Recent VAT Compliance Updates: November 2015

Timur Feinstein
November 30, 2015

European Union

Proposal for a Unified VAT Return Stalled

On September 27, 2015 the European Commission published a Communication from the Commission to the European Parliament, the Council, the European Economic and Social

Committee and the Committee of the Regions entitled “Commission Work Programme 2016 – No Time for Business as Usual.”

Therein, the Commission outlines their intent to present an action plan on VAT with further steps directed towards establishing an efficient and fraud-proof definitive regime as well as initiatives on VAT rates and e-commerce in the context of the Digital Single Market. The Commission also outlines its intention to withdraw the proposal to implement a standard VAT Return because they view the current proposal as being “unacceptably watered down.”

European Court of Justice Ruling: Subscription Contracts for the Supply of Consulting Services are Liable for VAT (C-463/14 – Asparuhovo Lake Investment Company)

This case was referred to the European Court of Justice (“ECJ”) by the Administrative Court in Bulgaria and concerned the time of the chargeable event and chargeability of VAT with respect to a supply of services under a subscription contract for consulting services. Based on the facts of the case, the provider agreed to be “available” for any necessary consulting service, although there was no specific requirement that any actual consulting be provided during any specific periods. Payments under the agreement were to be made on a weekly basis.

On September 3, 2015 the ECJ ruled as follows:

  • Article 24(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as meaning that the term ‘supply of services’ includes subscription contracts for the supply of consulting services to an undertaking, in particular those of a legal, commercial or financial nature, under which a supplier has agreed to be available to the customer during the term of the contract.
  • With regard to subscription contracts for the type of consulting services at issue, Articles 62(2), 63 and 64(1) of Directive 2006/112 must be interpreted as meaning that the chargeable event and the chargeability of the tax occur upon the expiry of the period in respect of which the payment has been agreed (in this case weekly) irrespective of whether and how often the customer has actually made use of the supplier’s services.

European Court of Justice Rules that Bitcoin is Exempt from VAT (C264/14)

By way of a follow-up to an article posted in an earlier edition of this newsletter, on October 22, 2015, the ECJ ruled in Skatteverket v. David Hedqvist (Case C-264/14) that exchange of bitcoin and other virtual currencies are exempt from VAT under the EU VAT Directive, in the same manner as traditional currency.

This ruling is consistent with the recommendation of the Advocate General (“AG”) which was issued on July 16, 2015. Specifically, the ECJ concluded that the activity of exchange of Bitcoins against a national currency constitutes a taxable event under Article 2(1)(c) of the EU VAT Directive (2006/112/EC); however, the exemption under Article 135(1) applies where, as in this case, a currency that constitutes legal tender is converted in another currency (Bitcoin) that is not a legal tender but which participates in the flow of payments as a pure means of payment.

European Commission Publishes Explanatory Notes on the Place of Supply Rules for Services Connected with Immovable Property

The European Commission (“the Commission”) has published Explanatory Notes to clarify the application of specific provisions of the VAT Implementing Regulation relating to the place of supply of services connected with immovable property, which will become effective in 2017.

These Explanatory Notes, which offer fairly extensive guidance, are considered a “work in progress” and aim to provide a better understanding of the new provisions covered by Articles 13b, 31a and 31b of the VAT Implementing Regulation as they apply to services connected with immovable property contained in Article 47 of the VAT Directive.


Austria: New Electronic VAT Return for 2016

The Electronic VAT Return for 2016 is now available on the Bavarian State Tax Office (Bayerische Landesamt für Steuern) website. Due to the requirement that taxpayers file their VAT Returns electronically, these forms are only available via Portable Document Format and there are no fillable versions. There appear to be no substantive changes to content of the return.


Croatia: Proposed Reduced Rate for Certain Food Products

On October 1, 2015, the Croatian Ministry of Finance announced that the government is considering lowering the rate of VAT on certain food products from 25% to a new reduced rate of 13%.  Among the food items qualifying for the potential reduction are fresh fish, eggs, and various fruits and vegetables. The effective date of this proposed change is not specified.


Denmark: Place of Supply for Educational Courses

On September 22, 2015, the Danish tax authorities amended the place of supply rules for educational courses of longer duration.  As a result of the change, certain educational courses that “exceed the duration of common conferences and seminars” will now be located where taxable person to whom the services are provided is established, or has his permanent address or usual residence.  Prior to this change, the place of supply of longer duration educational courses was the place where the access to such events was provided or actually occurred.  As a result, for example, a Danish resident attending an educational program in a foreign country will be taxed in Denmark, when the program is of a longer duration than your usual seminar or conference.


France: New Electronic Payment Rules

Effective October 28, 2015, French companies must pay VAT by direct debit. The same rule will apply to foreign companies (where they have a non-resident VAT registration in France) effective December 1, 2015.


Germany: European Commission Requests that Germany Amend its VAT Legislation for Travel Agents

The European Commission has formally requested that Germany amend its VAT legislation with respect to application of the special “price margin” scheme for travel agents. The so-called “price margin” refers to the difference between the actual cost to the agent and the total amount, exclusive of VAT, to be paid by a traveler. According to current German VAT law, this scheme can be applied only to travel services provided to private end users. It also allows travel agents to set one single profit margin for all supplies of travel packages sold during a tax period.

