TaxTech – Feb 18th, 2020
The European Union is focusing on technological solutions to fight VAT fraud and to make tax collection more efficient. Real-time reporting and e-invoicing are examples of that, however there is much more going on.
The European Commission held its “VAT in the Digital Age” conference in December 2019, where the latest developments were discussed. More information on this conference and links to the presentations for download can be found HERE.
The European Commission now released a video with statements from some of the key speakers at the conference. The common opinion seems to be that digitalisation and automatisation can make tax more efficient, but problems will occur if countries are implementing different standards and requirements.
The video can be found HERE.
European Union – Member State Survey on tax policies
Every year, the European Union surveys how its Member States’ tax systems perform in terms of fighting tax abuse, promoting sustainable investment, supporting job creation and employment and mitigating inequalities. This is already the fourth year that this survey is done.
In this edition of the report, the EU especially focusses on tax competition and the design and distribution of the overall tax mix. The latter includes insights into how the EU Member States leverage direct and indirect taxes.
VAT is considered to be among the less distortive taxes, as it does not distort production decisions. Also, compliance costs for companies are lower for indirect taxes than for direct taxes. However, there is also considerable risk for tax evasion and fraud (e.g. VAT gap).
The full report can be found HERE.
European Union – Risk of creating a fixed establishment for VAT in the EU is increasing
There have been several cases before the European Court of Justice on the definition of a ‘fixed establishment’ for VAT. The latest was the opinion of Advocate Kokott in case C-547/18 (Dong Yang Electronics).
With the introduction of the ‘Quick Fix’ relating to the ‘call-off stock’, the discussion about a fixed establishment is also stirred up again. The ‘Quick Fix’ allows a company that owns call-off stock in another EU Member State to avoid having to register for VAT in that other EU Member State provided that certain conditions are met. However, EU Member States may also take this as an opportunity for arguing that, especially with respect to companies that do not (want or can) fulfil the requirements, may, in fact, have a fixed establishment in that country.
An interesting blog by KPMG on this topic can be found HERE.
The Portuguese tax authorities provided a clarification on the implementation of the ‘Quick Fixes’ into the Portuguese VAT Law. A Circular Letter, that was published, clarifies the evidence necessary to show that the transport of goods under an intra-Community supply may benefit from zero-rate VAT.
As mentioned above, such a clarification is necessary, as many taxpayers are still unsure as to what evidence they should keep. Unfortunately, similar to other countries, Portugal also only copied the generic requirements that were mentioned in the ‘Quick Fixes’, i.e. a taxpayer must keep ‘Documents related to the transport or dispatch of the goods, such as a signed CMR shipment declaration, a bill of lading, and air freight invoice, an invoice issued by the goods carrier or other documents’.
Together with the Circular Letter, the tax authorities stated the amendments to be introduced to the Recapitulative VAT return. Until the updated forms are in force, the current VAT returns remain applicable, with the consignment sales being reported therein as an intra-Community supply of goods.
The original Circular letter (Ofício-circulado n.º 30218/2020) can be found HERE.
European Union – Poland – Evidence for zero-rate VAT is still difficult to obtain
With the implementation of the ‘Quick Fixes’, the EU aimed to provide businesses with clear and complete rules for the application of the zero-rate VAT for intra-Community supplies. Unfortunately, even with the new rules, there is still much unclarity on the evidence businesses must keep.
An example is Poland, where experts have pointed out that many entrepreneurs claim that it would be very difficult for them to obtain the documentation as required by the new regulation and in many cases even impossible.
Poland is not alone in this. In several EU countries, the ‘Quick Fixes’ have either not been implemented yet, or only partially and where the ‘Quick Fixes’ have been implemented, the rules concerning the required evidence have been left fairly open, with the argument that these requirements are listed in the ‘Quick Fixes’ themselves.
We feel that Polish businesses are not the only ones that will have difficulties in obtaining the required evidence, which means that it will remain up to the local authorities to see if this is ‘sufficient’. The ‘Quick Fixes’ are thus not really clarifying, unfortunately.
An article on the struggles of Polish taxpayers written by Justyna Zając-Wysocka, tax advisor, legal advisor and vice-chairman of the Lesser Poland Branch of the National Chamber of Tax Advisors can be found HERE*.
The Romanian tax authorities announced that they also would use VAT information that they collect for analysing the Transfer Pricing mechanisms in place for cross-border transactions between related entities. Taxpayers will be required to declare these transactions in Form 394.
The background is that the Romanian tax authorities found that the number of transactions with affiliates is very high compared to the total number of transactions carried out and that “from the analysis of the fiscal inspection actions performed, it was found that cases are encountered in which the transactions between affiliates are performed at a lower price than the market price, to the detriment of the Romanian affiliates and, implicitly, of the consolidated general budget ”.
