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TaxTech –June 09th, 2020

Global

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On-demand webinar: Facing the COVID-19 Aftermath: Tax transformation

Watch this unique panel discussion webinar with PwC, the Croatian Tax Authorities, PPG Industries and VATBox discussing the digital tax transformation trends today and beyond COVID-19.

 

The PwC and VATBox Alliance has embarked on a joint journey to educate our shared audience about the importance of digital tax transformation, and how to be best prepared for the COVID-19 aftermath.

As part of our TaxTech Connect webinar series, we invite you to learn from industry thought leaders, Martin Blanche, Ksenija Cipek, Jiri Vrzala and Remco Dewaerheijt about how tax technology can play a significant role in preparing for the post-COVID-19 era and the vital importance of adapting internal strategies in anticipation of the acceleration in digital tax transformation. You can watch this webinar on-demand.

The full recording can also be found HERE.

Take action now: The June 30th 2020 deadline (Directive 13) is fast approaching for EU VAT refunds to non-EU companies.

June 30th 2020 is a hard deadline for recovering 2019 VAT from most European countries if your business is established outside the European Union. The EU Member States allow businesses in most countries to reclaim EU VAT paid under the EU Directive 86/560/EEC – better known as the 13th Directive. Although it is a pan-European Union law that directs the individual countries on how to structure the application and refund process, there are still specific requirements to take into account and companies may benefit from some simplifications and extensions in this process.

VATBox can help you streamline this process to minimise work on your side and maximise your refund.

The full article can be found HERE.

OECD Report – how tax authorities can prepare for recovery from COVID-19

The OECD released a report prepared by the Forum on Tax Administration (FTA) on how tax authorities can prepare to support business and individual taxpayers during the period of economic recovery from the coronavirus (COVID-19). Many countries have already introduced measures, but the report shows the short- and long-term effects of the measures and how countries can recover from the economic effects of the coronavirus.

The report was prepared with input from tax authorities and examines some of the main issues that tax authorities may consider in planning for the potentially lengthy recovery from COVID-19. The report does not make recommendations regarding particular measures due to the wide variety of circumstances and considerations among different jurisdictions.

More information can be found HERE.

Global response tracker for COVID-19 measures

Many websites keep track of the (tax) measures being taken around the world in respect of COVID-19. One of these useful resources is provided by this EY ‘global response tracker’. The document provides a snapshot of the policy changes that have been announced in countries around the world in response to the ongoing crisis.

The most recent version of the tracker can be found HERE.

European Union

European Union – New e-commerce rules postponed – Nevertheless, businesses should get ready

Online sales and sales via marketplace platforms have increased a lot during the COVID-19 pandemic. Companies are selling more and more and starting to sell their products and services online. The new VAT rules for e-commerce activities were to be implemented as of January 1st 2021, but that deadline has been extended to July 1st2021.

Although the new EU VAT rules aim to make e-commerce activities easier to handle and administer, e.g. by opening the One-Stop-Shop regime also for the sales of goods, there are still many questions that must be answered before it is possible to go-live.

For governments, most of these questions related to the implementation of the One-Stop-Shop mechanism. This implementation requires the governments to enable businesses to submit the VAT information for 28 EU Members States via the same platform or at least via a system that can communicate and understand the information provided. At least Germany and the Netherlands indicated earlier that they would have a hard time in implementing and adjusting their IT systems on time.

Questions that businesses with e-commerce activities should consider are:

  • Who is my customer? Is it a business or an individual?
  • Am I selling goods or providing services?
  • Where is my customer established? Where is the customer receiving the services or goods?
  • If I’m selling goods, are the delivery costs included in the sales price (and thus the VAT basis) or not?
  • What’s the applicable VAT rate for my sales?

Some of these questions may be difficult to answer, for example, in the case where a combination of goods and services are sold.

More information on the new e-commerce rules can be found HERE.

European Union – Covid-19 and VAT impact of amendment and cancellation fees

Due to the COVID-19 pandemic, many organisations cancelled their events or people are cancelling their tickets and business trips. Also, normal B2B transactions are cancelled or delayed due to the economic crisis caused by the virus. Late payments, cancellations and refunds are occurring more often than normal.

In less than four months the COVID-19 pandemic has totally disrupted businesses and all the plans they had made for 2020. Many contracts have been amended or cancelled. When these actions involve payments, value-added tax (VAT) can arise. Businesses that are not getting paid or who cannot pay should check the VAT consequences.

More information can be found HERE.

Germany to cut VAT rates from July 1st 2020 to December 31st  2020

In order to boost the economy after the corona pandemic, Germany has put together an economic package worth billions.

Although, there are many countries that are using VAT to reduce the economic impact of the COVID-19 pandemic, the announcement of Germany to reduce their VAT rates came as a bit of a surprise. The German government proposed to reduce the standard VAT rate from 19% to 16% and the reduced VAT rate from 7% to 5% for the period between July 1st 2020 and December 31st 2020.

The classification from the standard 19% rate to the reduced VAT rate for catering food services was announced by the government earlier in May. The reduced rate for these supplies will start on July 1st 2020, and run until July 1st 2021. Take-away and delivered food are already subject to the reduced VAT rate.

The Federal Chamber of Tax Consultants doubts that the VAT rate reduction will be passed on to consumers in full. “We are very concerned about the considerable bureaucracy and changeover effort that will affect all companies because it is a mass procedure. The necessary IT adaptation of cash register systems, ERP systems, accounting systems, billing programs etc. will hardly be possible within this short time – without errors”.

At this point in time, it is not yet clear if and what transitional rules will be applicable.

