Welcome to our monthly summary of Value Added Tax news and insights curated and summarized by the Sovos Compliance Tax Research Team. Here is the country-by-country report for November 2016.
European Council Adopts Conclusions on Cross-Border VAT Rules
On November 8, 2016, the Council of the European Union officially adopted a set of draft conclusions on improvements to VAT rules governing cross-border transactions. As previously reported, these improvements include:
- Making receipt of a VAT identification number a substantive condition for an exemption on intra-Community supplies of goods;
- The harmonization of rules governing triangular transactions and other chain transactions;
- The simplification of rules governing call-off stock; and
- Creating a common standard for documentary evidence required to grant an exemption for intra-Community supplies.
No Agreement on European Public Prosecutor’s Office
On October 14, 2016, European Union justice ministers continued their ongoing negotiations as to the scope of a new European Public Prosecutor’s Office (EPPO), which is currently scheduled to begin work in 2019. A major sticking point is whether the EPPO will be empowered to hear cases of VAT fraud. Several member states believe that allowing the EPPO to try cases of VAT fraud would result in large-scale recovery of European funds; others believe that VAT fraud should be dealt with by national courts, as national budgets are most at risk. The debate has threatened to derail the EPPO project timeline, which requires an agreement by the end of the year.
Consultation on Electronically Supplied Publications: Results
The European Commission has released a report summarizing the results of its open consultation on VAT rates for electronically supplied publications. Approximately 94% of respondents agreed that Member States should be allowed to apply reduced VAT rates to e-books, and 88% of respondents would also extend reduced rates to e-newspapers and e-magazines. A plurality of respondents took the position that super-reduced rates and zero rates for printed publications should not be abolished.
The VAT treatment of e-books has been a point of contention in recent years, with several Member States arguing that e-books should not be taxed differently from printed material. Currently, Member States must apply a standard rate to all electronically supplied publications.
Belgium: Lower House Considers VAT Reduction on Certain Housing
On November 10, 2016, the Belgian Chamber of Representatives sent to the Council of States proposed law 2118, which would amend Royal Decree 20 of 1970 to set a reduced rate of 6.0% on sales of construction services purchased by the elderly, in order to ease the financial burden of remaining in one’s home in old age. Specifically, the bill provides for the reduced rate up to a transaction value of €15,000 on renovation services for residences 10 years old or newer.
The theory underlying the rate reduction is that more favorable VAT treatment will incentivize planning for one’s housing requirements in old age. In support of the measure, the bill cites the increasing share of Belgium’s population which the elderly comprise and the aging housing stock in Belgium as compared to other European nations.
2017 Instrastat Thresholds Published
The National Statistical Institute published an order on October 14, 2016 for the following 2017 Intrastat thresholds:
- For dispatches – BGN 240,000 (approximately EUR 123,000); and
- For arrivals – BGN 410,000 (approximately EUR 210,000).
The thresholds for declaring statistical value under the Intrastat system for 2017 will be as follows:
- For dispatches – BGN 11,700,000 (approximately EUR 5,982,000); and
- For arrivals – BGN 5,600,000 (approximately EUR 2,863,000).
Deduction of Input VAT for Mixed Use Motor Vehicles
The European Commission has rejected a Bulgarian request for authorization to introduce a VAT derogation whereby taxable persons using certain motor vehicles for both business and private use would be allowed to deduct 50% of the input VAT regardless of the actual amount of private use of the motor vehicles.
In a letter dated June 30, 2016, the EU Commission stated that the optional introduction of the restriction of the right to deduct VAT will continue unequal treatment of certain business assets and will not simplify the collection of VAT. In an interview with Capital newspaper published November 8, 2016, the Bulgarian Minister of Finance stated that at this stage there are no plans for the submission of a new request for a derogation.
Croatia: VAT Amendments Proposed
On November 10, 2016, the Croatian government announced a proposal to amend the Value Added Tax Law. The proposal is still under discussion, but among the proposed changes are the following:
- An increase in the rate applicable to restaurants, catering services, and white sugar from 13% to 25%;
- A deduction for the purchase and rent of vehicles for personal transportation will be allowed for up to 50% of the input VAT if the value does not exceed HRK 400,000;
- Effective January 1, 2018, the general VAT rate will decrease to 24% (currently 25%), while a single reduced rate of 12% will be introduced (currently 5% and 13%);
- Council Directive (EU) 2016/1065, which contains specific rules that regulate the VAT treatment of vouchers (see European Union-1, News 29 June 2016) will be transposed into domestic law.
If approved by the parliament, the amendments will be effective January 1, 2017, unless otherwise indicated.
