TaxTech –May 5th, 2020
VATBox is committed to keeping the tax community connected during this challenging time.
That’s why we’ve launched a series of webinars called TaxTech Connect. 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.
When time optimisation and savings come together
In this article, you will learn how to adapt and prepare for the immediate financial future by leveraging the range of opportunities hidden in your historical transactional data. The article and supporting on-demand webinar are designed to help you achieve:
- Optimal savings
- Resilient business continuity
- Time optimisation
Extend your transactional scope to optimise cash-flow recovery
Join our second webinar in our TaxTech Connect series to learn how to strengthen the foundations of your economic stability with some un-expected potential cash-flow generators.
During the webinar, we’ll focus on:
- How to find savings opportunities in additional domains’ activities
- Actionable transactional data analytics overview vs industry benchmarks
- The value of tax digitalisation during the COVID-19 era and beyond
When? Tomorrow, May 6th 2020, 12:30 PM GMT / 13.30 CET
Click HERE to register
COVID-19 impact on indirect taxes
People are already getting used to working from home. For many companies, COVID-19 pandemic has already had a huge effect on their activities and turnover. In our previous TaxTech Newsletter, we covered how companies may be able to make use of specific (temporary) measures that governments have implemented.
The OECD published an article discussing the topic: if and how governments have learned from the global financial crisis of 2007-09. One of the conclusions from the OECD study shows that during the global financial crisis, consumption tax revenues fell, particularly revenues from value-added tax (VAT), but the overall level of consumption was less affected. The current COVID-19 crisis is likely to have an even bigger impact on consumption tax revenues than the global financial crisis had because it is affecting consumption directly and to a far greater extent.
The article and link to the study can be found HERE.
Coping with the COVID-19 crisis and spotting opportunities
More COVID-19 news: It is a good time to look forward to learning how companies get through the pandemic crisis; are there any opportunities that can be identified and leveraged? How businesses deal with a crisis often determines if and how they will survive.
For example, a company that lays off employees now may have a difficult time finding the right people again when the crisis is over. At the same time, keeping them may cost too much money with sales currently being down. Therefore companies must make choices which are not always easy.
Both EY and PwC prepared an overview of how companies can approach this crisis. EY provides five general steps that every business should take to deliver better outcomes in times of crisis and ten questions to avoid what they describe as ‘crisis paralysis’. PwC gathered its insights and guides in one place, with links to updates on what the latest Government response will mean for your business.
The PwC overview can be found HERE.
The EY overview can be found HERE.
Switzerland and Ireland clarify rules on VAT grouping
Companies that are established in the same country and who are linked financially, economically and organisationally may form a VAT group for VAT purposes. Not all countries offer this possibility, though, but in the countries that do, it may be beneficial to create a VAT group, especially if there are one or more group companies that cannot fully recover input VAT.
Both Switzerland and Ireland have a VAT group regime. A recent court case in Switzerland revealed that in exceptional cases, it is possible to form a VAT group with retroactive effect. Usually, this is not what taxpayers or tax authorities want, as this means that they will have to re-evaluate their VAT reporting for the period going back to the formal start of the VAT group.
More information about this Swiss case and VAT grouping in Switzerland can be found HERE.
In Ireland, the tax authorities published updated guidance on VAT grouping. The update clarifies and provides examples on the requirement. Although the guidance is specifically for Ireland, the rules and examples, as well as the references to the European Court of Justice decisions used in the guidance, can also be used for other countries.
The guidance can be found HERE.
Overview of VAT representation before and after Brexit
We are currently in a transition period regarding Brexit. Politically the UK has already broken-up with the rest of the EU, but from a VAT point of view, they are still part of the EU community. This transition should remain until December 31st 2020 at the latest.
Until then, UK companies with VAT registration in other EU countries will be regarded as an EU business, which means that the appointment of a local VAT representative is not (always) necessary. However, when the UK becomes a non-EU country, these UK companies may be obliged to change this and appoint a local VAT representative, as the rules for EU and non-EU businesses may be different.
An overview of the current rules for EU and non-EU businesses to appoint a local VAT representative can be found HERE.
European Union – VAT rate changes
Germany reduced its VAT rate on catering services from 19% to 7%. The new rate will apply as of July 1st 2020 and will be a temporary measure until July 1st 2021. Take-away and delivered food are already subject to 7% VAT.
This reduction in the VAT rate is part of the broader measures that the German government has implemented due to the COVID-19 crisis. Other measures include a delay on Value Added Tax payments until December 31st 2020.
The announcement of the new VAT rate can be found HERE (in German).
The United Kingdom announced a change in the VAT rate for digital publications. The changes were originally intended to take effect from December 1st 2020. However, the date has been brought forward to May 1st 2020. As of this date, all digital publications will be subject to 0% VAT. Digital publications include electronically supplied books, brochures and newspapers.
More information, including an overview of which products are and are not subject to 0%, can be found HERE.
Spain also changed the VAT rate for digital publications. The VAT rate on e-publications, such as e-Books, e-Newspapers and e-Magazines, is now 4% (as of April 23rd 2020). Previously, these types of electronic publications were subject to the 21% standard VAT rate.
Judgments of the European Court of Justice
The European Court of Justice has given some judgments. Please find below a summary of a selection of these cases.
Case C–661/18 (CTT – Correios de Portugal) deals with the question of how a pro-rate should be calculated and if a taxpayer can choose which method it wants to apply.
Correios de Portugal (the Portuguese postal services) applied a so-called pro-rata when deducting input VAT that related to both its taxable and exempt activities. The tax authorities accepted this pro-rata.
