Here is a country by country summary of value-added-tax news that transpired during the month of December 2016.
Belgium: Draft Bill on Tax Fraud Prevention
On December 9, 2016, the Belgian Council of Ministers submitted to the Council of States a draft bill intended to implement tax fraud control measures. These measures are meant to bring Belgium into compliance with current international requirements, and will amend the VAT treatment of property burdened by a lien.
Bulgaria: VAT Amendments
Several amendments to the Bulgarian VAT Act were published in the State Gazette on December 6, 2016. The changes include:
- An extension of the Tour Operator Margin Scheme
- A modification of the exemption for international transport, to exclude the supply of vessels and related goods and services used for private and sporting purposes.
- New rules regarding supplies made by intermediaries.
- New rules regarding the correction of VAT returns by deregistered persons.
- New rules regarding partial input VAT deductions for mixed-use non-current assets.
Croatia: 2017 VAT Amendments and Reduced Rated Items
On December 6, 2018, the Croatian government published the Proclamation of the Amendments to the Law on Value Added Tax, which will take effect on January 1, 2017. The amendments include several changes to the list of items subject to Croatia’s reduced 13.0% rate of VAT. Specifically, restaurant services will now be subject to Croatia’s standard 25.0% rate, along with supplies of white sugar.
However, a variety of new goods and services will now be subject to the reduced 13.0% rate, including: supplies of electricity, waste collection services, and certain agricultural supplies, including seeds and seedlings, fertilizers, pesticides, and animal feed that is not pet food.
Czech Republic: Newspapers and Cash Registers
On December 14, 2016, the Czech legislature passed bill 596/2, which would reduce the VAT rate on certain newspapers and magazines from 15% to 10% in 2017. However, on December 20th the Czech President rejected the bill, citing a lack of detailed analysis of its impact.
The parliament can override the president’s veto with a vote supported by an absolute majority; when voting to override the veto, no amendments are allowed. The bill should be presented at the next meeting of the House of Deputies.
On December 1, the Czech government also launched its new “EET” system by installing electronic cash registers in 40,000 businesses offering catering and accommodation services. The electronic cash registers will record each cash sale and send a record over the internet to the Czech Finance Administration. This is the first phase of a program designed to cut down on tax avoidance and fraud, with registers being installed in other types of businesses at a later date.
Finland: 2017 Budget Includes VAT Liquidity Relief for Some
On December 21, 2016, Finland enacted its 2017 budget bill, which includes cash accounting accommodations for supplies of goods and services made in Finland. Presently, under Finnish VAT law, VAT is due upon the issue of an invoice. However, as of January 1, 2017, entities with an annual turnover below €500,000 will be given the option to remit VAT once the invoice has been paid. As a reminder, also effective January 1, 2017, new VAT reporting forms (specifically 4001 and 9633) will be required by Finnish tax authorities.
France: Hotel Lobbyists Push for VAT on Airbnb Rentals
A hotel lobbying group in France has recently succeeded in having tax laws on rental income tightened, which has resulted in rental provider Airbnb sending its own tax data to the French government, rather than relying on data from individual hosts using its service. Reports now indicate that the hotel lobby is seeking to have VAT assessed on Airbnb rentals.
Many Airbnb hosts fall underneath the EUR 32,000 VAT registration requirement, and thus Airbnb guests often do not have to pay VAT in France, giving the company a competitive advantage against hoteliers.
Germany
European Commission Infringement Proceedings
On December 8, 2016, the European Commission officially closed infringement proceedings against Germany for that country’s rules on VAT refund applications. The German rules had required taxable persons established outside of the European Union to personally sign VAT refund application forms, which the EC claimed was discriminatory against non-EU operators. Germany has since amended its legislation, making the proceedings moot.
VAT on Promotion of Paid Sports
In a letter of December 2, 2016, the Federal Ministry of Finance (BFH) declared that a non-profit sports association should not automatically be considered a VAT-advantaged special purpose enterprise under Article 65 of the Tax Regulations insomuch as the economic activity of the association is to promote paid sports.
This follows a corresponding BHF judgment of June 24, 2015, which was decided on the grounds that promotion of paid sports primarily benefits professional athletes, rather than serving a non-profit purpose. The provisions of the BFH letter are to be applied to all open and future cases involving this fact pattern.
Greece: Extension of VAT Rate Reduction in the Northern Aegean Islands
The Greek parliament is in the process of extending for another year a 30% reduction on the VAT rates of Samos, Lesbos, Chios and some of the Dodecanese islands. These VAT rates are currently set at 5%, 9%, and 17% until December 31, 2017. The increase on the VAT rate on those islands was originally part of the bailout agreement between Greece and the European Union.
Hungary: VAT Amendments Passed
Bill T-12741, which was published on November 25, 2016, contains two amendments to Hungarian VAT law. First, it provides that chassis numbers must be reported on VAT Returns for all imports, intra-Community acquisitions, and purchases of passenger cars, in order to curb tax evasion. Secondly, the threshold for individual exemptions has been raised from 6 million forints to 8 million forints. A circular explaining this latter change has also been released by the Hungarian tax authorities.
