Bulgaria, Lithuania, Latvia and the VAT Gap
On February 22, 2017 the European Commission published its annual reports on the economic and social situation in Member States, the European Semester Winter Package. The country reports for Bulgaria, Lithuania and Latvia all took note of VAT gaps well over the European average. The reports also noted that both Bulgaria and Latvia have enacted measures that appear to be reducing the VAT gap.
The report on Lithuania indicated that its VAT gap was one of the highest in the EU and that there had been little downward movement. Despite this, the report also highlighted Lithuania’s introduction of e-invoicing and pointed to the success of the 2015 e-invoicing pilot phase.
Belgium: New Obligations for Quarterly Filers to Take Effect April 1
On February 10, 2017, the Belgian government published Parliamentary Question No. 1460 regarding its intention to replace the quarterly filing requirement with an advance tax payment regime. This change was begun in an effort to increase the efficiency of VAT, and has been welcomed by entities which do not necessarily issue invoices every quarter, but are nevertheless burdened with a quarterly filing requirement. In its response to the inquiry, the Belgian parliament indicated that a draft royal decree would be submitted shortly and that the new provisions will come into force on April 1 of this year.
Croatia: Exemption for Occupational Medical Consulting Services
The Croatian Tax Administration, in a ruling published February 2, 2017, has found that occupational health and fitness consulting services are exempt from VAT under Article 39, paragraph 1 of the national VAT Act, which states that payment for medical services closely related to that performed by public health institutions are properly exempt from VAT.
In its letter of inquiry, the taxpayer indicated its intention to begin providing medical consultations as to the seaworthiness of applicants seeking work as sailors. The Tax Administration specified that an evaluation of workers’ health in order determine their fitness for the demands of the workplace fell into this exempt category of services.
Czech Republic: New Rate on Newspapers Takes Effect
As previously reported, the Czech Parliament has approved a law reducing the VAT rate on newspapers and magazines that do not primarily contain advertising content from 15% to 10%. This law was passed over the President’s veto. The official publication of the law confirms that the new rate will take effect on March 1, 2017.
Denmark: Company Cafeterias, Casino Fees, and Tax Decisions
The Danish tax authority (SKAT) has issued advance rulings on the taxability for VAT purposes of
- the transfer of a business from a Danish branch of a company to another branch located in another EU country
- roadside assistance plans containing both taxable and exempt services and;
- the provision of care services to the elderly.
The SKAT has also issued new guidance on company cafeterias, specifically indicating that VAT base should be the cost of food in situations where a company canteen is selling food to employees for less than the manufacturing cost of the food.
Finally, the National Tax Tribunal has issued a decision on the taxability of entry fees to casinos. The tribunal, siding with the SKAT over a casino game company, found that entry fees to casinos are subject to VAT even though the actual casino games are VAT exempt under the VAT Act.
Estonia: Authorization to Raise VAT Threshold
The European Commission has sent a proposal for a Council Implementing Decision authorizing Estonia to derogate from the EU VAT Directive (2006/112), by increasing their VAT threshold, to the Council of the European Union. Estonia requested the derogation last May. Article 287 of the VAT Directive currently allows Estonia to exempt taxable persons with annual turnover of no more than 16,000 Euros from VAT.
If implemented, the decision will allow Estonia to raise the turnover threshold to 40,000 Euros starting on January 1, 2018. Similar derogations from Article 287 have previously been granted to Belgium, Luxemburg, Poland, Lithuania, Latvia, Slovenia, Italy, and Romania. The goal of the measure is ease administrative burdens on small businesses. Estonia adopted national legislation raising the threshold in October of 2016.
Finland: Guidance on VAT and Damage Payments – Compensation vs. Consideration
On February 1, 2017, the Finnish Tax Administration released new guidance addressing VAT obligations on payments for damages. In instances where payment is made in compensation for damages, no VAT is due because the compensation is not made in an exchange for a good or service. Furthermore, the guidance specifically provides that a tort is outside the scope of the Finnish VAT Act.
The new guidelines then discuss in detail the VAT treatment of pre-booked accommodation services that are not ultimately used. VAT would not be collected on the refund of an advance payment for these services. Such a refund would be compensation, and not consideration due to the customer. Furthermore, where the customer cancels a reservation ahead of time and the provider retains the booking fee, the retained fee is not a consideration for any service due to the customer, but represents payment for damages, and as such is not taxable.