More information (from different sources) can be found HERE.

Greece cuts VAT on public transport, coffee, non-alcoholic beverages and cinema tickets

The Ministry of Finance in Greece announced that the VAT rate for specific supplies would be reduced. This VAT reduction is part of a broader plan to support the economy, aiming at protecting public health, supporting employment, boosting business liquidity and boosting social cohesion.

The plan is implemented in 4 phases.

  1. The first phase focused on restricting economic activities and reducing the spread of COVID-19.
  2. In the second phase, in which we are today, a gradual reopening of the companies is taking place.
  3. The third phase, from next month until October, will be characterised by the progressive recovery of the economy. As part of the third phase, the following VAT-related measures have been announced:
    • VAT on public transport, coffee and non-alcoholic beverages and cinema tickets is reduced from 24% to 13%, for the period June 1 – October 31st
  4. In the fourth phase, under the condition of the smooth and positive development of the pandemic, there will be a reorganisation of the economy.

More information can be found HERE.

Cyprus: Possible VAT rate cut on accommodation and catering

Similar to Greece, Cyprus announced that as part of a broader support package, it would reduce the VAT rate on accommodation and catering from 9% to 5%. This would apply for the period July 1st 2020 – January 10th 2021.

This announced VAT measure has not yet been enacted into law; hence further updates are to be expected.

More information can be found HERE.

Italy introduces tax relief measures – No pre-filled VAT Return on July 1st 2020

Italy introduced several tax measures due to COVID-19. These measures include an announcement that the VAT rate in Italy will not increase in 2021, contrary to the 2020 Budget that was published earlier.

Furthermore, the scope of the reduced VAT rate has been widened and clarified and includes medical devices, such as mouth masks, ventilators and hand-sanitiser gels.

For businesses, it is possible to delay payments of VAT and social security contributions. Specific tax deferrals are available, especially for businesses operating in areas that are heavily affected by the COVID-19 virus.

The pre-filled VAT return that was supposed to be implemented as of July 1st 2020 has also been postponed, and will now be introduced as of January 1st 2021.

More information can be found HERE.

Europe – Asia

Russia: VAT on bonuses and compensation payments

In some recent cases, the Russian Court and the Ministry of Finance have clarified the VAT treatment of bonuses and VAT on compensation payments.

The first case concerns a car dealer who received bonuses from a distributor for sales made at a discounted price. The dealer considered the bonuses as non-operating income, outside the scope of VAT. The tax authorities’ position was that the bonuses represent compensation for lost revenue related to the sales of cars to customers at a lower price and therefore, should be included in the VAT base.

The Court dismissed the taxpayer’s argument and ruled in favour of the tax authorities.

Unrelated to this case, but on a somewhat similar topic, the Ministry of Finance recently issued a Letter regarding payments received by a Russian taxpayer as compensation for losses arising as a result of operational costs incurred under a distribution agreement with a foreign supplier. The Letter confirms that these payments are not subject to VAT. Russian entities should not, therefore, issue VAT invoices on receipt of such payments.

More information on these developments can be found HERE.

Asia-Pacific

India: Court gives interpretation on delivery terms

In a recent case before an Indian Court, the question was raised if the delivery terms could affect the GST treatment of a transaction.

This question has been going around in the indirect tax world for a long time already, and businesses and tax authorities around the world are still not always aligned on this topic. In many countries, for cross-border supplies of goods, the place of supply rules are often linked to the transportation of the goods from one place to another. If this transportation can be shown by the supplier, often a VAT zero-rate can be applied.

The delivery terms may indicate which party in the supply chain is responsible for this transportation. However, often these delivery terms are mainly used for commercial or logistic purposes to determine which party bears which risks and costs, relating to the transportation of the goods, which does not necessarily mean that the party who is liable, also ‘orders and arranges’ the transportation of the goods.

The case in India concerned ‘ex-factory inter-State sales’, i.e. the goods were made available by the supplier to the recipient at the factory gate. However, this was not the point where the movement terminated, as the recipient subsequently transported the goods to a destination in another state.

According to the court, the transaction ended at the location (in a different state) to which the goods are consigned/destined and (thus) the transaction was an inter-State supply.

The case shows that local country rules and interpretations and of course, the specific facts, determine the ‘weight’ the delivery terms play in the VAT/GST treatment of cross-State transactions.

The case can be found HERE.

Middle East

Saudi Arabia forms a team to study the impact of VAT hike on industries

The Kingdom of Saudi Arabia (KSA) recently announced that it would increase the VAT rate from 5% to 15%. Following the announcement, the tax authorities issued further guidance on the rate change in Arabic. The purpose of the guide is to provide additional details on the transitional measures that taxpayers would need to consider.

More information on the transitional rules can be found HERE.

Related to the announcement, a working group with the Foreign Trade Authority (FTA) has been formed to deal with the impact of the increase on industrial entities. Importation of goods from the Gulf markets is expected to hit difficulties due to the difference in the VAT rate.

More information can be found HERE.

 

United Arab Emirates deals with financial services and VAT

Financial services are often exempt from VAT,  which normally means that VAT paid on costs can also not be deducted. However, this is not always the case. The exceptions make the VAT rules around financial services quite complicated.

It’s not different in the United Arabic Emirates (UAE). The VAT treatment of the financial services sector in the UAE is a complex process as a variety of transactions are involved in the industry.

We have found an interesting article dealing with the VAT treatment of financial services in the UAE.
The article can be found HERE.

See you in two weeks!

Remco Dewaerheijt

On behalf of the

VATBox Tax Knowledge team

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