Here at Sovos, we are committed to keeping you up-to-date with current VAT compliance updates from around the globe. Check out these recent changes from our expert research team:
European Union: European Commission publishes “Action Plan” for VAT
On April 7, 2016, the European Commission published “An Action Plan on VAT,” a 14-page report containing recommendations to update and modernize the current VAT system. The report addresses common concerns with the current system, such as its inapplicability to the new digital economy, its vulnerability to fraud and abuse, and the compliance burdens it imposes for small and mid-sized enterprises (SMEs).
The Commission’s means of addressing these concerns is to work towards what they are characterizing as a single EU VAT area, based on the principle of applying domestic (origin-based) VAT rules to all transactions within the EU, including cross-border transactions. The Commission believes that a single VAT area would allow for simplified taxation of e-Commerce, reduce the burdens on EU SMEs – especially in comparison with non-EU companies – and make organized fraud more difficult. The Commission also addresses the steps that would need to be taken in order to make a single VAT area a reality: these include greater cooperation between Member States on matters of tax administration, and a consensus on the treatment of reduced rated goods and services. The Commission hopes to have a range of concrete proposals ready by 2017.
Guidance Issued for Legal Persons Acting as Directors
As previously reported, the Belgian Ministry of Finance has made it compulsory to collect VAT on the activities of legal entities serving as directors, administrators, or liquidators of companies, effective June 1, 2016. In a Decision dated March 30, 2016, the Ministry of Finance has issued guidelines for affected parties. Specifically, to mitigate the effects of the new rule, legal persons acting as directors will be able to form a VAT group along with the company they run. This option applies under enumerated circumstances that collectively give rise to close financial, economic, and organizational links between the directors and the company.
Draft Bill Would Expand VAT Exemptions
The Belgian Parliament is currently debating a draft bill, dated April 12, 2016, which would expand VAT deductions and exemptions. First, the bill would add terminology referring to light trucks to Article 45 of the VAT code, for the purposes of VAT deduction. Secondly, the bill would expand the VAT exemption for cultural services contained in Article 44. A number of technical changes to the wording of the code would also be made.
Croatia: Circular on Donations of Food
The Croatian Tax Authority has issued a circular concerning VAT on food donations. Taxpayers inquired whether retail chain outlets must include the purchase and amount of VAT of donated food in documents submitted to the Ministry of Finance. The Tax Authority stated that a donor must keep a record and submit information that contains details regarding delivery, date of shipment, name and type of food, quantity, shelf life, purchase price, amount of VAT and the intermediary or end recipient.
Czech Republic: VAT on Restaurant Services Reduced to 15% on December 1
On April 8, 2016, the Prime Minister of the Czech Republic signed a law that reduces the VAT rate for restaurant and catering services to 15%, effective eight months after publication. The law was officially promulgated in the Official Gazette on April 13, as Law No. 113/2016, and will take effect on December 1, 2016. The 15% reduced rate will not apply to sales of alcoholic beverages or tobacco products.
Estonia: Proposal for Reverse Charge for Metal Products
On April 14, 2016, the Estonian Ministry of Finance proposed a special scheme subjecting suppliers of steel, iron, and related metals to a domestic reverse charge mechanism. Under such a scheme, the customer rather than the supplier is liable to remit VAT on a transaction to the tax authorities. Currently, supplies of a variety of products, including immovable property, investment gold, scrap metal, and precious metals, are subject to a reverse charge mechanism. The purpose of the inclusion of steel and iron is to close the remaining tax loopholes for tax fraud.
Finland: Question on Scope of “High Seas” Exemption Referred to ECJ
The Finnish Supreme Administrative Court (Korkein hallinto-oikeus) has referred questions to the European Court of Justice (ECJ) on whether the services of loading and unloading cargo onto and off a vessel qualify as “direct needs” of the vessel or its cargo, and are thus VAT exempt under articles 148(a) and 148(d) of the European VAT Directive 2006/112/EC. Under article 148(a), Member States shall exempt the supply of goods for fueling and provisioning of vessels used for navigation on the high seas. Under article 148(d), the supply of services used to meet the “direct needs” of such a vessel or its cargo are exempt.
Reduced VAT on Photo Books to be Maintained Through 2017
The German Ministry of Finance has published an interim arrangement, dated April 20, 2016, maintaining a reduced 7% rate of VAT on the sale of photo books for the remainder of 2016. The reduced rate has been in effect since December 25, 2015. Absent further postponements, the VAT rate on photo books will increase to 19% in 2017.
Missing Identification Number and Intra-Community Exemption
On April 6, 2016, an Advocate General for the Court of Justice of the European Union (ECJ) issued an Opinion recommending that the Court overturn Germany’s denial of an exemption for an intra-Community transfer of goods. The denial had been based solely on the grounds that the German supplier transferring the goods into Spain did not provide a Spanish VAT number. In the instant case, Josef Plöckl v. Finanzamt Schrobenhausen (Case C-24/15), the Advocate General found that despite that lack of evidence of the Spanish VAT number, the German tax officials could show no specific evidence of tax evasion, and the German supplier could prove that the goods had been transported into Spain for its own business. These and other factors were sufficient to allow for an exemption under Articles 28c(A)(a) and 28c(A)(d) of the Sixth VAT Directive (which was in force at the period covered by the proceedings).
