Here at Sovos, we are committed to keeping current with VAT compliance updates from around the world. Check out these recent changes compiled by our dedicated expert research team.
European Union
European Commission Launches Consultation on Electronic Publications The European Commission has asked interested parties to share their views on the VAT treatment of electronic publications (e-publications). Currently, e-publications must be taxed at the standard rate in each Member State, despite that fact that printed publications may be reduced rated. This has been controversial, and the Commission is now considering the possibility of allowing Member States to extend the reduced rate to e-publications. Readers, authors, businesses (particularly publishers and printers), retailers, professional organizations, researchers, and public authorities may submit their comments on this proposal between July 25, 2016 and September 19, 2016. VAT Treatment of Public Broadcasting Services On June 22, 2016, the European Court of Justice (ECJ) issued a judgment in Case C-11/15, on the proper VAT treatment of public broadcasting services. The ECJ had been asked to decide whether public broadcasting activities, when funded by a compulsory fee paid by radio owners, constituted an exempt supply of services “effected for consideration,” or whether such activities were instead outside the scope of the EU VAT Directive. The ECJ held that because the fee paid by radio owners was compulsory, it did not represent consideration for a service, and therefore the broadcasting activities were outside the scope of VAT. VAT Deduction on Supplies of Immovable Property In Case C-267/15, decided on June 22, 2016, the European Court of Justice (ECJ) issued a judgment on allowable deductions for a sale of immovable property. The case involved the construction and sale of two buildings by a Dutch municipality, which sold the buildings to an educational foundation at 10% of the cost price. Subsequently, the foundation granted the use of part of the buildings to three primary education institutions without consideration; the remainder of each building was leased to various tenants. The Dutch tax authorities questioned the municipality’s deduction of nearly all of the VAT invoiced with respect to the buildings’ construction. The ECJ held that the municipality had the right to deduct the input VAT in its entirety, regardless of the fact that the sales price was significantly lower than the cost of construction. The grounds for this decision lay in previous ECJ case law, which established that “the result of an economic transaction is irrelevant for the right to deduct provided that the activity itself is subject to VAT.” The ECJ further held that the foundation’s subsequent grant of use without consideration was irrelevant to the validity of the municipality’s deductions. Extended Terms for VAT Expert Group Members By a Decision of July 5, 2016, the European Commission extended the duration of office terms for future VAT Expert Group Members from two to three years, with the goal of establishing greater continuity within the group. The current term for VAT Expert Group Members ends on September 30, 2016.
Belgium
Finance Committee Proposes Reduced Rate on E-Books On July 13, the Finance Committee of the Belgian Chamber of Representatives unanimously approved a draft resolution that would apply a 6% reduced VAT rate to electronic books (“e-books”) and journals. The 6% rate already applies to books and journals printed on paper, but e-books are currently taxed at 21%. According to the Bill’s sponsor, this is akin to a “tax on technology,” and risks making Belgium less competitive than its neighbors in the digital publishing market. The application of reduced rates to e-books has been controversial recently, with the European Court of Justice ruling in 2015 that France and Luxembourg must apply the standard rate of VAT to these products. It is thus unclear whether Belgium would be able to move forward with the Finance Committee’s resolution without contravening EU law. However, the European Commission is currently deciding whether to amend the VAT Directive to allow reduced rating of e-books, as reported above. “Destination Documents” Accepted as Proof of Intra-Community Supply As of July 1, 2016, Belgium will begin accepting so-called “destination documents” as proof as an intra-Community supply, allowing the supplier to invoke a VAT exemption. The destination documents are akin to simplified transport forms, which certify that goods supplied from Belgium to another Member State are in possession of the acquirer, at a place outside of Belgium but within the EU. The documents can be drawn up electronically, by either the supplier or the recipient, and a single destination document can be used to cover all intra-Community supplies to the same buyer for a period of up to three months. Belgium is allowing use of the destination documents pursuant to Administrative Decision ET129.460, but the Belgian VAT authorities retain the right to demand further verification of an intra-Community transaction at their discretion. House of Representatives Removes VAT Exemption for Gambling On July 1, 2016, Belgium’s House of Representatives revoked several VAT exemptions within the gambling sector. Although exemptions for lotteries and land-based gambling were left in place, online gambling and games of chance will become subject to VAT, effective August 1, 2016. The Ministry of Finance has stated that guidance on the new law is forthcoming.
Bulgaria: VAT Treatment of Prepaid Phone Cards
On June 23, 2016, the Bulgarian National Revenue Agency clarified the VAT treatment of prepaid phone cards. The published clarification states that the sale of prepaid phone cards qualifies as a supply of telecommunication services rather than a supply of goods. Such treatment is in line with the judgment in Lebara Ltd v. The Commissioners for Her Majesty’s Revenue & Customs, C-520/10. In Lebara, the Court of Justice of the European Union (ECJ) noted that sales of prepaid phone cards fall within the definition of telecommunication services per Article 24(2) of the European Union VAT Directive (2006/112).
