czech Senate passed and sent to the President two bills which instituted the electronic record of sales system (EET) and reduced the VAT rate for restaurant and catering services to 15%.
The EET system will first be implemented in the hospitality sector and after three months, in the wholesale and retail sectors.
In conjunction with this requirement, the Czech Parliament concurrently reduced the VAT rate for restaurant services.
Both measures are scheduled to come into effect 8 months after the bills are signed, meaning a projected start date of January 1, 2017 barring any amendments before the end of the year.
Denmark: Tax Authority Publishes Guidance on Distance Sales
On March 7, Denmark’s national tax agency, SKAT (“Tax”), issued a guidance document clarifying its interpretation of what constitutes a “distance sale” under Danish law.
SKAT has concluded that a distance sale requires the supplier to be directly or indirectly involved with transporting goods to the customer. Therefore, when a customer picks up goods himself, or locates and contracts with a third party to transport the goods, there is no distance sale. This is true even when a supplier publishes a list of possible third-party carriers on its
website, as long as the list is simply meant to be informative.
By contrast, a supplier that actively promotes a particular third-party carrier, actively puts the customer in touch with a carrier, receives an invoice for shipping on behalf of a carrier, or maintains full or partial responsibility for goods during shipment is considered by SKAT to be indirectly involved in the
transport of goods.
SKAT notes that this interpretation was endorsed, nearly unanimously, by the EU VAT Committee in 2015.
Finland: Tax Administration Publishes Guidance on Right of Deduction
On March 17, 2016, the Finnish Tax Administration published Guidance No.
A80/200/2015, which includes judgments from three cases delivered by the Supreme Administrative Court (Korkein hallinto-oikeus, KHO) in December 2015 pertaining to the right of a parent company of a group of companies to deduct VAT. In the series of judgements, the Court held that a parent company is a taxable person for VAT purposes when it provides services to its
subsidiaries. When the parent company’s activities are limited to merely holding shares of its subsidiary, however, the activities of the parent company fall outside the scope of the VAT Act. Furthermore, a parent company may not deduct input VAT related to supplies which are exempt from VAT and for activities which fall outside the scope of the VAT Act.
Germany: Tax Breaks for Electric Cars Considered
The German government may soon offer tax incentives on sales of electric cars, according to news reports.
The German Chancellor has stated a goal of reaching one million electric cars on German streets by the year 2020, but only 30,000 vehicles have been sold in the country to date.
To spur sales, the Vice Chancellor recently proposed offering consumers a cash rebate of up to 5,000 EUR per vehicle, but this plan has met with opposition from the Finance Ministry.
Sources familiar with discussions claim that a tax incentive is an increasingly likely compromise.
Government officials will meet with representatives from the electric car industry in April of 2016.
Hungary: Planned New Treatment of VAT on Internet Services in 2017
The Commissioner of Hungary’s Digital Welfare Programme (whom is also a member of the EU Parliament), has stated that Hungary intends to reduce VAT on internet services from 27% to 18% in January of 2017.
It is unclear at present whether Hungary will ask the European Commission for permission to apply this preferential rate, or whether Hungary, the Czech Republic, Poland, and Slovakia (the “Visegrad Four countries”) will jointly propose an amendment to the general law on internet services.
Poland: Insurance Claim Settlement Services Deemed Taxable
On March 17, 2016, the First Chamber of the European Court of Justice held that claim settlement services provided by the defendant taxpayer were not exempt insurance services under Polish national law and the EU VAT Directive.
Under the facts of the case, the Polish company acted as a third-party contractor which handled settlement proceedings on behalf of insurance companies.
The Court held that the act of merely entrusting the handling of claims to a third party, without that outsourcing being linked to the finding of prospective clients and their introduction to the insurer with a view to the conclusion of insurance contracts, is not exempt from VAT.
Pursuant to this ruling, claim settlement services are not the “related services performed by insurance brokers and insurance agents” within the meaning of Article 135(1)(a) of the VAT Directive.
