TaxTech – June 25th, 2019

Costa Rica – New VAT regime, refund rules and cross border e-services

From next week (July 1, 2019) a VAT system will replace the sales tax system in Costa Rica. A standard VAT rate of 13% will apply to most goods and services, but for some goods and services reduced rates of 4%, 2%, and 1%, as well as several exemptions,  will apply. Taxpayers will be allowed to claim input VAT, and where this exceeds the output VAT, it is carried forward, offset against other taxes, or in certain cases, refunded by the tax authorities.

The new VAT regime includes provisions about the VAT collection for cross-border supplies of digital services provided by non-resident businesses to business and private customers in Costa Rica. In principle, VAT is collected by “financial intermediaries” such as credit/debit card issuers, on behalf of these non-resident businesses. These collection agents would have to calculate the VAT and add this on top of the service price charged by the non-resident seller unless a non-resident seller opts to register for VAT and takes care of its own VAT obligations. Such a non-resident seller is not required to meet the e-invoicing obligations that apply in Costa Rica.

Bangladesh – New VAT law

In Bangladesh, the government announced that the new VAT law would go into effect from July 1, 2019. The new law will replace the VAT Act 1991.

Under the new rules, in addition to a standard VAT rate of 15%, there will be reduced VAT rates (originally only a standard rate was envisaged). However, these reduced rates (5%, 7.5% and 10%) will not allow input VAT recovery. The regime also includes VAT withholding rules, whereby customers must withhold one-third of the VAT amount.

Further, non-resident sellers of certain products (including e-services) will be required to appoint a VAT agent, but it has also been mentioned that internet giants such as Facebook, Google, Youtube and other digital platforms, will have to complete a direct VAT registration. The exact details are not known yet, and there is already a lot of protest from the e-commerce industry.

Although the National Board of Revenue announced that the new VAT law would not cause an excess burden of tax to people, it is expected that the new regime will cause a price increase of commodities at the consumer level.

UK – Abolish VAT?

VAT is currently implemented in more than 150 countries globally and constitutes one of the most important sources of revenue for governments. Especially since income from corporate income tax has been declining due to falling CIT rates. France was the first country in the world to introduce VAT in 1954. The concept of a VAT was already proposed earlier, in 1918 in Germany.

It is therefore somewhat surprising that Michael Gove, running to replace Theresa May as the leader of the Conservative Party in the UK, announced to scrap the current VAT rules and replace it with a “lower, simpler” alternative, to boost the post-Brexit economy. For VAT professionals, this may seem a step backwards, instead of forward.

As puts it: “There is a reason why so many countries have a VAT. It works!”. With Gove being the last drop out, in the race for the leadership of the Conservative Party, we expect these plans will be off the table, or maybe after the latest events again back on.

European Union – Overview ECJ case law

Two VAT cases and one customs case have been decided on in the past couple of weeks. We summarise these cases below.