However, where a customer does not cancel a reservation, the fee represents the consideration in the sale of an option to use the accommodations services contracted for, and VAT is thus due. Insofar as this guidance pertains to accommodations bookings, it will enter into force as of June 1, 2017.
France: Deductible Thresholds for VAT
The French Tax Administration, at its online portal, has published an update of registration thresholds for various VAT schemes, including the small business scheme, agricultural scheme, and simplified taxation schemes, for the year 2017. Effective January 1, 2017, these thresholds are reviewed and published on a triennial basis rather than an annual basis.
Germany: Recent VAT Letters
Germany’s Federal Ministry of Finance (Bundesfinanzministerium, or “BMF”) has recently published guidance letters on three issues related to VAT:
- The BMF clarified that natural gas storage tanks are treated as a part of natural gas networks for VAT purposes when permanently connected to such networks via pipelines. Under the German VAT Act (UStG), the place of supply of gas via a natural gas network to an entrepreneur is the place where that entrepreneur is established, while the place of supply of gas via a natural gas network to private consumers is the place where the gas is used.
- The BMF clarified that in order for a service to be classified as related to real property, the performance of that service must be closely related to the property in question. Under the UStG, services related to real property are supplied where the property is located for VAT purposes.
- The BMF stated that sale-and-leaseback transactions, while normally exempt from VAT, could properly be treated as taxable when the purchase of the leased goods by the buyer is predominantly financed by a loan from the seller, and is carried out primarily for accounting purposes.
All three letters contain corresponding amendments to the German VAT Application Decree.
Greece: New Intrastat Threshold Published
The Greek Statistics Authority announced that pursuant to Articles 7 and 10 of EU Regulation 638/2004, as amended, the new statistical thresholds for Intrastat declarations will be EUR 150,000 per annum for arrivals, and EUR 90,000 per annum for dispatches. These new thresholds will be applicable for transactions carried out January 1 through December 31, 2017.
Hungary: Guidance on Intra-Community Supplies and Invoice Content
The Hungarian Tax Administration (NAV) has recently published two guidance documents intended to clarify VAT invoicing requirements and rules for intra-Community transactions. Both documents stress that intra-Community supplies typically require the supplier’s and customer’s VAT Identification Number on the invoice, in accordance with EU legislation.
Italy: Communication of Data on Invoices
The Italian tax administration (Agenzia Entrate) has issued a new circular letter intended to clarify to taxpayers the nature and content of the information that they should provide when they opt to remit all their invoice information to the tax administration. The new circular letter 1/E-2017 can be found at the website of the tax administration, and includes information about which transactions and taxpayers are exempt from the invoicing requirements.
Malta: Expedited VAT Refunds for Non-EU Travelers
Pursuant to a new agreement with provider Fintrax Group, the Malta Ministry of Finance will allow the international service company to process VAT refunds for non-European Union travelers seeking a tax refund on their purchases made in Malta. Currently the Maltese VAT rate is 18.0%, which is modest by EU standards, but it represents a considerably higher consumption tax rate than many non-EU tourists are accustomed to. Additionally, the existing refund process is considered cumbersome enough to discourage tourists from shopping, with refunds taking a matter of months to process. Under the new system, refund payments will be made prior to departure from Malta.
Netherlands: Overview of 2017 VAT Legislation
On January 24, 2017, the Dutch Minister for Finance provided the lower house of Parliament with an overview of expected tax legislation for 2017. Included in this overview are two VAT-related measures: a bill to abolish the special VAT scheme for farmers, scheduled for proposal in June, and a bill to implement a Directive on vouchers recently adopted by the Council of the European Union, tentatively scheduled for proposal in October.
Eric Wiebes, the Dutch Secretary of Finance, has issued a letter of February 23, 2017 answering several questions on digital tax filing. The Secretary stated that the capacity of the national filing system will steadily increase in 2017, but said that no technical measures could be taken to create excess capacity during peak filing periods. The Secretary also addressed several questions related to e-filing of returns on behalf of deceased or disabled persons.
Poland: New Import Declaration Nears Approval
On February 23, 2017, a regulation regarding a new Polish VAT import declaration was passed to the Minister of Development and Finance for signature. A copy of the proposed new declaration is appended to the regulation draft, and is set to replace the form implemented by a prior 2008 regulation. This new declaration’s introduction takes place against the backdrop of Poland’s administrative reorganization, approved last year, which authorizes the creation of a National Fiscal Administration. As such, the changes to the new form are intended to reflect the changes in bureaucratic nomenclature applicable to the new body.