Czech Republic: International Monetary Fund Weighs in on VAT Reforms
On June 24, 2016, the International Monetary Fund (IMF) completed its 2016 Article IV Consultation with the Czech Republic. The IMF made favorable comments on the government’s recent measures to combat VAT fraud, including the introduction of electronic VAT reporting and electronic sales records. However, the IMF took a dimmer view of recent legislation applying a reduced VAT rate to catering services, warning that “authorities should resist shifting more items to the reduced VAT rate,” and that further tax cuts should be done only “as part of a broader review of the tax system.”
Denmark: New Consolidated VAT Law Published
On June 21, 2016, an updated version of the Danish VAT Law was published on the website of the State Legal Information System, www.retsinformation.dk. The updated version is consolidated through April of 2016.
Finland: VAT Treatment of Mutual Funds
On June 20, 2016, the Finnish Tax Administration published guidance on the VAT treatment of mutual funds as defined by the Mutual Funds Act. The guidance states that mutual funds are investment fund activities and that the supply of mutual funds should be considered securities transactions according to the Finnish VAT Act, § 42.1.6. The guidance then refers to Article 135 of the European Union VAT Directive (2006/112/EC) which requires Member States to exempt from VAT the management of special investment funds. For the definition of a special investment fund, the guidance cites case law under the Court of Justice of the European Union describing the various qualities that would disqualify a fund from being considered a special investment fund. The guidance also provides that various portfolio management services, including legal and fund management accounting services and compliance monitoring, are exempt from VAT.
Greece: Place of Supply of Legal Services
The Greek Ministry of Finance has issued a circular letter, ΔΕΕΦ Α 1104338, which explains the place of supply rules applicable to certain legal services. For that purpose, the above mentioned circular specifies how the place of supply rules will be established for legal services related to preparation of holographic wills and division of inheritances when the services are provided by legal advisors located in Greece, or related to goods or customers located in that country. Also, that letter explains the place of supply rules for legal services related to management and leases of real estate when the supplier, the property, or the customer are located in Greece.
Hungary: EU Asks Hungary to Delay Internet VAT Reduction
Pierre Moscovici, the EU Commissioner for Economic and Financial Affairs, has requested that Hungary postpone its planned VAT reduction on provision of internet access – as previously reported, this reduction is currently scheduled to take effect on January 1, 2017. In a letter sent to the Hungarian Minister for National Economy, Commissioner Moscovici avowed his support for the government’s intention to promote digitalization in Hungary, but wrote that the current EU rules do not allow for reduced rating of internet access. The Commissioner further stated that there will be no amendments to the VAT Directive allowing for reduced rating of internet access by the start of 2017, when the Hungarian law is scheduled to take effect. The government, in response, has reaffirmed its intention to introduce the reduced rate as planned, despite the risk of infringement proceedings.
Ireland: VAT Treatment of Management Services Supplied in Relation to Self-Directed Life Assurance Bonds
On July 5, 2016, the Irish Tax and Customs issued a VAT manual to clarify its treatment of management services supplied in relation to Self-Directed Life Assurance Bonds (SDB) and equivalent products. The guidance prefaces its position by stating that the European Union VAT Directive (2006/112/EC) provides that Member States shall exempt “the management of special investment funds as defined by Member States.” In Ireland, designated collective investment undertakings administered by authorized life insurance companies qualify as “special investment funds.” See VAT Consolidation Act, Schedule 1, paragraph 6(2)(c). In order to establish if an SDB or an equivalent product is a qualifying undertaking, the following conditions must be met:
- The product must not be treated as a Personal Portfolio Policy in Ireland under Section 730BA of the TCA 1997 when sold to Irish resident investors. Where the product is sold to overseas investors, it must not be regarded as equivalent to a personal portfolio policy under corresponding legislation covering personalised portfolio bonds or similar life products in the jurisdiction into which the policies are sold;
- The assets included in the product must be equally available to all investors within an investor class (i.e. not personalised);
- The service supplied must constitute “management” of the SDB or equivalent product in accordance with paragraph 6(4) of Schedule 1 the Value Added Tax Consolidation Act 2010, as amended.
