TaxTech January 7, 2019
VAT rates are always a source of discussion. In the Netherlands there is a discussion about whether or not yoga is a sport (power yoga is, but pregnancy yoga isn’t), India questioned if visiting a cinema was regarded a luxury or not (it’s not), and in several countries around the world, women’s hygienic products are investigated to see if they are ‘essential needs’, or medical products (e.g. South Africa, Colombia, Australia, Spain, and now even the USA).
United Kingdom: Brexit. It was hard to miss last week. The agreement that was reached between UK Prime Minister May and the European Union in December 2018 was rejected by the UK Parliament on 15 January 2019. There might be a small chance that the UK will ask for an extension of the deadline, but it is unlikely that the European Union will agree if the UK has not been able to come up with a new proposal for an agreement first. The European Union and several of its Member States (including the United Kingdom) have warned businesses to prepare for a No Deal scenario. Whatever type of Brexit there will be, from a VAT point of view the biggest change is that cross-border transactions will become ‘normal’ imports and exports, and specific customs requirements will have to be met. So, at the minimum, every company doing business with or from the UK should check its tax codes and VAT reporting processes, but also its Incoterms and the requirements to be met when importing or exporting goods. This article shows an overview of the actions you can take.
United Kingdom: VAT on a deposit. HMRC has confirmed a new policy that VAT remains due on a deposit, even if the customer does not use the goods or services for which it was paid. This comes into force with effect from 1 March 2019, cancelling HMRC’s previous interpretation which allowed some non-refundable deposits to be treated as VAT free compensation.
Italy: e-invoicing and stamp duty changes. From January 1, 2019, the new “SDI” e-invoicing obligations became effective in Italy. While some companies are still fixing some post-implementation bugs, it is also time to focus on the new “Esterometro,” report. This report will replace the “Spesometro” report and relates to (cross border) transactions that do not require to be invoiced through the e-invoicing network. Foreign businesses with an Italian VAT registration are not required to complete the Esterometro. Further, the fact that invoices are now sent electronically made it necessary to change the stamp duty rules. The new method of payment for stamp duty on electronic invoices will be carried out on a quarterly basis, by the 20th day of the month following each quarter, meaning that the first due date is 20 April 2019.
Brazil: A new VAT system. Currently, Brazil’s main indirect taxes include the state value added tax (ICMS), the federal tax on manufactured products (IP), and the Municipal Service Tax (ISS), a “highly complex system composed of excessive taxes and with excessive concentration on consumption, presenting a high administrative cost both for the taxpayer and the Tax Administration”. The Brazilian Congress has chosen to move to a system similar to the European VAT system. The proposed indirect tax reform has recently been approved by a special committee of Lower House and provides for a transition from the current system to the new system in three stages, over a period of 14 years.
Bahrain: VAT rules effective per January 1, 2019. It’s official: Bahrain now also has a VAT. Supplies of goods and services by a taxable person in Bahrain are generally subject to VAT in Bahrain at the standard-rate of 5%, unless they are specifically subject to VAT at the zero rate or exempt from VAT. The tax authorities are taking the VAT very seriously, and they are pro-actively conducting hundreds of inspections in just the first few days of the new VAT regime already. If you incur VAT in Bahrain, it is possible to claim this VAT back, also if you are not established in Bahrain. Currently, there are special schemes set-up for business visitors and for taxable persons from other Implementing States. The National Bureau for Taxation published an announcement that also the VAT refund scheme for tourists is underway.
European Union: ECJ Case law
- C‑410/17 (A Oy). Deals with a demolition company, who agrees to demolish a building, whereby the contract allows him to keep all the machines that are still in the building. He can sell these machines as scrap, and when he makes an offer for his demolition services, he takes into account the worth of the machines and lowers his fee accordingly. The question is if the owner of the machines makes a separate supply of these machines to the demolition company. The ECJ rules that this is only the case if the owner supplies the machines ‘acting as taxable person’. It seems that it must be very clear from the facts and the agreements that the owner sells the machines, otherwise there is only a single demolition service performed by the demolition company. A summary of the case can be found here. The full case can be found here.
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