Romania: New VAT Forms Released
The Romanian Agentia Natională de Administrare Fiscală (ANAF) has issued new versions of several tax forms. This includes a new version of the VAT Return (Form 300), which was released to reflect the new VAT rate of 19% introduced in January, as well as the new VAT regime for agricultural activities. ANAF also released a new version of the VAT Information Exchange (VIES) recapitulative statement (Form 390).
Slovak Republic: Questions Forwarded and Guidance Released
The Slovakian Supreme Court has referred questions from two cases to the European Court of Justice. In the first case (Tax Directorate of Slovak Republic v. BB construct s.r.o., Case C-534/16) the question raised is whether the Slovakian government can, consistent with the EU VAT Directive, fight VAT fraud by forcing companies to pay a 500,000 Euro deposit to tax authorities if the director of the company was previously a director of a separate company that has outstanding tax liabilities.
In a second case (Case C-533/16), between Volkswagen AG and the Finančné riaditeľstvo Slovenskej republiky, questions are raised about the applicability of time limits to claim VAT refunds on intra-EU transactions to instances where the documentation supporting the claim could not be presented before the time limit expired.
The government, meanwhile, has released new guidance on the treatment of VAT on services related to immovable property, the reverse charge mechanism on construction, and the place of service for agricultural activities.
Spain: Immediate Delivery of Invoice Data
Spanish tax authorities are continuing their preparations for the implementation of the new SII system that requires the immediate delivery of invoice data to the Spanish tax administration (AEAT). On February 6, the AEAT released a draft order that contains the specific technical requirements that taxpayers should implement in order to comply with the remittance of the invoice data. This draft has been released early in order to allow taxpayers to comment on the technical specifications that will be established, and to introduce any relevant changes if necessary. The remittance of invoicing data to the AEAT will be required for specified businesses beginning on July 1, 2017.
Sweden: Payments in Virtual Currencies are Subject to VAT
On January 31, 2017, the Swedish Tax Administration issued new guidance outlining the circumstances in which virtual currencies function as legal tender. A virtual currency functions as legal tender, or a “traditional currency,” where it serves as consideration in an exchange of goods or services. However, conversions of virtual currencies into legal tender are exempt from VAT, in accordance with the general treatment of exchange services in Sweden.
Particularly of interest to Swedish authorities are sales of widely known virtual currencies, such as Bitcoin, as well as sales in online video games where legal tender has been exchanged for an in-game currency. Further information is available under the decision reference number 131 530494-16 / 111.
United Kingdom: “Making Tax Digital”
HM Revenue and Customs (HMRC) is moving forward with its “Making Tax Digital” proposal after winding up six formal consultations and publishing official response documents on January 31, 2017. As previously reported, the short-term goal of the proposal is for HMRC to move to a fully digital tax system by 2020, with digital accounts available to all taxpayers, theoretically allowing HMRC to “collect and process information affecting tax in as close to real time as possible.”
In its responses to the consultations, HMRC stated its intention to switch from the annual tax return to quarterly reporting, based on digital recordkeeping, beginning in April of 2018. The new digital recordkeeping requirements would apply to “most businesses, self-employed people and landlords,” and would likely involve combining current record-keeping spreadsheets with software. Invoices and receipts, however, would not need to be stored digitally in the initial roll-out.
HMRC’s responses have been questioned by the House of Commons Treasury Committee, which issued a report calling for Making Tax Digital to be delayed until 2019 or 2020. The report cited “insufficient engagement and consultation with the business community,” and a general uncertainty as to the cost of handling new reporting requirements, as reasons for extending the timeline.
Supplies of Digital Services to Private Consumers
HMRC has revised its guidance letter on “VAT: businesses supplying digital services to private consumers” to provide a reference to further guidance on the taxability of bundled supplies versus multiple supplies. “Bundled supplies” in the United Kingdom refer to a supply of a principal good or service together with an ancillary good or service; taxability follows the principal element in the supply. “Multiple supplies” consist of separate, principal supplies – even if sold for one price – and are taxed separately. For digital service providers, bundled supplies might include a technical journal with supplementary online content, a DVD with access to online streaming of content, or a music CD with digital download.
Switzerland: Update on Basel Mulhouse Airport
The Federal Council of Switzerland has officially approved the agreement with France over the taxation of the EuroAirport (EAP) Basel Mulhouse Freiburg. The airport is located in France, but is a joint operation between France and Switzerland, and contains a special Swiss customs zone. As previously reported, a derogation from the VAT Act was requested by France so that Swiss taxes could apply in the Swiss customs zone.
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