Cyprus: VAT Online Registration
The Ministry of Finance of Cyprus has announced that VAT registration should be made online via the Ministry’s Taxisnet system. This registration is a prerequisite for the electronic submission of VAT returns and Recapitulative Statements (VIES). While the manual registration process is currently available, the Ministry of Finance has announced that this option will soon be repealed. According to the announcement, online registration can be accomplished through the following link: https://taxisnetreg.mof.gov.cy
The Ministry has also announced that the system will be going through a maintenance and upgrade process from 16th November 2016 to 1st December 2016, and will not be available to the public.
Czech Republic: No VAT Reduction on Beer or Essential Foods
The three governing parties of the Czech government have failed to reach an agreement on a VAT cut for draught beer and essential foods. Representatives of the parties stated that discussions are “closed for the moment,” and will remain so until the next election, in autumn of 2017.
Finance Minister Andrej Babis had proposed these VAT cuts as a means of offsetting new requirements for restaurants to electronically record their sales. A similar offsetting measure, which applies a reduced 15% VAT rate to restaurant services, was approved by Parliament and will become effective on December 1, 2016.
Denmark: VAT on Sales of Real Property
The Danish Tax Board has recently reviewed a decision of the national tax agency (SKAT) on the applicability of VAT to sales of land and buildings, upholding the decision in part and revising in part. The complainant taxpayer purchased two plots of land as an individual, which he then attempted to resell. The first plot was undeveloped and was used by the taxpayer to park trucks belonging to his hauling business; the second plot contained several transport and garage facilities, also used by the hauling business. All of the buildings on the second plot of land were slated for demolition by the buyer.
The Tax Board upheld SKAT’s ruling that the sale of the first plot was taxable, on grounds that it was not part of the taxpayer’s personal inventory, having been used exclusively for business purposes for more than 20 years. However, the Tax Board overturned SKAT’s ruling that the sale of the second plot, containing “old” buildings slated for demolition, was taxable. Instead, the Tax Board held that the sale of the second plot fell under a general exemption for real estate sales, because the land contained extant buildings, and any demolition thereof would be done by the buyer rather than the supplier.
Estonia: Amendments to Value Added Tax Act
On October 27, 2016, the Estonian Parliament approved amendments to the Value Added Tax Act. There are two main changes: an increase in the registration threshold and the introduction of the reverse charge mechanism for certain metal products. The changes are summarized as follows:
Effective January 1, 2018, the VAT registration threshold will be increased from EUR 16,000 to EUR 40,000. Businesses that do not meet the threshold may still register voluntarily in order to claim input VAT deductions.
Effective January 1, 2017, the reverse charge mechanism will apply to metal products used in the construction and engineering sectors, including sheet metal, water and gas pipes, metal beams, and certain other products.
Finland: 2017 VAT Return
On November 3, 2016, the Finnish Tax Administration released new VAT periodic return forms to be used beginning on January 1, 2017. Although there were no major changes from the 2016 version, some of the revisions could still impact filers. Specifically, the reverse charge mechanism applied to purchases and sales of construction services will now also apply to purchases and sales of scrap metal. The form’s content relating to the filing process has also been altered. There now exists a field for specifying corrections to previously filed information, and the check boxes to specify monthly or quarterly filings have been collapsed into a single “Tax Period” field.
France: Presidential Candidates Favor VAT Increases
Former French Prime Ministers Francois Fillon and Alain Juppé are now the presumptive favorites to win the Republican Party’s nomination for the 2017 presidential candidacy, after former president Nicolas Sarkozy was eliminated from the first round of the party’s run-off. Both Fillon and Juppé are known to favor incremental increases in France’s VAT rate, which currently stands at 20%. The French presidential election is scheduled for April 23, 2017.
Germany: Agency Proposes VAT Cuts on Resource-Efficient Products
At a meeting of the National Resources Forum in Berlin, the German Environment Agency (UBA) called for the application of a 7% reduced rate for resource-efficient products, as well as services such as repairs. The differentiation, based on environmental criteria, would favor products that require the use of fewer raw materials during the manufacturing process. The UBA estimates that German citizens consume more than 44 kilos per day of raw materials such as metal, cement, and wood.
Greece: Registration of EU entities
EU entities not resident in Greece but performing taxable transactions in that country are now allowed to change their registration information electronically. In Greece, businesses registered in other member states of the EU may register electronically without appointing a local representative; however, up to now the information provided in the initial registration process could not be modified. Ruling POL 1153/2016 now makes it possible for such entities to modify relevant information regarding their registration. More information may be found here: http://www.publicrevenue.gr/kpi/public/blog/attach/files/rss/pol_1153_2016.pdf.