Portugal: July 1 is the Effective Date for Reduced Rate for Restaurant Services
The Portuguese legislature has finalized VAT reduction to 13% for restaurant services from July 1, 2016. The new 13% reduced rate applicable to these services will apply only to food and non-alcoholic beverages.
Alcoholic drinks will be subject to the standard VAT rate of 23%.
International Monetary Fund Recommends Postponement of Romanian VAT Reduction
The International Monetary Fund (IMF) has recommended that Romania defer a planned VAT standard rate reduction, currently slated for 2017, in order to slash its 2017 budget deficit to 2% of GDP.
Unless Romania amends its current Fiscal Code, the standard VAT rate in the country will automatically decrease from 20% to 19% at the start of 2017.
The head of the IMF’s delegation to Romania, stated that deferring the reduction would generate a deficit decrease of 0.75 points of GDP, which could help to increase macroeconomic stability.
Romanian Authorities Discuss Removing VAT for Foreign Tourist Accommodation
The Romanian Ministry of Economy is in talks with the Romanian Finance Ministry to apply zero VAT on accommodation for foreign tourists, according to news reports.
Eliminating VAT on such services was first proposed in 2012, but the initiative was abandoned soon afterwards.
A written proposal has now been drafted by the government, and was circulated in early March.
Guidance on Reduced Rates for Food Items
On March 7, 2016, the Slovak Finance Administration provided additional guidance on the recently enacted rule, making certain foodstuffs subject to the reduced rate.
Most notably, the terms “fresh” and “pure” were both defined for both bread and meat respectively.
The publication clarified that only bread baked 24 hours before being made available to customers is subject to the reduced rate.
This determination ended all speculation whether imported bread, such as Arabian bread, would be taxed at the reduced rate as well.
On the other hand, there was also speculation that frozen imported meat would not be eligible since the impetus behind the law was to encourage domestic sales of food products.
However, according to the publication, the reduced rate is applicable to frozen meat.
Processed meats, however, are not “pure” meats and remain subject to the standard rate.
2016-17 UK Budget Announced
The UK's 2016-17 budget was announced on March 16, 2016.
The following measures target non-EU VAT fraudulent sellers:
- the obligation of fraudulent sellers to appoint UK VAT agents;
- the agents will be responsible for UK VAT registering the e-commerce sellers, and filing VAT returns and remittances;
- if no agent is appointed, then the UK may make the e-commerce platforms liable for any missing VAT; and
- fulfilment houses to apply a new due diligence regime to detect VAT fraud on behalf of HMRC.
All tax-related budget documents from HM Revenue and Customs (“HMRC”) and links to documents from HM Treasury are accessible via the HMRC website.
Among the documents available online is a guidance note (“VAT: overseas businesses and joint and several liability for online marketplaces”), which explains how HMRC is strengthening existing VAT legislation for overseas businesses that should be registered
for VAT in the UK.
It gives HMRC greater flexibility in relation to when it can require some form of security.
In addition, HMRC will also be given new powers to make online marketplaces jointly and severally liable for the unpaid VAT of overseas businesses who are non-compliant with UK VAT rules.
The measure is included within Finance Bill 2016 and will take effect from the date of Royal Assent.
Issues Value Added Tax (Increase of Registration Limits) Order 2016
HMRC has issued a memorandum that explains the Value Added Tax (Increase of Registration Limits) Order 2016 (S.I.
2016/365), which increases VAT registration and deregistration thresholds as of April 1, 2016.
Generally, the Order increases the prescribed registration values from £82,000 to £83,000, the deregistration value for taxable supplies from £80,000 to £81,000, and the deregistration value for acquisitions from £82,000 to £83,000.
Referendum on EU Membership
The Prime Minister of the United Kingdom has announced a referendum on whether Britain should remain in the European Union.
The referendum is scheduled to be held on Thursday June 23, 2016.
The current planned wording of the referendum question is as follows:
Should the United Kingdom remain a member of the European Union or leave the European Union?"
The stated options on the ballot will be:
- Remain a member of the European Union, or
- Leave the European Union
While most observers feel that a “Brexit” is unlikely, the VAT ramifications of such an outcome would be enormous.
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