Recent VAT Compliance Updates: January 2016

February 1, 2016

This month’s VAT updates:

European Union

Extension of the 15% Minimum Standard VAT Rate Requirement

Under the existing language of Article 97 of the EU VAT Directive, the requirement that no Member State apply a standard rate of VAT less than 15% would have expired effective December 31, 2015. However, the European Commission has adopted Proposal COM (2015) 646 which extends the requirement until December 31, 2017.

As things stand today, the lowest standard VAT rate in the European Union is 17%, currently applied by Luxembourg. While no Member State appears to be anxious to adopt a standard rate below 15%, the EU has ensured that no such change would be permissible, at least until January 2018.

European Commission Work Programme 2016 – No Time For Business as Usual
The European Commission (“the Commission”) recently adopted the 2016 Work Programme, its annual plan of action with respect to the European Union. The 2016 Programme further demonstrates the Commission’s intent to not pursue the proposal for an EU standard VAT return.

European Council Press Release – Cross-border Tax Rulings Transparency Rules Adopted
On December 8, 2015, the European Council adopted a directive that will require EU Member States to exchange information on advance cross-border tax rulings that they may issue as well as on advance pricing arrangements. EU Member States receiving the information would be able to request additional information from the issuing Member State where appropriate. The Commission will be tasked with developing a secure central directory, where the information exchanged would be stored. The directory will be accessible to all member states and, to the extent that it is required for monitoring the correct implementation of the directive, to the Commission. The requirement is slated to take effect on January 1, 2017.

Belgium: Chargeability of VAT

As reported in a previous edition of this newsletter, Belgium has now officially adopted a rule which specifies that effective January 1, 2016, the VAT on the supply of goods and services to public bodies is properly charged when the payment, or partial payment, is received by the supplier.  “Public bodies” refers to the federal government, municipalities and public institutions.

Bulgaria: Proposed Reduced Rate for Certain Medical Products

On November 19, 2015, the President of the National Assembly submitted a bill to the Budget and Finance Committee amending the Law on Value Added Tax. The proposed bill introduces a new 8% reduced rate for, “any substance or combination of substances presented as having properties for the treatment or prophylaxis of human diseases” and “active implantable medical devices.” The Bulgarian government currently has the second highest VAT on medical products at 20%, trailing only Denmark’s 25%.

As originally reported in the last edition of this newsletter, if enacted, the new rate was intended to take effect on January 1, 2016. However, the National Assembly assigned the bill to the National Assembly Budget Committee and it is currently awaiting dissemination to the Assembly for a first reading. We do not expect any final action to be taken on this measure until mid-January at the earliest.

Czech Republic

New VAT Control Statement Requirements Remain on Track
As noted in an earlier edition of this Newsletter, 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. In response, the Chamber of Deputies convened an extraordinary meeting to present questions to the Minister of Finance which took place on December 22, 2015.

Subsequent to this meeting, the draft legislation calling for a postponement remained in committee, and is not scheduled to be formally read by Parliament. Accordingly, the requirements for VAT inspection reports will come into effect on January 1, 2016 as originally planned.

Proposed Changes to Standard and Reduced Rates
The House of Commons is currently examining several draft laws which would amend the Law on Value Added Tax. Specifically, Draft Law 558 seeks to decrease the standard and reduced rates from 21% and 15% to 19% and 14%, respectively. Moreover, the proposal would reduce the value added tax on restaurant services to 14%. The House of Commons postponed the reading of the Bill from November 22, 2015 to December 16, 2015, and then postponed it indefinitely.

Similarly, at the December 16 meeting, the House did not discuss the matter, and declined to reschedule a reading of Draft Law 596, which seeks to apply the super reduced rate of 10% to newspapers and magazines.

Finally, Draft Law 514 had a third reading in the House of Commons on December 18, 2015. The bill seeks to apply the 15% reduced rate to restaurant services. As things stand today, it is scheduled to receive consideration for final approval on January 6, 2016.

Denmark: ECJ Opinion on Proper Characterization of Gold Bearing Metal Objects

On December 17, 2015, the Advocate General (AG) of the Court of Justice of the European Union (ECJ) rendered her opinion in Envirotec Denmark ApS v. Skatteministeriet (Case C-550/14). In this case, the Ostre Landsret (High Court of Eastern Denmark) requested a preliminary ruling from the ECJ as to whether bars consisting of a random, rough fusion of various scrapped, gold-bearing metal objects, are covered by the terms “gold material or semi-manufactured products” within the meaning of Article 198(2) of the EU VAT Directive.

In her opinion, the AG proposed that the ECJ declare that such bars are covered by Article 198(2). The implication of including such bars as within the scope of Article 198(2) is that it permits Member States to designate the customer as the person liable for payment of VAT when supplied by a taxable person. In other words, application of the reverse charge would be permissible.

Estonia: Proposed Changes to VAT Rules

The Estonian Ministry of Finance published a draft law to amend the VAT Act.  The primary amendments include the VAT treatment of sales to European Union institutions and NATO.  Currently, EU institutions and NATO must pay VAT on their purchases that take place in Estonia; however, they may apply for a subsequent refund.  By way of an administrative simplification, the draft law proposes to implement a zero rate on such sales effective May 1, 2016.

Additionally, the draft law would amend the tax treatment of sales of any collectable coin and bank notes of numismatic interest.  Currently, these items are exempt from VAT in Estonia.  If the draft law is passed, these items would become taxable at the standard rate of 20%, effective July 1, 2016.


