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TaxTech –June 09th, 2020

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Global

How to extend your transactional scope to optimise cash flow recovery

During these uncertain financial times, VATBox remains committed to keeping the tax community connected through a series of TaxTech Connect webinars. In this series, we candidly discuss the most urgent challenges currently facing our community of global organisations: Unlocking additional cash-flow and accelerating the recovery of funds during the COVID-19 era and beyond.

The second webinar in our series, entitled How to extend your transactional scope to optimise cash flow recovery, focuses on some unexpected potential cash-flow generators. Co-hosts Roderick de Greef – VP Sales for VATBox and Joe Hyams – Director of Product Management for VATBox, use their expertise to cover:

  • How to find savings opportunities in additional domains’ activities
  • Transactional data analytics overview and insights
  • The value of tax digitalisation during the COVID-19 era and beyond

Click Here to read the full article.

Tax authorities are trading in paper overload for data

One of the main drivers of tax digitalisation is the need to ensure compliance. Governments around the world require businesses to transmit their invoices electronically, and some even require real-time submissions. These e-invoices are fast becoming the standard method of reporting, eliminating the manual, paper-based invoices that were error-prone and difficult to track. This model is already prevalent in Europe and some LATAM and Asian countries and is expected to reach worldwide adoption by 2025. In fact, the 2019 global e-invoicing and enablement market was estimated at €4.3 billion and is expected to reach approximately €18 billion in 2025.

Click here to read the full article.

Global response tracker for COVID-19 measures

VAT and tax measures are constantly being taken in different countries in response to the COVID-19 related crisis.

Click HERE to check the latest changes in regulations.

Deloitte survey: Unlocking new value with tax innovation

The latest Global tax management survey that was conducted by Deloitte reflects the views of global tax leaders on the priorities and risks in today’s tax world.

The survey shows that a global tax management role is far more than ‘just advising the business on tax matters’. There is a lot of pressure on reducing costs, using technology and streamlining of processes and tax internal controls. With the economic impact of the COVID-19 global pandemic, even more pressure is expected.

Although new technologies are useful, not everyone is ready for that. Using technology to increase tax function effectiveness is expected to increase further.

The survey can be found HERE.

European Union

EU VAT Committee – Working Paper on intra-Community supplies

If a business sells goods whereby these goods are transported from one EU country to another, the business can often apply the VAT zero-rate. However, as also clearly stated in the Quick Fixes that EU countries had to implement on January 1st  2020, two key requirements must be met:

  1. The supplier must transport the goods and have sufficient evidence of this transport; and
  2. The customer must have a valid VAT ID number.

The Working Paper of the EU VAT Committee focuses on the second requirement and more specifically on the question: what if the customer does not have a (valid) VAT ID number (yet) at the moment of the supply?

It may not be a surprise, but the conclusion in the Working Paper is that if the supplier does not have the valid VAT ID number of the customer, he cannot apply the VAT zero-rate. Simply said, the VAT Committee agrees that without a valid VAT ID number the conditions for applying the exemption of Article 138 of the VAT Directive must be seen as not being fulfilled and the supplier shall have no other option, but to charge VAT.

The Working Paper can be found HERE.

European Court of Justice – Recent case law

Several cases have been judged by the European Court of Justice. We highlight a couple of them here.

Case C-430/19 (C.F. – Contrôle fiscal) deals with the question if tax authorities can refuse the deduction of input VAT if the taxpayer only has the invoice from the supplier as evidence.

In this Romanian case, the tax authorities deny the deduction of input VAT, because they believe that the suppliers did not actually provide the services invoiced. The tax authorities argued that the suppliers did not have the technical and logistical equipment to perform the services that were invoiced.

The buyer only had the invoices that it received from the suppliers as evidence that it had purchased the services. According to the tax authorities, this was not enough.

The ECJ ruled that, based on the EU VAT rules and principles, the invoice is the evidence that a taxpayer must-have. In fact, the EU VAT Directive does not require additional evidence. Of course, this is different if the taxpayer knows or should have known that he, or his suppliers, were not acting in good faith.

