TaxTech –May 19th, 2020
VATBox – Extend your transactional scope to optimise cash flow recovery
VATBox is determined to keep the Tax Community connected!
Watch the second webinar in our TaxTech Connect series, to learn how to strengthen the foundations of your economic stability with some unexpected potential cash-flow generators.
During the webinar, we’ll focus on:
- How to find VAT/GST savings opportunities
- Transactional data analytics overview and insights
- The value of tax digitalisation during the COVID- 19 era and beyond
These are just some of the topics that Roderick de Greef – VP Sales & Joe Hyams – Director of Product Management cover this webinar that you can now watch on-demand
PwC Podcasts – Navigating through the lockdown
Chris Box, PwC’s EMEA HR Consulting Lead and Nicola Shield, Lead for Governance, Risk, Compliance and Control, join Rowena Morris to explore the challenges businesses have been facing as they adjust to new ways of working. As the country gradually comes out of lockdown, they will take a look at how organisations can address some of the issues that might arise.
This podcast and many more can be found HERE.
EY – How a transformed tax and finance function can improve your bottom line
Organisations should consider co-sourcing talent and technology to succeed in a complex environment, finds the EY Tax and Finance Operate (TFO) global survey.
The way companies operate their tax and finance functions is on the cusp of a permanent, necessary change. Nearly all businesses recognise this and say they are in the process of transformation.
While it is positive that the vast majority of organisations continue to transform their operations, there are still disconnects between the strategies in theory and how change is actually being executed. Questions also remain about how sustainable those strategies are.
In light of the findings in this survey, it is evident that organisations should look broadly across their tax and finance operations both now and in the future and address them as a cohesive whole as opposed to siloed competencies. Similarly, it appears that outsourcing and co-sourcing will have a pivotal role to play.
The full survey can be found HERE.
For more information on how VATBox can help leverage digital tax transformation within your organisation, feel free to contact us.
Switzerland – No extension to the foreign VAT refund deadline
Where some EU countries are allowing non-established businesses to spend some more time on submitting a foreign VAT refund request, Switzerland announced that it would not do so.
The deadline for requesting a refund of 2019 Swiss VAT by non-established paid on purchases and expenses in 2019 remains to be June 30th 2020.
More information can be found HERE.
COVID-19 is an opportunity to think about a new EU VAT System
Many governments around the world are introducing measures to reduce the economic effects of COVID-19 pandemic. Indirect tax seems to be a perfect tool to (temporarily) reduce costs, free-up cash-flow and boost consumption.
The (temporary) measures also underline some of the inefficiencies in the current VAT systems. For example, the varying VAT rates applied to different types of goods or services in different countries, or VAT exemptions that cause a cascade of VAT in the supply chain.
Some solutions may seem quite simple; others will take more time to get used to. The greatest challenge will be to get all Member States aligned for some of these improvements and simplifications.
For more updates on COVID-19 tax measures, we encourage you to visit PwC’s Weekly economic updates.
An article with more ideas and insights on possible (or necessary?) changes in the EU VAT system can be found HERE.
European Union – Brexit negotiations still ongoing
Even though the United Kingdom has politically left the EU on January 31st 2020, the transition period during which agreements must be reached on the future relationship between the EU and the United Kingdom ends the latest on December 31st 2020.
In fact, the Head of the Brexit Task Force, Mr Michel Barnier, announced in a speech that there is still much work that needs to be done.
The main issue is the so-called level playing field between the EU and the UK, as a condition for a trade agreement. The EU fears that the UK will lower standards after next year to improve its competitiveness vis-à-vis the EU. The UK, on the other hand, argues that this is one of the reasons why they left the EU, to not ‘ chain our country to European rules and standards.’
From a VAT point of view, it has always been clear that some changes will take place, i.e. elimination of intra-community transactions. The tricky part will be in the administrative requirements.
Barnier’s speech can be found HERE.
Germany and France extend the deadline for submitting Foreign VAT refunds
The German Tax authorities confirmed that they would allow some easements on late VAT refund applications last week.
If a non-EU established business wishes to claim a German VAT refund in the EU (under the so-called 13th Directive), the normal deadline is June 30th. This deadline still stands, but the German authorities will allow for late refund applications if a legitimate explanation is provided detailing why the business was unable to meet the deadline.
The announcement and requirements can be found HERE (in German).
Earlier, France already announced that they would extend the deadline for 13th Directive VAT refunds relating to 2019 from June 30th 2020 to September 30th 2020.
Italian e-invoicing postponed
The Italian Tax Authorities published Protocol No. 185115/2020 in which they announced that the deadline for the implementation of the issuance and receipt of electronic invoices would be extended. The new deadline is September 30th 2020, after which e-invoicing will be obligatory in Italy.
The reason for the extension is that technical and administrative implementation activities are still ongoing.
More information (in Italian) can be found HERE.
An unofficial translation of the Protocol can be found HERE.
European Union – Judgments of the European Court of Justice
The European Court of Justice is an important source of information for VAT specialists. In a way, this may seem strange, as the judges of the European Court are not VAT specialists themselves. Fortunately, they have a very professional and qualified staff that investigates and prepares these important decisions that affect the interpretation of the VAT rules in the 27 EU Member States.
National courts must refer questions to the European Court of Justice in cases that concern the EU interpretation of a specific rule or definition. Based on an analysis of all cases in the past five years, it appears that Germany (504 questions), Italy (304 questions) and Spain (237 questions) sent the most inquiries to the ECJ.