In addition, the Greek parliament is currently in the process of approving the 2017 budget. No major changes in the VAT legislation are expected, but the taxability of certain products currently subject to reduced rates may change.
Hungary: Prime Minister Pressures EU on Digital Services
At a meeting of the Regional Digital Summit in Budapest, Prime Minister Viktor Orbán of Hungary asked the EU Commissioner for the Digital Economy and Society to declare digital services a basic necessity, similar to milk and bread. As previously reported, the Hungarian government plans to apply an 18% reduced VAT rate to internet services in 2017, with a further reduction to 5% in 2018. These plans have been the subject of an official notice of disapproval from the EU Commission, which maintains that internet services must be standard rated.
Italy: VAT and the 2017 Budget
The Italian parliament is about to approve the 2017 budget (Legge di Bilancio 2017). According to the provisions included in the draft law, a planned increase of standard and reduced VAT rates will be postponed to 2018. As a matter of general background, paragraph 718 of Article 1 of the law 190/2014 established a schedule of increases in the VAT rates of Italy during the next three years, but some of those increases were suspended by the Italian legislature. For more information about the proposed 2017 Budget law of Italy, you may access the full content of the law.
In addition, the Italian Tax administration (Agenzia delle Entrate) has issued Resolution 106/E, which provides further clarification about which kind of credit/loan securitization services are considered exempt from VAT. As result of this resolution, the VAT exemption provided for financial and credit services will be extended to securitization transactions provided in the context of law 130/1999. The full content of resolution 106/E may be found here.
Luxembourg: Upper House Amends Proposed Transfer Pricing Law
On November 16, the Luxembourgish Council of States returned bill number 7050 to the Chamber of Deputies for enactment, with possible amendments. Article 3 of this budget bill would introduce transfer pricing rules, evidencing compliance with OECD guidelines and participation in the BEPS share plan.
Previously, Luxembourg’s regulation of transfer pricing was rooted in the OECD’s Model Tax Convention in its reliance on an arm’s length metric. A proposed new provision would enable Luxembourgish tax authorities to ignore a transaction when there appears to be a lack of “commercial rationality.”
This proposal represents a substantial change in position for the Grand Duchy, which, prior to 2015, did not have codified transfer pricing legislation. In recent years, many countries have focused on transfer pricing legislation, which raises the issue of whether additional VAT would be due on post-transaction adjustments necessitated by shifting legal requirements.
Reduced Rate on Kidney Dialysis Concentrates
On October 25, 2016, the Financial Secretary of the Netherlands published a letter clarifying the application of a reduced VAT rate to certain kidney dialysis concentrates. In the Netherlands, dialysis concentrates are assigned an RVG number when authorized as a medicinal product by the national Medicines Evaluation Board. Certain dialysis concentrates may alternatively be classified as medical devices. In either case, these concentrates can be considered medicinal products that are subject to a 6% reduced rate under Table I of the Dutch Turnover Tax Act. Dialysis fluids that do not have either of these classifications, however, will not be subject to the reduced rate.
Reduced Rate on Sunscreen and Toothpaste
On November 11, 2016, the Dutch Supreme Court held that certain types of sunscreen and toothpastes qualify as medicine for VAT purposes, and therefore are subject to a 6% reduced VAT rate. Specifically, sunscreens that block ultraviolet A (UVA) or ultraviolet B (UVB) rays can be reduced rated, as well as toothpaste containing fluoride.
Dutch Supreme Court Confirms CJEU Judgment
The Netherlands Supreme Court, in a ruling of November 18, 2016, has confirmed a Court of Justice of the European Union (CJEU) judgment involving a municipality providing services for the transport of schoolchildren. The municipality in question had purchased transport services from private companies, which were made available to parents in the district.
Roughly 1/3 of parents were required to pay for the services. The Dutch Court held that these payments must be regarded as fees rather than consideration, as they did not cover all costs and were not borne by all parents. The Court also found that the municipality was the end-recipient of the transport services rather than the supplier. Therefore, the municipality was not acting as a taxable person when providing the transport.
Poland: Polish Lower House Adopts VAT Amendments
Poland’s lower house of parliament, the Sejm, on November 16, 2016 passed Druk no. 965, a bill amending Poland’s VAT act. The bill will now be considered by the Senate. Notably absent are previous provisions to reduce VAT rates. The bill as amended focuses in part on penalties and compliance, proposing a 20% additional tax where liability was previously understated. Under the proposed law, where VAT was remitted in excess of liability, liability may be reduced in future periods by the amount of the overpayment. The bill also provides discretion to the justice system to impose greater punishments for tax crimes, including a minimum three-month sentence for extraordinary penalty enhancements and a possible increase by 50% of pending fines for a given offense.