  • The first case deals with the question if a drilling platform could be regarded as ‘a vessel used for navigation on the high seas’ for VAT purposes.
    In case C-291/18 (Grup Servicii Petroliere SA) the European Court of Justice decided that this is not the case.
    Grup Servicii Petroliere SA (“GSP”) sold three offshore jack-up drilling rigs to certain Maltese purchasers for the purpose of carrying out drilling activities. Jackup rigs, or self-elevating units, are mobile platforms which consist of a buoyant hull which has been fitted with several movable legs. In short: they float, but cannot navigate independently, and their purpose is to stay ‘anchored’ at a specific location, whereby the legs are extended into the water, and the hull platform is elevated above the surface of the sea.GSP did not charge VAT on the sales of the rigs, arguing that the VAT exemption applies for ‘supplies of a vessel used for navigation on high seas’. The Romanian tax authorities disagreed, and so did the ECJ.
    According to the ECJ, the VAT exemption for ‘Vessels used for navigation on the high seas’ does not apply to the delivery of floating structures, such as self-raising offshore rigs of the type at issue in the main proceedings, which are predominantly used in a static, immobile position, to exploit hydrocarbon deposits at sea.
    A summary of the case can be found HERE. The full case is not yet available in English, but the French version can be found HERE.
  • The next case focuses on the definition of ‘taxable person’. A couple of years ago, the Netherlands decided that a member of a supervisory board could be seen as a taxable person, and therefore had to register for VAT and charge VAT on his commission/fee.
    In case C‑420/18 (IO vs NL) the ECJ decides that a member of a supervisory board does not automatically qualify as a taxable person.
    Mister I.O. is employed as a municipal official and is also a member of the Supervisory Board of Stichting E (hereinafter: “the foundation”).
    He receives a gross remuneration for its work as a supervisory director, subject to wage tax and national insurance contributions. Based on Dutch VAT rules, which had been adjusted after the interference of the European Commission, the work of a Commissioner, even if only for one board, should be regarded as an economic activity for VAT.
    The ECJ, understandably, considers that to qualify as a taxable person, the ‘normal’ requirements must be met.
    The Court thus peels down the criteria from its earlier decisions and decides that, in this case, a member of the supervisory board of a foundation, is not acting independently, not in his own name or for his own account nor under his own responsibility. Therefore, the ECJ decided that under those conditions an independent economic activity is performed.
    A summary of the case can be found HERE. The full case is not yet available in English, but the Dutch version can be found HERE.
  • The last case deals with customs duties and price adjustments, a topic that companies may run into, e.g. when making Transfer Pricing Adjustments.
    In case C-1/18 (Orgibalt Riga) it concerns discounts that are given to customers after the goods have already been imported. The questions arose if, for the calculation of the customs value, these discounts could be taken into account or not.Oribalt Riga imported (medicines) into Latvia from India, acting as the distributor for medicines produced by an Indian manufacturer. Oribalt Riga used the pro-forma invoices issued by the Indian manufacturer as customs value.
    Subsequently, the medicines were sold to customers, whereby the Indian manufacturer decided to whom the imported goods were sold, the terms of sale, the sales price and the discounts applicable. Once the goods had been sold, the Indian manufacturer issued Oribalt Riga with new invoices for the goods sold, including the discounts given to customers.
    The ECJ considers that if a certain method is used to establish the customs value, this value cannot be adjusted afterwards.
    Together with the earlier case on customs valuation and price adjustments (case C‑529/16, Hamamatsu Photonics Deutschland GmbH) the conclusion may be drawn that price adjustments, including transfer pricing adjustments, that are made after the goods have been imported, cannot change the customs value.
    A summary of the case can be found HERE. The full case is not yet available in English, but the French version can be found HERE.

Poland vs UAE – VAT reporting requirements: a quick update

We reported earlier that Poland is working on replacing the VAT Return with a SAF-T reporting file. Instead of July 1, 2019, this new requirement will now be implemented as per January 1, 2020.

The split payment mechanism will become obligatory in Poland as of September 1, 2019.

Where Poland is somewhat running ahead of the digitalisation of the VAT reporting process, it is interesting to see that many companies are not yet prepared for that. An example are the United Arab Emirates, where a modern VAT system was implemented one-and-a-half years ago. The UAE authorities wanted to implement a modern and robust VAT system, learning from the many countries that already have experience with VAT and the collection of VAT.

Surprisingly, 44% small and medium-sized enterprises (SMEs) in the UAE still perform their daily tasks manually for VAT records and filing returns as they are unaware of automated solutions.

From our experience, we know that many large companies, all over the world, are not always effectively dealing with their VAT compliance and VAT recovery.

Reporting in the Digital Age

Deloitte’s latest insight on how reporting is revolutionising in the digital age and how it relates to the newest tax trends. While Deloitte surveyed 600 global finance leaders on management reporting, VATBox analysis uncovered this fact: Companies surveyed, spent 48% of their time creating and updating reports versus 18% spent on communicating the results to the business.

Reporting is about understanding and leveraging information companywide.
New solutions like VATBox can simplify the arduous reporting and tracking process, providing you with actionable insights and a means to create comprehensive strategic decisions.

In the new digital world, financial leaders get to expand their expertise and to bring knowledge to the business by creating compelling narratives with the information.

Read more to be at the forefront of the digitalisation revolution


See you in two weeks!

Remco Dewaerheijt

The VATBox Tax Knowledge team


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