Following a judgment against Spain with respect to application of the same scheme in September 2013, the European Court of Justice (“the ECJ”) decided that this special scheme is applicable not only to private travelers, but rather to all customers, including businesses. Furthermore, the travel agent should calculate the margin per travel service, and is not allowed to make an overall calculation of the VAT margins for each tax declaration period.

Unless there is a satisfactory response from Germany within two months, the Commission may refer the issue to the ECJ.


Hungary: Proposed Reduced Rate on Internet Access

During an interview on October 3, 2015, the Prime Minister’s Commissioner for a National Consultation on Digital Development, Internetkon, indicated that a proposal would be submitted to the Hungarian government in November to lower the VAT rate on internet usage from the 27% to 18%. By way of contrast, last year, the government proposed to apply an “internet tax” which would take the form of a fee on each gigabyte of internet data used. The draft law was subsequently withdrawn amid mass protests.


Ireland: VAT on Portfolio Management Services

Ireland Revenue has issued Revenue Brief 84/15 regarding the change in VAT treatment of portfolio management services. This change was prompted by the decision of the Court of Justice of the European Union (ECJ) in Deutsche Bank AG (Case C-44/11). Previously, portfolio management services were taxed in accordance with the proper tax treatment of their individual components. Based on the requirements of the ECJ decision, Ireland Revenue has updated its VAT manual to specify that portfolio management are properly considered a single taxable service.


Latvia: VAT Treatment of Fees to Attend Children’s Camps

The Latvian State Revenue Service issued a circular on the VAT treatment of summer camps.  Among the issues considered is whether subscription fees for summer camps are subject to VAT.  The Revenue Service stated, inter alia, that fees for children to stay at a summer camp are not subject to VAT.  Furthermore, parental participation fees in summer camp activities are also exempt.


Lithuania: Updated Guidance Relating to the Reverse Charge

On October 20, 2015, the Lithuania Ministry of Finance issued updated guidance regarding the application of the reverse charge mechanism to the supply of goods with installation related to construction. The guidance discusses which transactions qualify for a reverse charge, such as the supply of a service regarded as construction work under the Construction Law, Article 2, Paragraph 15.  The guidance also examines when the supply of a good related to construction can qualify for the reverse charge.


Malta: Proposed Reduced Rate for Gym Memberships

On October 12, 2015, a Draft 2016 Budget was presented to the parliament.  The proposal contains many tax-related measures, including changes to the income tax and excise duties.  Among the notable VAT measures is the proposed application of a 7% rate to gym memberships and fees charged by fitness centers and other similar sports activities.


Netherlands: New Filing Threshold for EC Sales List

Article 33b of the VAT Implementation Order 1968 was amended on October 15, 2015. Under the amended article, beginning on January 1, 2016, the threshold for the recapitulative statement of intra-Community supplies of goods and services is EUR 50,000. This threshold is mandated by Article 263 of EU VAT Directive. Currently, the Netherlands applies a threshold of EUR 100,000. The reduced threshold of EUR 50,000 effective on January 1, 2016 will bring the Netherlands to compliance with the EU VAT Directive.


Portugal: New Invoicing Requirements

The Ministry of Finance issued Ordinance No. 338/2015 by which it is established new VAT invoicing requirements. According to the ordinance, invoices and receipts in Portugal must comply with the new requirements effective January 1, 2016. Invoices that do not comply with the requirements will not be considered valid for VAT purposes.


Romania: Proposed Reduced VAT Rate on Water

The Romanian Finance Minister has indicated that the Romanian Government could again amend the fiscal code in order to enact, effective 2016, tax cuts which were initially postponed.  The proposed tax cuts include a possible 9% reduced rate for water.


Sweden: Proposed 2016 Budget Abolished VAT Grouping Rule

On September 21, 2015, a proposal for the 2016 Budget (Prop. 2015/16.1) was presented to Parliament.  Under this budget proposal, a VAT locking regulation (slussningsregeln) ‘slussing’ would be abolished.  This regulation currently permits Swedish companies to transfer VAT deductions from one company group to another which can then deduct the VAT in the same way as its own input VAT under certain circumstances.


United Kingdom: HMRC Updates MOSS Returns

The United Kingdom’s tax and customs authority (HMRC) has recently published updated versions of its pro-forma “Union” and “Non-Union” Mini One Stop Shop (MOSS) returns, which can be used by businesses to declare VAT due in other Member States on B2C supplies of telecommunications, broadcasting and electronic services. The returns can be uploaded to HMRC’s online services website to form part of a MOSS declaration, and include guidance notes on completing and submitting declarations.  In addition, HMRC has also published a list of currency exchange rates needed by MOSS businesses registered in the UK to complete declarations.

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Timur Feinstein

Timur is the Director – Regulatory Analysis & Design at Sovos. Timur uses his eleven-plus years of experience to lead a team of tax professionals focusing on VAT determination and reporting. An attorney by trade, Timur is a member of both the Massachusetts and New York Bars. He holds a B.S. in Finance from Bentley University and a J.D. from Boston University School of Law. Timur is fluent in Russian.
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