TaxTech August 6, 2018

United States – Sales Tax on online sales. The ‘Wayfair decision’ resulted in many individual US States to consider updating their sales and use tax legislation to follow South Dakota in their ambitions to apply sales tax much more broadly than it has been applied before. Based on the decision (which can be found here) US states may require remote sellers to register for sales tax in that state, charge the sales tax on out-of-state transactions and oblige them to file a sales tax return and pay the sales tax collected. In the specific case of South Dakota, only out of state sellers whose in-state transactions surpass a defined threshold (based on either annual revenue or number of transactions) are required to register for and charge sales tax. However, these thresholds will almost certainly vary by state. Although in many US States the rules are not yet final, you can find an overview of the recent developments here.

Unites States – Sales Tax Holidays. August is traditionally the month when various US States offer a Sales Tax Holiday, providing a temporary sales tax exemption for a wide variety of items: summer sandals and winter coats, pencils and computers, even ammunition and guns. For consumers, this means there’s a compelling reason to pause summer activities and shop. For retailers, it means sales tax compliance is about to get a lot more complicated. Examples of US States that have a sales tax holiday are Arkansas (4–5 August), Connecticut (19-25 August), Massachusetts (11-12 August), Maryland (12-18 August), and Mississippi (31 August – 2 September). For a full overview, see here.

Germany – Taxation of online platforms. Germany wants to make internet platforms liable for sellers on their websites who evade paying VAT. On 1 August 2018, Germany’s federal cabinet (Bundesregierung) approved a draft bill to oblige online marketplaces to capture key VAT data to ensure VAT compliance of third-party sellers that perform business on their platforms from January 2019 onwards. Based on the draft legislation, after 30 September 2019, marketplaces failing to follow the new obligations, including the obligation to block fraudulent sellers, will become secondary liable for any unpaid VAT dating back to 1 March 2019. You can find an article with the background information here (in German).

Malaysia – Introduction of Sales and Services Tax on 1 September 2018. As of 1 September 2018, Malaysia will introduce a Sales and Services Tax. The Service Tax is levied on any provision of taxable services made in the course or furtherance of any business by a taxable person in Malaysia. Service tax is not chargeable on imported services and exported services. Sales Tax is a single stage tax, levied at the import or manufacturing levels. In Malaysia, it is a mandatory requirement that all manufacturers of taxable goods are licensed under the Sales Tax Act 2018. Sales Tax is only collected at the manufacturer’s level and the element of sales tax is embedded in the price paid by the consumer.

European Court of Justice – Update. Just before the summer break, the European Court of Justice has given a couple of judgments in VAT cases.

  • In Case C-5/17 (DPAS Ltd.) the ECJ ruled that a ‘dental payment plan’ does not (automatically) fall under the VAT exemption for financial services. For the case, click here. Summary can be found here.
  • Case 140/17 (Gmina Ryjewo) dealt with the change in the use of a building owned by a municipality. The ECJ ruled that such a change can affect the initial input VAT deduction on the building costs. For the case, click here. Summary can be found here.

Germany again – European Commission complains about VAT Refund Procedure. The European Commission recently warned Germany that it must reduce its restrictions on providing VAT refunds to non-resident businesses. The EC stated that Germany was unjustified in denying VAT refunds to taxpayers from other EU countries when all reasonable required information in accordance with the EU VAT refund directive, had been provided. Germany now has two months to comply with the EC’s request to reduce their restrictions or they will face a referral to the European Court of Justice. More information can be found here.

And the United Kingdom as well. In the same report (scroll down to paragraph 10), the European Commission warns the UK that its administration of the VAT Mini-One-Stop-Shop (MOSS) for B2C e-services contravened EU rules. The EC states that the UK was failing to gather UK taxpayers’ bank account information for speedy credits of VAT repayments where changes or refunds were due. MOSS was established across the EU in 2015 to enable providers of B2C electronic services to file just one return and payment on VAT charged to consumers across the 28 member states. The UK now has two months to comply with the rules or face a referral to the European Court of Justice.

India – VAT Refunds to tourists. The domestic retail industry in India has urged the government to consider implementing a tax refund scheme for foreign tourists. At this moment, VAT is not refunded to tourists visiting India. No official announcements have been made yet, but let’s see where this will end. More information here.

United Arab Emirates – VAT Refund Guide updated. UAE has issued an updated VAT and Excise Tax Users Guides on Refunds, Voluntary Disclosure, and Clarifications. The VAT Refund User Guide is intended to help eligible Taxable Persons prepare their claims for VAT refunds and includes an explanation of the process to be followed along with the forms and information that needs to be provided. In general, a claim can be submitted by the taxable person, or another person who has the right to do so on the taxable person’s behalf (for example, a tax agent or a legal representative). Click here for the updated Guide.

United Kingdom – Chocolate surprise. The last item for this newsletter deals with the VAT treatment of chocolate. With the temperatures being as high as they are in Europe this summer, you may be interested to know that the VAT rate on various food items in the UK have been a point of discussion for a long time. For example, strawberry flavoured milkshakes incur full VAT; however, chocolate flavour is VAT free. Hot take away food is subject to full VAT; but warm pastries or sausage rolls baked on the premises and put on sale are zero-rated. And ice cream is subject to full VAT; but frozen yoghurt is not. On 21 July, the UK tax authorities won an appeal ruling against a manufacturer of allergen-free chocolate for children. The manufacturer charged 0% VAT on their product, qualifying the chocolate as ‘foodstuffs’. The UK Court agreed with the UK tax authorities that this was wrong, and that the chocolate product was to be regarded ‘confectionery’, and thus liable to full VAT at 20%.

Back to the other side of the globe again, where also a decision was made on taxation of foodstuffs. The US state Supreme Court decided that Philadelphia can charge a soda tax on sweetened beverages. More States and cities may follow. More here.

See you in two weeks!


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