Good news for bona fide taxpayers, as this means that as long as they have a valid invoice, they can use that as evidence for the recovery of input VAT.

A summary of the case can be found HERE.

Case C-242/19 (CHEP Equipment Pooling) deals with a cross-border VAT refund in the situation where a company brings his own goods to another EU country.

CHEP is a Belgian company specialising in rental services for pallets. It rents out pallets to CHEP group companies, including CHEP Romania and those companies, in turn, rent the pallets to the end customers in the country concerned.

CHEP purchased new pallets in Romania, which were subsequently rented out to CHEP Romania. CHEP paid Romanian VAT on the purchase of the pallets, and it tried to recover that Romanian VAT through an EU VAT refund request (Directive 2008/9/EC) or 9th Directive VAT refund request.

The Romanian tax authorities denied this request, arguing that CHEP had taxable activities in Romania for which it should have been registered as a VAT taxable business. These taxable activities consisted of CHEP bringing pallets from other EU countries into Romania and subsequently renting them out. CHEP should have reported these transfers of own goods as intra-Community acquisitions, according to the Romanian tax authorities.

The ECJ ruled that in this case, the movement of the pallets was not to be regarded a transfer of own goods, as this movement formed part of the rental activities and were not to be considered (deemed) transactions in itself.

The good news is that in this case, the foreign Belgian company could rightfully use the 9th Directive VAT refund procedure. The case does show, however, that tax authorities will always check if such a refund request is valid, or if the person claiming the VAT has taxable activities in their country.

A summary of the case can be found HERE.

Case C-276/18 (KrakVet Marek Batko) deals with distance sales, and the question is: when shall transportation be considered as ordered or arranged by or on behalf of the supplier.

KrakVet is a Polish company that sells products for animals, mainly food for dogs and cats, both to customers in Poland and neighbouring countries, including Hungary. Customers can go to the company’s (local) website and order the products.

KrakVet used the so-called distance selling rules, meaning that in so far as the sales were below the threshold, KrakVet charged Polish VAT to the Hungarian non-business customers. The products were transported by and on behalf of KrakVet from Poland to Hungary, using a Polish transport company. The goods were delivered to two distribution points in Hungary, from where a Hungarian transportation company delivered the goods to customers.

The Hungarian tax authorities argued that KrakVet had performed domestic supplies in Hungary. According to the Hungarian tax authorities, the (second leg of) transport had started in Hungary and not in Poland.

The ECJ rules that even if the customer can choose the transport company, the supplies of the goods must be considered as shipped or transported “by the supplier or on his behalf” when the role of the said supplier is predominant concerning the initiative as well as the organisation of the essential stages of the dispatch or transport of said goods.

There are several other cases pending before the ECJ, where the question is also to determine who is ordering or arranging the transport.

A summary of the case can be found HERE.

VAT rate changes – Several EU countries announced a VAT rate decrease

Germany – In our previous newsletter, we mentioned that Germany would decrease its VAT rates from 19% to 16% and the reduced rate from 7% to 5% for the period July 1st to December 31st 2020. The German authorities have now published guidelines on the transition to the new rates. The main rule is that supplies are subject to the VAT rate that is applicable on the date that the supply takes place. Thus not the date of the payment of the invoice.

More information on the German VAT rate changes can be found HERE.

Austria – The Austrian government decided to introduce a reduced VAT rate of 5%. The new rate will, for example, apply to food and drinks in catering establishments, visits to museums, cinemas or music events and to newspapers and other periodicals and books. The tax reduction will apply from July 1st 2020 to December 31st 2020.

More information can be found HERE

Czech Republic – The Czech parliament approved the 10% reduced VAT rate extension to accommodation services, admission to cultural events and sporting events, admission to sports grounds (including lift tickets) and admission to saunas and other similar facilities. The legislation is pending consideration by the upper house.

More information can be found HERE.

Romania – Proposal to VAT exempt accommodation, restaurant and transport services for tourists

The Romanian parliament is considering a proposal to implement a temporary exemption from VAT for “hotels and restaurants” and “tourist transportation”. The proposal is part of a larger Bill that introduces measures to reduce the costs of companies by postponing or exempting payments from taxes and duties, stimulating tourist demand and stimulating investment.