However, at a later stage, CTT re-calculated this pro-rata, and it wanted to recover additional VAT from prior periods. The Portuguese tax authorities denied the refund of this additional VAT amount, arguing that these periods were already closed.
The ECJ ruled that the Portuguese tax authorities were right: once a period is closed and final, no corrections can be made. However, they leave a small opening in cases where local legislation allows taxpayers to make corrections where taxpayers are acting in good faith.
It’s a clear decision, yet we do recommend companies to search for the specific exceptions left open by the ECJ.
A summary of the case can be found HERE.
Case C‑28/19 (Ryanair Limited) is not a specific VAT-case, yet it does deal with VAT. The question, in this case, is if an airline must mention local VAT on their prices mentioned in advertisements for domestic flights. The defendant, Ryanair, published prices on its website that did not include certain elements, which were classified by Ryanair as optional costs, namely the passengers’ online check-in fees, the value-added tax (VAT) applied to the fares and the optional supplements relating to domestic flights and the administrative credit card costs.
With regard to VAT, the ECJ mentions that the VAT, if and when applicable to the airfare, is unavoidable and foreseeable, in so far as it is provided for by national legislation and applies automatically on any booking of a domestic flight. Thus, this is not an option for customers, but an obligatory additional cost.
The ECJ, therefore, rules that Ryanair is obliged to mention VAT applies to fares for domestic flights on its website. Note that in any case, within the EU, consumer prices must always be mentioned including the VAT amount.
The case can be found HERE.
Case C‑401/18 (Herst s.r.o.) is a challenging one. The question, in this case, may appear simple: when does an intra-Community transaction take place if the customer picks-up the goods? In many situations, the supplier may not want to charge 0% VAT, as he does not know if the customer will indeed bring the goods to another Member State. With the “Quick fixes”, these situations may have become clearer, but also now, the requirements are more strict.
In this case, Herst, a Czech company, bought and picked-up fuel from another EU Member State and brought this to the Czech Republic using its own vehicles. During the transport, the ownership of the goods was transferred between different entities, creating a chain of transactions between different taxpayers.
In many cases, Herst did not only transport the goods but eventually also became the owner of the goods at the end of the supply chain. These transactions were treated as local supplies in the Czech Republic, whereby the Czech supplier would charge CZ VAT. The CZ tax authorities denied the deduction of the VAT charged by Czech suppliers, arguing that the taxable supplies had not taken place in the Czech Republic, but in the EU country where the transport had started.
The ECJ rules that it can be difficult to determine when “the power to dispose of the goods as an owner” is transferred if there are multiple subsequent transactions. However, the fact that Herst is eventually becoming the legal owner of the fuel and that he picks-up the goods, after which he can decide what to do with it, is a strong indication that Herst obtains this power at the moment the fuel is put in his truck.
The decision is not 100% clear, as the ECJ leaves it to the national court to decide if Herst was right or not. However, the case itself shows that it may not be that simple to determine which transaction is the intra-Community supply.
A summary of the case can be found HERE.
New guidance on proof of intra-EU transport released and delay in the increase of VAT rates in Italy
After the implementation of the “Quick Fixes” in Italy, the Italian Tax Authority provides further clarification in Ruling No. 117 on the level of sufficient proof of intra-EU transport for purposes of obtaining VAT-exempt treatment, to be kept by an Italian supplier making intra-EU supplies of goods. Based on the ruling, the following conditions must be fulfilled:
- The documentation must identify all the parties involved (Italian supplier, carrier, and EU purchaser) and the relevant data for the underlying intra-EU transaction is provided; and
- The documentation is retained by the Italian supplier, along with the relevant intra-EU sales invoices, bank documents, contracts, and Intrastat forms.
Furthermore, the Italian Prime minister has announced that there will be no increase to the VAT rates in 2021 as a response to the economic consequences of the pandemic. The Italian Government original plan was to increase the standard VAT rate from 22% to 25% while increasing the reduced VAT rate from 10% to 12% in 2021.
A summary of the ruling and the announcement of the Prime minister can be found HERE.
13th Directive filing deadline extension due to Covid-19 in France
Companies established outside the European Union has to submit their foreign VAT refund application under Directive 86/560/EEC (13th Directive) in France no later than June 30th 2020 of the following year. The date is binding, so no refund applications are accepted after this date.
However, due to the Coronavirus pandemic, it is expected that the French Tax Authority will soon officially announce the deadline extension from June 30th 2020 to September 30th 2020. The purpose of the French Authorities with the delay in the deadline is to support non-EU businesses and to ease the administrative struggles they are facing during these uncertain times.
An overview of the tax measures in France can be found HERE.
Saudi Arabia and the United Arab Emirates clarify VAT refund procedures
If a business incurred costs in a country on which local VAT is charged, it is often possible to recover this input VAT. It also applies to costs that a company incurred abroad. The main conditions are that the costs must be related to the VAT/GST taxable activities of the company and that the company must have received a valid VAT invoice from its supplier.
Many companies have a process in place to ensure this Foreign VAT is not lost, but still every year, many companies are not recovering their foreign input VAT often because they miss the deadline.
The first deadlines for recovering foreign VAT for 2019 are approaching rapidly. For example, in Saudi Arabia, the deadline for claiming back VAT by a foreign company is June 30th 2020.
More information, specifically for Saudi Arabia, can be found HERE.
An article on the VAT refund procedure in the United Arab Emirates can be found HERE.
See you in two weeks!
On behalf of the
VATBox Tax Knowledge team