Ireland: Finance Bill 2016
The Finance Bill of 2016, which is scheduled to come into effect on January 1, 2017, contains several minor provisions affecting Value Added Tax. First, the flat-rate addition for unregistered farmers has been increased from 5.2% to 5.4%. Secondly, the act allows for the minister to issue orders excluding specified agricultural goods from the flat-rate addition. Finally, the bill has amended how partially-VAT-exempt entities should apportion overhead costs. Currently the bill has been passed by the Dáil Éireann, and is under committee review in the Seanad Éireann.
Latvia: VAT Amendments in 2017 Budget
The recently adopted 2017 Budget contains several amendments to Latvian VAT laws:
- The monthly threshold for overpayment refunds has been reduced from EUR 11,328.97 to EUR 5,000.
- Newly registered persons must file monthly returns for the first six months they are registered.
- A full input VAT deduction is no longer allowed for the supply of luxury cars and related expenses.
- Certain precious metals are now subject to a reverse charge mechanism.
- Several numbers throughout the act were rounded off (for example “14.23” to “15,00” and “355700” to “350 000”).
These amendments take effect on January 1, 2017.
Lithuania: Extension of Reduced Rate on Heating Energy
On December 20th, 2016, the Lithuanian Seimas extended the reduced rate of 9% on thermal energy supplied to residential premises until June 1, 2017. Prior to the amendment the reduced rate was set to expire on January 1, 2017. Despite the new extension passing the Seimas with a vote of 96 to 12, Prime Minister Skvernlis has suggested that the reduced rate should be eliminated in the coming year.
Luxembourg: 2017 Tax Reform Includes VAT Fraud Deterrence
On December 14, 2016, Luxembourg enacted draft law number 7020, containing its tax reform provisions entering into force on January 1, 2017. Many provisions included in this law are aimed at combating VAT fraud by increasing both the penalties for noncompliance and the penumbra of liability for VAT.
Specifically, the law contains provisions increasing the fixed penalties for noncompliance to a range of €250 to €10,000. In cases involving fraudulent evasion of VAT, penalties have been increased to a maximum of 50% of the unpaid VAT, in addition to liability for the unpaid VAT itself.
Malta: VAT Removed from Securitisation Transactions
On November 22, 2016, the Maltese government published an Amendment to the Fifth Schedule of the Value Added Tax Act in the Malta Government Gazette. Among its measures, this amendment exempts from VAT securitisation transactions performed by securitisation vehicles, as defined in Malta’s Securitisation Act.
Under the Securitisation Act, a securitisation vehicle may be a company, partnership, trust, or generally a legal entity engaging in securitisation transactions. The amendment further concerns exemptions regarding collective investment schemes, retirement schemes, and authorized reinsurance for special purpose vehicles.
Netherlands: International Monetary Fund Consultation Results
On December 8, 2016, the International Monetary Fund (IMF) released preliminary findings from its 2016 Article IV consultation with the Netherlands. The IMF recommended, among other things, that the Netherlands eliminate distortions associated with multiple VAT rates, as part of a “fundamental overhaul” of its tax system.
Poland: New Reverse Charge on Construction Services
On December 14, 2016, Poland’s president signed into law amendments to the nation’s VAT Act (formerly Druk No. 965) with effect from January 1, 2017. Among the measures enacted was an amendment to Appendix 14 of the Act, which specifies services on which a reverse charge mechanism is imposed for purchasers.
The amendments number 48 in total and all concern the inclusion of construction related services, such as construction of residential buildings, works related to the demolition and tearing down of buildings, plaster works, and installation works of fences. These provisions represent the latest in a trend of European Union nations imposing a reverse charge mechanism on construction services.
Portugal: VAT Changes for 2017
The Portuguese legislature has approved a number of miscellaneous changes to its VAT law that would reduce the tax rate applicable to certain food items, including cereal, legume flakes and canned oysters. Those items would be subject to the intermediate rate of 13% in the mainland, 12% in Madeira and 9% in Azores.
The measures have been approved within the 2017 budget, which also authorizes the central government to extend the application of the intermediate rate to beverages sold by the restaurant industry. More information here: https://www.dgo.pt/noticias/Paginas/OE2017_PropostaOE.aspx
Romania: Scheduled Standard Rate Reduction Opposed by New Government
In 2015, Romania published Law No. 227/2015 reducing the standard VAT rate from 24% to 20% on January 1, 2016, and further reducing the rate to 19% effective January 1, 2017.
Following recent elections, the Social Democratic Party, which won the largest share of seats in the new parliament and will form the new government, requested that the current Prime Minister, Dacian Ciolos, delay implementation of the rate reduction.
The Prime Minister has decided not to delay the rate reduction, and while some doubt has been cast over the fate of the reduced rate, under current law the 19% rate will take effect January 1 unless the new government takes affirmative steps to prevent it.