More information can be found HERE.

Slovenia: description of the VAT refund process

Generally, taxable persons who incur VAT in the Republic of Slovenia (hereinafter Slovenia) and are entitled to a refund, can request it using one of the following methods:

  • By submission of a VAT return or
  • by submission of a VAT refund claim.

This article covers taxable persons who have established their business or have a fixed establishment from which business transactions are carried out, outside of the European Union (hereinafter EU), and which do not have a permanent or habitual residence in the EU (i.e. taxable persons established in a country outside of the EU). In some situations, they have the right to a VAT refund for goods and services supplied to them by other taxable persons within the territory of Slovenia or charged on the import of goods into Slovenia. To request a refund, they can either register for VAT purposes in Slovenia or opt for submission of the VAT refund claim.

More information can be found HERE and HERE

Poland – Changes in Whitelist

Poland introduced the White List on January 1st 2020 and taxpayers are finding it difficult to comply. The Polish government has now announced some changes regarding this obligation.

The Whitelist is a list of ‘reliable taxpayers’. Businesses must check if their supplier and its bank account number are on this list. If this is not the case, they may not be able to recover input VAT charged by this supplier. Checking the Whitelist is a significant administrative burden.

The new rules will allow taxpayers to access and check the Whitelist in a more automated way.

More information can be found HERE.

United Kingdom – Brexit: No extension to the transition period and Border controls for import of EU goods

The negotiations between the European Union and the United Kingdom about Brexit are not going well.  Although the UK left the EU politically on January 31st 2020, the transition period during which further details are negotiated lasts until December 31st 2020. Without any agreements, there will still be a ‘hard Brexit’.

The focus of the negotiations is on expatriate rights, a financial settlement and other separation issues. The discussions could almost be compared to a divorce – the UK wants to talk about who gets the house and the art collection at the same time as settling who pays for the kids’ weddings in 20 years’ time. The EU, on the other hand, only wishes to discuss future arrangements once the terms of the initial split have been agreed.

Meanwhile, the UK is starting to take measures to ensure that the border controls are set-up as of January 1st 2021. Both the UK and EU have indicated that they do not want or expect an(other) extension to the transition period.

More information about the border controls that the UK is implementing can be found HERE.

Americas

E-invoicing trends and developments in Latin-America

Compared to OECD countries, Latin-America is more dependent on consumption taxes. This may well be one of the main reasons why many countries in Latin-America are more advanced in terms of e-invoicing and invoice reporting.

This is the view of Alfredo Collosa, a tax expert from Latin-America with over 30 years of VAT experience. He compares the Latin-America approach towards e-invoicing with the (slow) progress in this area in Europe. The (mandatory) e-invoicing rules in Latin-America show that tax collection can become much more efficient and effective, with less possibilities for fraud.

Tax authorities have more information available, and taxpayers have fewer possibilities to ‘hide’ transactions or activities. A next step is the system of prefilled tax returns, where the tax authorities propose to the taxpayers a draft of the returns that they agree to submit (or to rectify it where appropriate). This is the future!

The interesting article can be found HERE.

Mexico – Proposal to reduce the VAT rate

Mexico considers reducing the VAT rate from 16% to 10%. The proposal is aimed at promoting consumption and mitigating the economic impact of the COVID-19 pandemic. The initiative would not cover regions on the northern border, which already have a percentage of 8%.

The proposal stands out as a popular, relatively simple and politically feasible answer to public demands for congressional action in response to the crisis.

VAT has become something of a political football in Mexico over the last 30 years moving from 15% to 10% in 1992, then back to 15% in 1995 and in 2010 increasing to 16% with a special rate for US border cities of 11% (now 8%).

A start date has not been published, but it is expected to be implemented soon, for the remainder of 2020.

More information can be found HERE

 

See you in two weeks!

 

Remco Dewaerheijt

On behalf of the

VATBox Tax Knowledge team

taxknowledge@vatbox.com

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