Portugal: VAT Exemption for Museum Donations
The Portuguese legislature has enacted Law 36/2016, by which the donations of certain goods to chartered museums in Portugal will be considered exempt from VAT. The exemption is limited to works of art intended to be part of the collections of those museums. More information about can be found here.
In addition, the Portuguese Tax authority has issued circular letter Ofício Circulado N.º: 30183 2016-10-28, by which it clarifies the taxability of dental implants and other similar dental prosthesis. The letter clarifies the taxability of the implants – which are reduced rated – and the services provided by dentists in relation to implants, which are exempt. Read the circular letter here.
Slovak Republic – CR
Guidance on Filing of Returns After a Change in Registration Status
The Slovak tax authorities have published guidelines regarding the process of filing VAT returns after a change in registration status. In the Slovak Republic, a taxable entity can be registered under several different provisions of the national VAT Act, conditioned in large part on whether the entity has a permanent establishment in the country. If a taxable entity changes its registration status during a tax period (monthly or quarterly), it must still file a return within 25 days of the period’s end, accounting for any tax accumulated under either the old or the new status. The VAT number of the taxable entity will not change for reporting purposes.
Suppliers of Construction Work Must File Reports
In the Slovak Republic, VAT on construction work has been subject to a reverse charge as of January 1, 2016. Recipients of construction work must self-assess and remit VAT to the government via their VAT returns. Suppliers have no such obligation. However, the government has recently published a reminder that effective January 1, 2017, suppliers of construction work will have to report the supply in Section A.2 of the VAT control statement. This measure is intended as an additional check against VAT fraud.
Spain: VAT and 2017 Budget
As part of the current discussion of the 2017 budget, the Spanish government is currently examining a number of proposals that would affect VAT. Among the proposals being considered is an increase of the VAT rate applicable to hotel and lodging services, as well the reduction of the VAT rate applicable to veterinary services. These proposals are still under discussion, but there are is a good chance that they will be approved. Spain has already agreed to a number of compromises with the European Union regarding the reduction of the Spanish deficit. The final budget law is expected to be approved by the middle of the next month.
Swedish High Court Rules on Joint Business for VAT Liability
On November 9th, 2016, the Supreme Administrative Court of Sweden handed down an advance ruling concerning whether or not two separate entities were engaged in a joint business activity, or separate business activities which would incur VAT liability for goods and services supplied to each other. The decision, Mål nr 1743-16, concerned WeSpons AB, a lottery and gaming development company, and WeSpons Sweden, a separate entity, which applied for and held the lottery licenses.
This arrangement was formalized in a Cooperation Agreement under which WeSpons AB received 15.0% of the sales price of each ticket and WeSpons Sweden received 85.0%. Although WeSpons AB contended that the arrangement should be characterized as a joint gaming business activity, the Court held that this arrangement constituted commission-based compensation for development services – and goods where applicable – and was therefore properly subject to Swedish VAT.
Tour Operators Margin Scheme
In both the European Union and the United Kingdom, a special scheme for VAT applies to travel agents acting in their own name or as an undisclosed agent for a principal. This scheme – known in the UK as the Tour Operators Margin Scheme (TOMS) does not apply to disclosed agents acting solely as intermediaries. The First-Tier Tribunal has recently affirmed that an online travel agency, which entered into contracts with hotels to book rooms for private customers, and which received commissions for doing so, was acting as an intermediary of the hotel for VAT purposes and thus was not subject to the TOMS scheme. The controlling factor was the contractual language between the agency and the hotels.
VAT on Assets Used by a Business Prior to VAT Registration
HM Revenue and Customs (HMRC) has published a new brief on the treatment of VAT incurred on assets that are used by a business prior to VAT registration. The brief reiterates HMRC’s current policy that:
- VAT on services received within six months of the effective date of registration (EDR)
is recoverable in full;
- VAT on stock is deductible to the extent that the goods are still on hand at EDR; and
- VAT on fixed assets purchased within 4 years of EDR is recoverable in full, so long as the assets are still in use by the business at EDR.
Import VAT and Simplified Inward Processing
HMRC has published a brief stating that all Inward Processing imports made by Authorisation by Declaration require that import charges are secured by deposit or by guarantee. When secured by deposit (the usual practice), repayment of the deposit charges will usually include VAT. However, the VAT should not be reclaimed as input tax, according to the brief.
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