TaxTech – Oct 15th, 2019
Bangladesh – Unclear rules on the recovery of input VAT
The rules with regard to the recovery of input VAT vary per country. In general, only input VAT paid on purchases that relate to the taxable activities of a business can be recovered or deducted.
Bangladesh implemented new VAT rules as per 1 July 2019, and many businesses, as well as the tax authorities, still have to get used to these new rules.
The new rules provide a somewhat broader scope for the deduction of input VAT. However, this is resulting in businesses now claiming back the VAT on all their costs and expenses. The Bangladesh tax authorities are uncertain if this is really what the new rules intended, as they now have to repay much more VAT compared to what they were used to repay under the old VAT rules.
United Kingdom – Tax simplification evaluation paper
On 1 October 2019, the Office of Tax Simplification (OTS) published its VAT report evaluation paper. The report shows the progress that has been made since the OTS provided its recommendations in November 2017.
The recommendations focused on the simplification of the VAT rules and processes in the UK. Several key topics were highlighted, such as the partial exemption and capital goods scheme, penalties and the internal processes within HMRC (the UK tax authorities).
Interestingly, the report does not mention a greater focus on digitalisation of reporting and compliance, contrary to the general trend that can be seen in VAT regimes globally. It only mentions that the ‘Making Tax Digital’ process has been implemented in the UK, but not as a possible solution for digitising VAT recoveries for overseas businesses.
You can find the full report HERE.
European Union – Judgments of the European Court of Justice
There were three judgments in the past couple of weeks. Here is a short summary of these cases.
- The VAT is levied on the ‘compensation’. This consists of ‘everything’ that the supplier receives in exchange for the supply of goods and services. In its judgment in cases C‑573/18 and C‑574/18 (C GmbH & Co. KG and C-eG) the European Court of Justice repeats that a price-subsidy forms part of the compensation.Both cases deal with the supply of goods by a type of cooperation to its members, whereby part of the price is paid from a financial fund that is set up by the cooperation. This fund is a private-law estate and is financed half by the contributions of the associated producers and half by the financial aid of the European Union. The resources of the fund make it possible to finance investments in particular farms of members of the producer organization.The ECJ ruled that for VAT, all payments that are received for the supply of goods must be taken into account. If these payments include ‘subsidies’, these also form part of the consideration if they are directly related to the price of the transaction.A summary of the case can be found HERE.
- The next case deals with the VAT exemption for financial activities. The question in case C-42/18 (Cardpoint) is if technical and administrative assistance for cash withdrawals fall under this VAT exemption.Cardpoint supplied services in connection with the operation of ATMs, including the installation operational ATMs, equipping them with soft- and hardware and adding the logo of the bank. It also transported bank notes, made available by that bank, and replenished the ATMs. Furthermore, Cardpoint provided the banks with data of the cash withdrawals.Cardpoint did not charge VAT on its services, arguing that they were exempt “financial activities”. The German tax authorities did not agree with this view.The ECJ repeated that the VAT exemptions are exceptions to the main rule, and they must, therefore, be interpreted and explained in a limited way. It decided that the services provided by Cardpoint, in this case, are not covered by the VAT exemption, and are, thus, subject to VAT under the normal rules.
A summary of the case can be found HERE.
- This week’s last case deals with fraud. In case C-329/18 (SIA Altic) the question is raised if tax authorities can argue that a taxpayer is committing VAT fraud if it is not meeting the requirements based on non-VAT Laws.SIA Altic bought rapeseed from two different companies and deducted the input VAT paid on those transactions. The rapeseed was duly received and kept in a storage. However, it appeared that the suppliers involved in the transactions were fictitious and the Latvian tax authorities, therefore, accused SIA Altic of having committed fraud.Sia Altic argued that it had done everything in its power to identify and check its suppliers. But according to the tax authorities, this was not enough. The Latvian authorities argued that based on food-law, SIA Altic was obliged to apply more checks to verify its business partners.The ECJ has said before that a taxpayer that ‘knew or should have known’ that he was participating in an operation connected with VAT fraud, is not allowed to recover input VAT. The question, therefore, is, if SIA Altic is meeting this criterion.
The ECJ rules that not complying with the food-law does not automatically mean that the criteria for VAT fraud have been met. Of course, this can give an indication that the processes with the taxpayer can be improved, but a VAT assessment must be based on more than that.
A summary of the case can be found HERE.
PwC – Global Annual review
PwC published its Global Annual Review in which they highlight the changes they expect for people and businesses to effectively adapting to the future.
In today’s complex and fast-moving world, it is expected that we use technology more effectively. People and companies want and need more insight and faster, real-time answers.
More information can be found HERE.
European Union – Overview of ECJ decisions on VAT Recovery
The European Court of Justice has made many decisions on the recovery of input VAT. This is, of course, because it is one of the most fundamental elements of the European VAT system: VAT should never be a cost for businesses that perform fully taxable activities. When comparing these decisions, it may not seem easy to find the similarities, on top of the general principles of VAT, such as neutrality or effectiveness. An article, posted on Linked, compares these cases and provides a helpful overview. You can find it HERE.
United Kingdom – Claiming VAT on mileage
When UK business travellers drive a personal vehicle for business purposes, it not only saves the employer from having to lease a company car, it also provides another significant benefit: VAT reclaim.
The calculation of the VAT reclaim may sometimes be difficult, as the amounts that can be claimed depend on different factors determined by HMRC.
With more than half (56%) of company car drivers unaware of HMRC rules on reclaiming business mileage, we have written a blog, where we clarify claim allowances and eligibility in more detail.
The blog can be found HERE.
Czech Republic – Next country in line for digital reporting
More and more countries are requiring businesses to start reporting their transactions electronically and to use electronic invoicing. And more often on a daily basis.
Some examples that we mentioned in earlier newsletters: Poland announced that they want businesses to no longer to submit a VAT return, but instead using the SAF-T file as the basis for the VAT reporting. SII invoicing in Spain, electronic invoicing in Hungary and in Italy are also common practice by now. And even countries such as Switzerland will become fully digital and say goodbye to the ‘old fashioned paper VAT reports’.
The next country that will go digital is the Czech Republic. As of May 1, 2020, Czech businesses will be required to report their transactions via the Electronic Reporting of Revenues (ERR). Under this ERR, any cash payments made by customers are instantly reported to the tax authorities through the Internet. Taxpayers (e.g. retail shops) then immediately receive a code to be included on customer receipts.
More information about the new Czech system can be found HERE.
United Kingdom – What to do in case of a no-deal Brexit?
The coming days are crucial – again – to see if there will be a Brexit or not. Governments have bombarded businesses with information on what to do in case of a no-deal Brexit, while politicians are continuing to argue about a deal or no-deal, and the effective date for the UK leaving the European Union.
The UK government has posted several videos on their website, where the consequences of a no-deal Brexit are explained. The videos cover the following topics:
- Transitional simplified procedures;
- Getting ready for Brexit;
- Exporting using the Common Transit Convention.
You can find the videos HERE.
See you in two weeks!
VATBox Tax Knowledge team