TaxTech December 10, 2018
Consumption taxes still going strong. It has been said for many years: consumption taxes, such as VAT, are the future. The OECD published a report on tax revenue statistics and consumption tax trends, showing that the tax mix indeed shifts further towards consumption taxes. Consumption Tax Trends 2018 highlights that VAT revenues continue to be the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of the GDP, representing 20.2% of total tax revenue, on average in 2016. Standard VAT rates stabilized at 19.3% on average in 2014 and have remained at this level since. Ten countries now have a standard VAT rate above 22%, against only four in 2008. For many governments, increasing a VAT rate is a fairly easy way to increase its income, without too much hassle. For businesses such an increase means a lot of additional administrative requirements, and for consumers it means an increase in prices. But somehow, that seems to be more easily accepted by the public compared to an increase in Income Taxes or Taxes on Profits.
European Union: “Voucher Directive”. The “voucher Directive” was adopted in 2016 and EU countries have until 31 December 2018 to implement this Directive into their own national VAT legislation. The Directive defines ‘single-purpose vouchers’ and ‘multi-purpose vouchers’ and sets rules to determine the taxable value of transactions in both cases. The deadline is approaching fast, and EU countries are adjusting their national legislation at the last moment. The latest country implementing new rules is Bulgaria, other countries that have taken action in the past months include Hungary, Slovakia, the Netherlands, and the United Kingdom.
Delay in VAT refunds. Businesses in India have been complaining that payments of VAT refunds are taking a long time. In some cases, the VAT refunds are pending for more than one year. This is due to the fact that the Indian government does not have sufficient funds. A similar situation applies to South Africa, where the tax authorities are very slow in paying back VAT refunds. Their argument is that they want to protect themselves against possible VAT refund fraud. These VAT frauds have been a costly issue in the European Union for many years already as well.
Malaysia: SST on imported services and anti-cascading measures. Starting January 1, 2019, Malaysian recipient business customers should start self-assessing 6% tax via the reverse charge for the services they purchase from foreign vendors. For B2C transactions, from 1 January 2020, foreign providers of digital products and services are required to register and collect this 6% service tax. The authorities have also announced some anti-cascading ‘tax-on-tax’ effects, such as an exemption for service tax for specific business-to-business services between service tax registrants that are registered for the same taxable service and a credit system for the deduction of sales tax on raw materials, components or packaging materials. More details can be found here.
Bahrain: VAT go-live January 1, 2019. Bahrain will join two of its co-GCC members (United Arab Emirates and the Kingdom of Saudi Arabia) as of 1 January 2019, by implementing a VAT system. Recently, the Ministry of Finance announced that only businesses with turnover of over BD 5 million will need to register for VAT by 1 January 2019. These businesses must submit their registration application before 20 December 2018. It seems that ‘smaller’ businesses have some extra time to get ready for VAT, although no guidance has been given on how much extra time they have. More information can be found here and here.
European Union: ECJ Case law. A busy European Court of Justice in the past two weeks: four judgments, two opinions from the Advocate-General and two new preliminary questions. Here is a short summary of the cases selected by us.
- Case C-672/17, some customers of a Portuguese company (Tratave) went bankrupt. Tratave wanted to recover the input VAT charged on the invoices to these customers, but according to the Portuguese tax authorities, Tratave did not follow the right procedures. Tratave should have ensured that the VAT they wanted to recover, was also re-paid by its customers to the Portuguese tax authorities. The ECJ agreed with the tax authorities and decided that EU countries may ask from a taxable person that they ensure that the VAT that they want to recover on bad debts, is also paid (back) by the relevant customers to the tax authorities. The full text of the case can be found here. Please note that some EU countries have special rules for the recovery of VAT on bad debts, but this case shows that for a correction of VAT, you always need evidence, as well as the assurance that the tax authorities are not the one that in the end are losing out on the VAT.
- Case C-548/17 (Baumgarten Sports) deals with the VAT treatment of professional football player agencies. Baumgarten Sports & More GmbH negotiated between football players and clubs, and earned a commission, provided that the player signed an employment contract. That commission was paid in installments as long as the player remained under a contract and the question was if Baumgarten should pay VAT on the installments or on the full contract value. The European Court of Justice ruled that Baumgarten correctly charged VAT at the time of the invoicing of the installments, and it did not have to pay VAT on the full contract at the moment the player started with the club. Full text of the case here.
- Case C‑567/17 (Bene Factum) is, in a way, a sad case. In some countries, the prices for alcoholic products are so high, that people are looking for alternatives and find these in products that may contain alcohol, but are not actually suitable for human consumption. Bene Factum produced cosmetic products, which contained alcohol, and these products were consumed as drinks in Lithuania. Setting aside the questions about health and safety, the tax authorities assessed Bene Factum for excise duties, arguing that the cosmetic products were consumed as alcoholic drinks, and thus taxable as such for excise duties. The Advocate General is of the opinion that you must look at the product itself, which, in this case, is not suitable for consumption due to the use of denatured alcohol, and the packaging also clearly states that the product should not be consumed as a drink. Although this case concerns excise duties, the logic and argumentation of the AG can also be used for VAT, for example when determining if a product may be subject to the reduced VAT rate.
- Case C-653/18, (Unitel SpZoo). This case concerns a question of the Polish Court regarding the evidence a company needs to be allowed to apply the VAT zero-rate on export supplies. In sold mobile telephones from Poland to Ukraine, Unitel charged 0% VAT on these export sales. The problems started when the tax authorities found that Unitel’s documents (VAT invoices and ED documents) showed that while the mobile phones were reported as exported to a place outside the EU, Unitel did not supply the phones to the customers mentioned on these documents. The tax authorities therefore refused the application of the export VAT zero-rate. A not unimportant detail in this case is that the Ukrainian ‘customers’ were in fact fake, and the actual recipient of the mobile phones sold them onto the black market in both Poland and the Ukraine.
Holiday fun: And with the holidays coming up, it is always nice to give something that can make a genuine difference in another person’s life. We came upon this post with gifts that can make a true difference. Enjoy the holidays!
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