Greece: Possible Standard Rate Increase to 24% Effective July 1, 2016
The Greek government has recently agreed with its creditors to increase its standard VAT rate from 23% to 24% effective July 1, 2016. The negotiations with the International Monetary Fund (“IMF”) and the European institutional creditors have not officially concluded, but Greek government officials have confirmed the agreement for the VAT rate increase. At this time, the increase has not been officially enacted in Greek law. There are also additional demands from Greece’s creditors regarding budget cuts, but it is still unclear whether the Greek government will agree to fulfill those conditions as well.
Hungary: VAT on Milk, Eggs, Poultry, and Restaurant Services May Be Reduced
The Hungarian Minister for National Economy has recently stated that the government is planning to reduce the VAT rate on milk, eggs, and poultry from 27% to 5% in 2017. As previously reported, the move follows a recent reduction of VAT on pork, which the government claims has reduced the price of consumer pork products by more than 10%. The Minister has also stated that the VAT rate on restaurant services will fall to 18% in 2017 and to 5% in 2018.
Ireland: Increased Scrutiny on Compliance in the Construction Sector
The Irish Tax and Customs Revenue has announced that it will focus its attention on increased compliance with respect to the application of the reverse charge for VAT in the construction sector. Ireland Revenue stated that the reverse charge is not being applied properly in a number of cases, including in situations where a principal contractor fails to self-assess VAT when he hires a sub-contractor. Irish Revenue will be closely scrutinizing transactions for compliance in this industry and plans on issuing assessments of tax and penalties as appropriate pursuant to their findings.
Draft Law to Gradually Reduce Standard VAT Rate
As a follow up to a previous entry, the Lithuanian government has published a draft law proposing a gradual reduction of the standard VAT rate. Bill XIIP-4293 proposes to reduce the standard rate from 21% incrementally as follows:
- 20% effective January 1, 2017,
- 19% effective January 1, 2018, and
- 18% effective January 1, 2019.
Draft Law to Reduce Applicable Rate on Certain Prescription Medicines
The Lithuanian government has published a draft law to reduce the applicable VAT rate on medicines and medical aids fully or partially reimbursed under the Lithuanian Health Insurance Law from 21% to 5%, effective January 1, 2017.
Netherlands: Expansion of VAT Exemption for Health Care Providers
On March 29, 2016, the State Secretary for Finance issued a decree widening the VAT exemption for providers of individual healthcare. In the past, the exemption was limited to health care providers acting within their specific area of expertise and when covered by the national Individual Health Care Act. The exemption will now apply to professionals acting outside their own areas of expertise, as well as professionals not covered by the Health Care Act, but providing the same quality of care as a covered professional would. There are attendant obligations on professionals not covered by the Act to prove they are meeting certain standards of quality of care.
Poland – Draft Bill Would Modify List of Reduced Rated Goods
In March of 2016, the Polish Ministry of Finance published a draft bill that would remove certain items from the list of reduced rated goods under the Polish VAT Act. The bill was published in response to a 2015 European Court of Justice opinion holding that Poland had improperly applied a reduced rate to products not used for medical or pharmaceutical purposes. Under the bill, cysteine (an amino acid) and derivatives thereof would be taxed at the standard rate of VAT, along with water bottles, dropper bulbs, and sunglasses. If passes, the bill will take effect on July 1, 2016.
Automatic Exchange of Information on Tax Rulings to be Implemented by 2017
On April 7, 2016, the Swedish Ministry of Finance published a memorandum on the automatic exchange of information on tax rulings with other Member States, particularly for cross-border transactions. Sweden intends to implement this procedure by January 1, 2017, in accordance with Council Directive 2015/2376. The automatic exchange of information is intended to increase transparency relating to supplies involving intra-Community transactions with other Member States.
Tax Agency Proposes to Exempt Small Businesses from VAT
In a memorandum published on March 21, 2016, the Swedish Tax Agency proposed amendments to the VAT Act that would completely exempt small businesses with a turnover of less than SEK 30,000 per year (excluding VAT). Businesses that fell below this threshold for a fiscal year, but had higher turnover in either of the two previous years, would not qualify for the exemption. If passed, the amendments would come into effect on January 1, 2017.
United Kingdom: Taxpayers’ Association Challenges HMRC Guidance
The UK Association of Taxation Technicians (ATT) has recently complained of “flawed and misleading guidance” from HM Revenue & Customs (HMRC) regarding its flat-rate scheme. The scheme is intended to simplify VAT accounting for small businesses, but the ATT claims that some of the 51 categories in the scheme are vague and poorly-defined, and that HMRC guidance misleads small businesses into paying higher taxes than they should. In particular, HMRC has advised businesses performing consulting services to choose the “management consultancy” category within the scheme, which is subject to a 14% rate of tax, instead of the “other business services not listed elsewhere” category, which is taxed at only 12%. The scheme has been the subject of numerous challenges in the VAT tribunals.
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