Italy: Special Rate for Social and Sanitary Services by Cooperatives
As result of the approval of the 2016 budget law of Italy (Legge di Stabilità 2016), the application of the reduced VAT rate of 5% was extended to certain sanitary, social, and educational services provided by chartered cooperatives in Italy. However, the scope of the services covered under that reduced rate has been unclear since the enactment of the budget law, given the wide scope of services provided by cooperatives to their members. Therefore, on July 15, 2016, the Italian revenue authority issued Circular letter 31/E, which is written to explain the conditions for the special rate to apply when educational, social and sanitary services are provided by cooperatives or their dependent institutions.
Latvia: Court of Justice of the European Union Publishes Reference for Latvian VAT Exemption Case
The Court of Justice of the European Union (ECJ) has published the reference for case C-288/16. The case involves Article 146(1)(e) of the European Union VAT Directive 2006/112/EC, which applies an exemption for the supply of services, including transport and ancillary transactions, where these services are directly connected with the exportation or importation of goods covered by Article 61 and Article 157(1)(a). The case inquires whether Article 146(1)(e) must be interpreted as meaning that the exemption laid down therein is applicable only where there is a direct legal connection or a reciprocal contractual relationship between the services provider and the consignee or the consignor of the goods. Additionally, the case will examine what criteria for a direct connection must be met in order for a service connected with the importation or exportation of goods to be exempt.
Malta: Guidance Note on Educational Services
On July 20, 2016, the Maltese Commissioner for Revenue issued a new guidance note on exempt educational services, superseding previous guidelines from 2007. The note explains the general VAT treatment of educational services, which are exempt without credit in Malta, and further explains that the exemption does not apply to ancillary services, such as accommodation, catering, and parking, or to tangible goods such as books, uniforms, and school bags.
Netherlands: Proposed Simplification of VAT Refunds for Bad Debts
On July 12, 2016, the Dutch Ministry of Finance published draft legislation on VAT refunds for unpaid debts. The proposed rules would allow taxable persons to claim a refund of VAT on an unpaid invoice if consideration is not received within one year. This legislation could be especially significant to entrepreneurs who assume outstanding claims of other entrepreneurs. Comments on the draft are due on August 14th; if passed, the legislation would become effective January 1, 2017.
Poland
Standard Audit File for Tax Introduced Poland has recently introduced a new Standard Audit File for Tax (SAF-T), which large businesses must submit beginning July 1, 2016. The SAF-T file represents a new method of electronic data reporting. It will initially be submitted for purposes of purchase and sale VAT reporting, but eventually the government intends for the file to be used to report accounting books, bank account statements, and storage and revenue information. Small and medium sized businesses – defined as those businesses with i) fewer than 250 employees, and ii) sales of 50 million euros or less or balance sheet assets of 43 million euros or less – must begin submitting SAF-T forms on January 1, 2017; micro-sized businesses, which employ fewer than 10 people and have sales or balance sheets of two million euros or less, will not have to submit SAF-T forms until January 1, 2018. VAT on Intra-Community Acquisition of Fuel Polish President Andrzej Duda has signed into a law a series of measures designed to fight tax evasion, including amendments to the Act on Tax on Goods and Services regarding the intra-Community acquisition of fuel. Under the new law, VAT on the intra-Community acquisition of fuel will be payable within five days of the acquisition, with the concurrent price of fuel serving as the basis for the assessment. The law takes effect on August 1, 2016. VAT Exemption for Unlicensed Gambling Operators On June 28, 2016, the Polish Supreme Administrative Court held that a VAT exemption related to games of chance must be applied to games organized outside of a licensed facility, even if such games are illegal. In reaching its verdict, the Supreme Administrative Court relied on the principle of VAT neutrality, holding that there would be no grounds for excluding non-licensed games of chance from the exemption. The case has been remanded to the Regional Administrative Court for further proceedings.
Romania: Tax Incentives Enacted
On June 30, 2016, the Romanian government published Government Emergency Ordinance No. 32/2016 in Official Gazette No. 488. The Ordinance enacted the tax measures approved by the Romanian government on June 28, 2016. Among the measures is the reduction in the VAT rate on products used in agricultural production. Effective August 1, 2016, the supply of the most important products used in agricultural production will be subject to a reduced VAT rate of 9%.
Slovak Republic: Deferred Accounting Scheduled for 2017
According to reports, the Slovak Republic plans to introduce a system of deferred accounting for import VAT on January 1, 2017. Currently, import VAT in the Slovak Republic must be paid to the customs office before goods are released. Under the deferred accounting proposal, import VAT could instead by remitted via a periodic VAT return. This proposal has long been in the works – the original implementation date was January 1, 2013 – but has never been written into law. It is unclear whether the proposal will actually be implemented in 2017, or whether it will be subject to further delays.