Slovak Republic: Interest Payments on Tax Refunds and Indefinite Postponement of Reverse Charge
On November 15, Law 297/2016, first passed in October, was officially published. This new law, effective December 31, 2016, allows for interest payments on VAT refunds which have been delayed for six months or more due to a tax inspection. The law also indefinitely postpones the implementation of sections of Law 331/2011, originally scheduled to take effect on January 1, 2017, which would have allowed postponed accounting for imports via a VAT Return.
Spain: Electronic Records and Submission for VAT
The Spanish Government has enacted Royal Decree 596/2016, which amends several VAT regulations related to invoicing, tax management and other audit procedures. The main purpose of this new regulation is to require taxpayers who file VAT returns on a monthly basis to electronically save and transmit to the Spanish tax authorities all information related to invoices issued or received, as well as customs and accounting documents related to VAT obligations.
This new taxpayer obligation should be accomplished via the ISI system and will be mandatory for businesses and professionals that are required to file VAT returns on a monthly basis. The obligation covers both regular and simplified invoices. The obligation is optional but not compulsory for businesses not filing monthly returns. The effective date of the implementation of the new system is July 1, 2017.
Sweden: 2017 Budget Bill
On December 16, 2016, the Swedish Riksdag finished budget allocations associated with the passage of the 2017 budget bill, which will take effect on January 1, 2017. The bill contains a number of VAT amendments. Among them is a provision permitting, but not requiring, small businesses earning SEK 30,000 or less per year to register for VAT collection. A second, much publicized provision reduces the VAT rate from the standard 25% rate to 12% on repair services to certain personal articles, such as bicycles, shoes, and clothing.
United Kingdom
Autumn Statement 2016 and Finance Bill 2017
On November 23, 2016, Chancellor of the Exchequer Philip Hammond presented his Autumn Statement to Parliament; shortly afterwards, the majority of draft legislation and explanatory notes for Finance Bill 2017 were published for consultation. Several draft measures relating to indirect tax have been introduced:
- A new 16.5% VAT flat rate will be introduced from April 1, 2017, for businesses with limited costs;
- A new 30% penalty will apply to businesses and company officers who knew or should have known that their transactions were connected with VAT fraud (the “knowledge principle”), with effect upon Royal Assent of Finance Bill 2017;
- The VAT avoidance disclosure regime will be extended to all indirect taxes; in addition, the primary responsibility for disclosing tax advantage schemes to HMRC will shift from businesses to promoters of such schemes, beginning September 1, 2017.
The final version of Finance Bill 2017 will be submitted for confirmation in the spring of 2017.
Consultation on VAT Grouping
HM Revenue and Customs (HMRC) has opened a consultation on the proper scope of VAT grouping following two recent decisions of the Court of Justice of the European Union (CJEU). The consultation, which began December 5, involves two main issues:
- The UK currently restricts VAT grouping to “bodies corporate,” which must include a single controlling body at the top. HMRC is now investigating whether this aligns with a CJEU decision indicating that VAT grouping cannot be restricted to “those entities which have legal personality.” HMRC believes that VAT grouping in the UK may have to be widened to include other entities “that have close financial, economic and organizational links,” such as Partnerships.
- When a legal entity has establishments in different countries, certain EU Member States restrict VAT grouping to the establishment within their borders – this is known as “establishment only VAT grouping.” The UK has recently put steps in place to recognize establishment only VAT groups as separate taxable persons in other Member States, to avoid the risk of double taxation; HMRC is now asking how these steps have impacted businesses.
The VAT grouping consultation will run for twelve weeks and close on February 27, 2017.
VAT Registration for Internet Retailers
On December 21, 2016, HMRC announced that more than 7,000 internet retailers had registered in 2016 for VAT purposes, a near ten-fold increase from 2015. A possible explanation for the increase are new enforcement powers granted to HMRC in March of 2016, which allow the agency to impose financial liability on online marketplaces whose overseas sellers fail to comply with VAT regulations.
VAT on Coloring Books
HMRC has recently amended “VAT Notice 701/10: zero-rating of books and other forms of printed matter,” to incorporate guidance on the appropriate VAT rate for coloring books. As previously reported, HMRC has recently notified publishers of its intention to collect VAT on “adult” coloring and dot-to-dot books; the revised Notice sets out guidance for classifying such books, and reaffirms that children’s coloring books will remain zero-rated.
COUNTRIES OUTSIDE THE EUROPEAN UNION
Norway: New VAT Return
The Norwegian tax authorities have revamped the VAT return used by taxpayers to comply with their periodic VAT obligations. The new return introduces a number of changes that classify the transactions carried out during the filing period with a greater level of specificity. This new VAT return will be required for transactions carried out in 2017, and contains 19 boxes to be filled by the taxpayer, compared to 11 boxes in the current version.
Switzerland: Possible Revisions to Value Added Tax Ordinance
The Swiss Federal Council, during its December 21, 2016 meeting, began a consultation on the revised Value Added Tax Ordinance. The ordinance must be revised in order to comply with the revised Value Added Tax Act, which will take effect January 1, 2018. Amongst other provisions, the revised ordinance will lay out a list of “collectors’ items,” distinguish electronic newspapers, books, and magazines from other electronic services, and clarify distance selling rules.
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