More information on this topic written by PwC can be found HERE*.
The Romanian tax authorities also announced that they would start with the SAF-T project, the largest digitisation project of the National Agency for Fiscal Administration (ANAF), will become operational by the start of the Summer of 2021. Romania is the EU Member State with the largest VAT gap and the authorities’ goal is to reduce VAT fraud in their country by introducing SAF-T.
The article published on the interview with EY on this topic can be found HERE*.
Global – Privacy vs Fighting Fraud: How far can governments go?
Privacy is very important, as well as fighting fraud. How far can governments go in ‘violating’ the privacy of individuals to fight fraud? What level of “privacy” do businesses have? With the infrastructure and AI being there, how long will it take to such solutions being more actively used in business taxation? All relevant questions in today’s life of AI, Machine Learning and data science.
Early February 2020, a Dutch lower Court ordered the immediate halt to a digital benefit fraud detection tool because it, to its opinion, violated human rights. The case revolved around a tool called “System Risk Indication” (SyRI), which gave central and local authorities wide-ranging powers to share and analyse data that was previously kept separately. SyRI was able to compile 17 categories of government data, including tax records, land registry files, and vehicle registrations. SyRI is not unique and there is a trend towards the introduction and expansion of digital technologies used by authorities of different countries. The question, of course, is what is still permissible and in balance with the purpose of applying such solutions?
In the world of taxation, we see governments and tax authorities started increasingly focus on digital technologies, data and data science to locate anomalies and possible in compliance and tax fraud. In some countries authorities are already deploying facial recognition, geographic and online social media information to find welfare or benefit frauds and in the meantime, these same infrastructures are being further developed to audit and to look for tax (in)compliance. For now, it is not clear where are the limits of the involvement of government bodies in the day-to-day operation of businesses by using digital technologies. However, with SAF-T and e-invoicing through tax authoritie’s portals being on the rise, businesses have to make sure to stay ahead and ensure pro-actively tax data is readily available, cross-checked, fully validated and all data sources reconciled to avoid unpleasant surprises.
An interesting article published by Tech magazine Wired on this interesting topic can be found HERE.
Global – Navigating through the rising tide of uncertainty
We invite you to explore PwC’s 23rd Annual Global CEO Survey.
This year, as CEOs look ahead to 2020, we see a record level of pessimism. For the first time, more than half of the CEOs asked in the survey believe the rate of global GDP growth will decline. This caution has translated into CEOs’ low confidence in their own organisation’s outlook. Only 27% of CEOs are ‘very confident’ in their prospects for revenue growth in 2020, a low level not seen since 2009.
Click HERE to read the full PwC survey results.
Foreign businesses who conduct business within Bahrain can obtain a refund of the VAT they paid in this country. However, the deadline for submitting a VAT refund claim for 2019 is March 31, 2020.
This deadline is slightly earlier than in other countries. The problem is that Bahrain’s National Bureau for Revenue (NBR) has not yet provided detailed guidance on the refund mechanism.
For businesses that have paid VAT in Bahrain in 2019, it is recommended to collect all the documents (invoices, receipts) that show that VAT was paid, so that when the guidance becomes available, a refund process can be started immediately.
More information on the topic published by EY Middle-East can be found HERE or contact your VATBox account manager.
The Massachusetts Supreme Judicial Court in the USA decided that giving someone access to your computer remotely, is a service that is subject to sales tax in the state where the recipient is.
In today’s world, it is almost common practice that people that have a problem with their computer don’t bring it into a shop, but ask for help online. By clicking a button, they can open a program and a computer specialist can access and repair everything from wherever he is at that moment.
The US Court held that sales tax applied to subscription fees for online products, which allow users to access other users’ computers remotely. This resulted in the supplier/service provider making taxable sales of tangible personal property, rather than non-taxable sales of services.
With the waves of the Wayfair case starting to calm down somewhat, this case shows that there are still many ‘hooks and eyes’ to the application of the indirect tax rules to the continuous digitalisation of services.
The case can be found HERE.
With VAT rules becoming more complex and business data becoming more transparent, managing global VAT has never been more important for an organisation. Maximum compliance is critical in order to lessen the risk of exposure. Fully digital and remote VAT audits are on the rise as tax authorities are increasingly using sophisticated data-mining technology tools on companies’ records while also seeking to increase revenues by closing the VAT gap. Breaches in compliance lead to both damages to reputation and financial penalties. Businesses simply cannot afford to misunderstand the impact of VAT on their organisation.
We invite you to read Part 3 of 5 of VATBox’s ”Industry Leaders Reveal” interview series. The full article can be found HERE.
See you in two weeks!
On behalf of the
VATBox Tax Knowledge team
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