In the past couple of weeks, the ECJ rendered a number of judgments. Please find below a summary of two cases.
- Case C-547/18 (Dong Yang) was a long-anticipated case, dealing with the question of whether a foreign company has a fixed establishment in an EU country via its local subsidiary.
Dong Yang in Poland provided ‘assembly services’ to LG Display Co. Ltd., established in the Republic of Korea. The materials necessary for providing these services were provided to Dong Yang by ‘LG Display Polska sp. z o.o.’ — a subsidiary of LG Korea. Dong Yang, in turn, provided LG Poland Production with the finished products following the assembly.
The Polish Tax Authorities argued that Dong Yang did not provide services to LG in Korea. Instead, Dong Yang should have treated LG Korea as having a fixed establishment for VAT in Poland.
Where the Advocate General, in its opinion, gave a very extensive overview of the requirements and viewpoints of when a foreign company has a fixed establishment, the ECJ gave a somewhat disappointing judgment. It ruled that a subsidiary does not automatically result in a fixed establishment and that the supplier of services (such as Dong Yang) should rely on the information provided by its customer and does not have an obligation to inquire ‘more than necessary.’
Some people may have preferred that the ECJ be somewhat ‘stronger’ in their judgment. Still, the judgment shows that there is a line that the EU Member States cannot cross.
A summary of this case, including a link to the opinion, can be found HERE.
- Case C-446/18 (Agrobet) deals with the question of whether tax authorities can deny a VAT refund based on them auditing only a (small) portion of the bookkeeping of a company.
Agrobet CZ, established in the Czech Republic, submit VAT returns in which it claimed back a surplus of input VAT. This surplus related to the commodity trade in rapeseed oil. The CZ tax authorities initiated a VAT audit in connection with these VAT returns to establish whether a rightful claim for the VAT refund was made. Simply put, they did not believe that the rapeseed transactions took place in reality and suspected irregularities.
Based on a sample of documents that the tax authorities audited, they denied the VAT refund. Agrobet objected, arguing that the audit only covered a small portion of the excess VAT claim and that it was disproportionately onerous for Agrobet. In short: Agrobet believes that the tax authorities rendered their decision based on a too-small sample, and not based on the full bookkeeping.
The ECJ ruled that the tax authorities can, in fact, withhold the total VAT refund, even if this is based on an audit that only covers part of the company’s records. In other words, a tax authority only needs to refund the VAT when it’s 100% clear that the claim is correct.
At first, this seems to be a logical and reasonable interpretation. Apparently, in this case, the tax authorities had good reason to believe that the underlying transactions did not take place, and thus they were entitled to deny the VAT refund.
A summary of the case can be found HERE.
The Middle East
Saudi Arabia triples VAT rate to 15% as of July 1st 2020
The Kingdom of Saudi Arabia (KSA) has announced that the rate of VAT will triple from 5 to 15%, which will come into effect on July 1st 2020. This is a significant rate increase and one of the fiscal measures taken by the KSA Government to mitigate the negative impact of the COVID-19 pandemic and other macro-economic developments on public finance.
The increased rate is expected to apply to all supplies of goods and services that are currently subject to the 5% VAT rate.
Businesses should consider how to treat goods and services that are supplied before July 1st 2020 when the invoice is issued, or payment is made after this date or vice versa. Although no specific transitional provisions are or may be published to resolve such issues, the Implementing Regulations contain transitional provisions drafted for similar situations resulting from the introduction of VAT on January 1st 2018.
The 5% VAT rate is specified in the GCC VAT Framework Agreement that has, to date, been implemented by three GCC countries (Saudi Arabia, United Arab Emirates and Bahrain) of the six-member states. There is no reference to the 5% VAT rate in the KSA VAT Law or Implementing Regulations. A rate increase is, however, to be agreed upon by the GCC member states and must be announced at least six months before implementation so that businesses and consumers can plan. The VAT increase in Saudi Arabia is only six weeks away.
You can read more about this development HERE.
Carousel fraud reaches the United Arab Emirates
VAT carousel fraud or missing trader fraud is the scenario whereby goods are sold multiple times, but where one or more traders in the supply chain are ‘missing’, which means that this business does not pay the VAT charged to the customer. This phenomenon has been known for quite some time and is causing a ‘VAT gap’ of approximately EUR 50 billion in the European Union.
VAT came into force in the United Arab Emirates (“UAE”) on January 1st 2018 and is charged at a rate of 5% on most supplied goods and services. Around 312,000 businesses are now UAE VAT-registered, whether individually or as part of a VAT group, according to the Federal Tax Authorities.
With a global economy that is slowing down due to the COVID-19 pandemic, businesses are finding ways to avoid paying VAT, perhaps more than ever. Criminal organisations have also found their way into the Middle East.
More information can be found HERE.
An interesting blog about the VAT Gap can be found HERE.
Kenya to allow input VAT deduction if reported and paid by the seller
In most countries, input VAT is recoverable as soon as the company receives a valid VAT invoice, and the invoice is paid. A Finance Bill in Kenya proposes that an additional requirement should be added: the seller must have reported (and paid) the VAT as well.
Discussions have already begun to determine how companies can check whether this requirement has been met without increasing the administrative burden, especially in light of the fact that the new requirement is currently not supported by iTax, the platform that is used for submitting tax returns in Kenya.
More information can be found HERE.
See you in two weeks!
On behalf of the
VATBox Tax Knowledge team