Slovenia: Deferred Accounting System Introduced
On June 28, 2016, Slovenia published Official Gazette No. 45/16, which included the introduction of a deferred accounting system on import of goods. The system provides certain taxable persons importing goods into Slovenia the option to account for VAT in the monthly VAT Return rather than paying VAT at the point of customs clearance. This will alleviate any negative effects on cash flow for importers encountered under the current system. Taxable persons who have VAT registration in Slovenia, but not an establishment, may choose the deferred accounting option as long as they appoint a fiscal representative in Slovenia and include the following information in the customs declaration:
- Slovenian VAT registration number of the importer
- Slovenian VAT registration number of the VAT representative
- Taxable base under article 38 of the Slovenian VAT Act
- Applicable VAT rate
- VAT amount
Sweden
Government Initiates Long-Term Plan to Overhaul VAT Legislation On June 28, 2016, the Swedish Ministry of Finance announced the government’s intention to conduct a full-scale review of the country’s VAT system, in order to identify areas of concern and make improvements. The Ministry stated that VAT rules must be made “predictable and easy” in order to retain legitimacy. The government has requested that a plan be drawn up by April 1, 2019, to modify VAT rules for transparency and ease of application. Tax Agency Comments on European Court of Justice Ruling The Swedish Tax Agency (“Skatteverket”) has published a comment, dated June 23, 2016, on a European Court of Justice (ECJ) decision involving the restructuring of VAT liabilities. In Case C-546/14, the ECJ held that national laws allowing for renegotiation of VAT liabilities as an alternative to bankruptcy were not incompatible with the VAT Directive, as long as an independent expert could confirm that bankruptcy would not result in greater recovery of the debt. The Tax Agency believes that Swedish national law is in accordance with this decision, though mandatory debt restructuring that includes VAT may need to be reviewed. Bill on VAT Registration Threshold Presented to Parliament Updating previous reports, the Swedish government has followed through on its intention to introduce a VAT registration threshold to the country, presenting a draft bill to Parliament on June 22, 2016. As previously noted, the bill would abolish registration requirements for taxable persons with a turnover of SEK 30,000 or less in the current tax year and the two previous years. If passed, the bill would take effect on January 1, 2017.
United Kingdom
No Emergency Budget Following Brexit Vote Phillip Hammond, the newly appointed UK Chancellor of the Exchequer, has stated that he does not see a need for an emergency budget following the UK’s decision to leave the EU (the “Brexit” vote). Chancellor Hammond stated that although he was concerned about the potential effects of Brexit on the economy, the next Treasury Statement to Parliament would be released in Autumn of 2016, as scheduled. This contradicts the stance of the previous Chancellor, George Osborne, who had warned that emergency tax increases would be needed in order to balance the budget following the Brexit vote. Use and Enjoyment Rule for Repair of Tangible Movable Property By way of Order No. 726 (2016), presented to the House of Commons on July 11, 2016, the UK Treasury has introduced a use and enjoyment provision for repairs to tangible movable property. Under the Order, repairs made under an insurance contract to a relevant business person who is not the insured party are supplied where they are used and enjoyed, in two distinct situations: first, when the repair services would normally be considered a supply within the UK, but are used and enjoyed outside of the EU; and secondly, when the repair services would normally be considered a supply outside of the EU, but are used and enjoyed within the UK. If approved, Order No. 726 will come into force on October 1, 2016. HMRC Publishes Guidance on Transfer of a Going Concern On June 24, 2016, HMRC published Revenue and Customs Brief 11 (2016), on VAT and the transfer of a going concern. The Brief was written in response to a 2015 decision of the Upper Tribunal, Intelligent Management Services Limited (UKUT 0341). Intelligent Management Services Limited (IMSL) had developed a banking platform, which it sold to Virgin Money Management Services Limited (VMMSL), a member of a VAT group called the Virgin Money Group. VMMSL used the platform to supply software services to a different member of the Virgin Money Group, which in turn provided banking services to retailers. HMRC had treated the original sale of IMSL’s assets as a taxable supply, on the grounds that IMSL’s banking platform business had ceased at the point of sale. The Upper Tribunal disagreed with this approach, holding that VMMSL hadn’t intended to liquidate the transferred assets, but rather used them to carry on the same kind of business as IMSL. Following the Upper Tribunal’s decision, HMRC now recognizes the transfer of business assets to a member of a VAT group as a non-taxable transfer of a going concern, where the following two conditions are met: i) the acquiring company intends to use the business assets to operate the same kind of business in providing services to other members of the VAT group, and ii) those other group members use the services to make supplies outside of the group.
COUNTRIES OUTSIDE THE EUROPEAN UNION
Switzerland: Updated Contact Information for Tax Authority
On June 27, 2016, the Swiss Tax Authority officially changed its e-mail address to media@estv.admin.ch. The old e-mail address, kommunikation@estv.admin.ch, was deactivated the same day.
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