Invoicing Simplifications
On November 17, 2015, the Hungarian Parliament approved various amendments to Act XCII of 2003 on Taxation (2015 CLXXXVII Law). Among the VAT-related amendments, from January 1, 2016, foreign taxpayers providing telecommunication, broadcasting, and electronic services to Hungarian non-registrant customers (B2C) are excluded from the usual requirement to issue an invoice. However, customers retain the option of requesting an invoice, and if so requested, the foreign taxpayers must comply.

Possible Reduced Rate Applicable on Real Property and Internet Access
The government is also considering reducing the VAT rate on new real property and internet subscriptions.

Authorized Derogation for Reverse Charge on Supply of Staff
On December 10, 2015, the EU issued Council Implementing Decision (EU) 2015/2349, authorizing Hungary to adopt a reverse charge mechanism on the supply of staff. This permission represents derogation from Article 193 of the EU VAT Directive. The Decision specifies that the derogation extends until December 31, 2017.

Italy: Reduced Rate Extended to Digital Periodicals

In December 2015, the Italian Congress approved the 2016 budget law (Legge di Stabilita 2016).  The new measures included an extension of the special tax treatment currently afforded to print periodical publications to also include electronic periodical publications, such electronic magazines, journals, and newspapers. As a result, a 4% rate applies to such transactions from January 1, 2016.

Also, as expected, the legislation also enacted measures that ensure the existing standard and reduced VAT rates will remain in place for 2016.

Latvia: Permissible Derogation Relating to the Deductibility of VAT on Automobiles Extended and Expanded

On December 10, 2015, the Council of the European Union issued Implementing Decision 2015/2429/EU authorizing Latvia to continue derogating from point (a) of Article 26(1) and Articles 168 and 168a of the EU VAT Directive (2006/112).  The Decision was published in the Official Journal of the European Union L 334 of December 22, 2015.

Articles 168 and 168a of EU VAT Directive establish the right of a taxable person to deduct VAT charged on supplies of goods and services received by him for use in his taxed transactions. Point (a) of Article 26(1) of the Directive requires taxable persons to account for VAT when a business asset is put to non-business use.  Council Implementing Decision 2013/191/EU (2) authorized Latvia to introduce a derogating measure, pursuant to Article 395(1) of the Directive, to limit the right of deduction of input VAT to 80% on passenger cars and related expenditures such as fuel, when such items are not wholly used for business purposes.

This permitted derogation was set to expire on December 31, 2015. However, Implementing Decision 2015/2429/EU, authorizes Latvia to continue derogating until December 31, 2018.  Additionally, Latvia is authorized to limit the deduction on these same items to 50%.

Poland: Planned VAT Reductions Tabled

In accordance with Article 146A of the Polish Goods and Services Tax Act, the standard and reduced VAT rates will remain at 23% and 8%, respectively, until the end of 2016. The current version of the Goods and Services Tax Act as amended by Act 8 of November 2013 establishes that the standard and reduced VAT rates of 22% and 7% will return on January 1, 2017, unless a superseding legislation is enacted. The recently elected Law and Justice Party announced during a July 2015 party conference that a 1% reduction in the standard rate could be passed in the Sejm for 2016. However, in light of the continued budgetary concerns of the last few months of 2015, this plan has been tabled for the moment.


Existing Standard and Reduced VAT Rates Extended Indefinitely
As reported in an earlier edition of this newsletter, absent the enactment of legislation to the contrary, the existing standard and reduced VAT rates in Slovenia would have reverted to 20% and 8.5% respectively. On September 20, 2015, the Slovenian Ministry of Finance announced a bill that would amend the Slovenian VAT Act to permanently extend the application of the 22% and the 9.5% rates presently in effect. This bill was, in fact, enacted and read into the official Gazette on November 27, 2015. As such, the existing standard and reduced rates will remain in place.

Postponed VAT Accounting on Imported Goods

Also as previously reported, under the Slovenian VAT Act, Articles 35 and 77, in general, the importer of record must pay VAT on goods immediately when they are imported into Slovenia. On September 20, 2015, the Slovenian Ministry of Finance announced a proposed bill to amend the Slovenian VAT Act to simplify calculation and payment of VAT on importation of goods into Slovenia by recipients of goods identified for VAT in Slovenia. This bill has since been enacted and read into the official Gazette on November 27, 2015.

Effective July 1, 2016, such recipients of goods will no longer pay VAT immediately upon importation but instead will report the import VAT on their VAT return. Assuming the import VAT is deductible, the calculation of tax for such importers would become an administrative task because the import VAT due would be offset by the deductible input VAT on the same VAT return, meaning that no tax would be remitted to the tax authorities for the particular transaction. The importer will be required to provide at the time of importation its VAT registration number, tax base, VAT rate, and VAT amount, on the customs declaration form.

United Kingdom

UK Revises EU VAT Refund Claims Notice
“VAT Notice 723A: refunds of VAT in the European Community for EC and non-EC businesses” has been restructured and completely rewritten. The new notice explains the mechanisms for claiming a refund of VAT incurred in either (1) EU countries, if your business is established in another EU Member State, or (2) the United Kingdom, if your business is established outside the EU. Please note that new contact details for the relevant departments at HMRC are provided in paragraphs 6.1, 6.6, and section 7.

Consultation: Whether a Reduced VAT Rate Could Promote Growth in Northern Ireland
The Northern Ireland Affairs Committee has decided to examine whether the current UK VAT rate structure places Northern Ireland’s tourism and hospitality sector at a competitive disadvantage. Specifically, they are debating whether a possible VAT rate reduction in the hospitality sector for Northern Ireland could promote economic growth.

Recently Added VAT Resources on

For a high-level overview of the VAT system and ways to stay in control, read Take Control of Your VAT Compliance.

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