TaxTech – March 19th, 2019
South Africa expands definition of “electronic services” triggering VAT registration for non-resident suppliers
As we wrote in one of our previous editions, South Africa will introduce new rules on 1 April 2019, broadening the VAT base for electronic services. An increased number of non-resident suppliers will be required to VAT register as the definition of “electronic services” has been expanded to include, subject to very limited exceptions, all services supplied by means of any electronic agent, electronic communication, or the Internet for a consideration. Read more about it here.
Chinese VAT rate reductions from 1st of April
In China, VAT rate reductions have been announced. The VAT rate of 16% will be reduced to 13% and the VAT rate of 10% will change to 9%. These cuts are efforts by the Chinese government to spur economic growth. Last year, China slipped to the lowest annual growth rate since the 1990s, while its fourth quarter performance was the weakest since the global financial crisis. The government announced that April 1 will be the implementation date.
In response, various automobile companies have already cut prices for several models. Of course, it’s another question if these types of incentives and developments will help China in decreasing its environmental footprint.
Italy – Delay for the new Esterometro submission
Since 1 January 2019 Italian residents need to submit their invoices electronically through the SdI platform. This electronic invoice requirement does not apply to cross-border transaction invoices. To capture the invoices that have been issued by different means, a new fiscal report was introduced: Esterometro. In principle, sales invoices not issued through the SdI must be reported through Esterometro on the last day of the next month after issue. For invoices received, the deadline is the last day of the month following the date of receipt. However, the Italian government has just announced an extension to the first few (monthly) Esterometro reports.
The deadline to transmit the January and February reports has been postponed to 30 April 2019 and the deadline for the March and April 2019 reports is delayed until 31 May 2019. In due course, the filing period of the Esterometro may even become annual, rather than monthly. Read more here.
India – Companies are expected to follow rate reduction
Governments can change VAT rates, and they often have various reasons to do so. The most commonly used ones are increasing government income, and stimulating the economy. Companies are obliged to use the new rates, but the final consumer prices do not always change proportionally. Due to the economic rules of price elasticity of the service or product, and the market power of the supplier, consumer prices will respond differently to such rate changes.
In India, however, the government goes one step further to ensure the benefit of the rate decrease is passed on to the consumer. They want to penalise companies that do not reduce their prices after a VAT rate drop. In this case it concerns the reduced VAT rate on food stuffs, whereby an important remark must be made that the companies had to apply a lower rate, but could also no longer deduct input VAT. Where normally the government takes the effective burden of the rate decrease, it seems that now the government wants to push this burden to the businesses.
In India the rules are still very complicated after the simplification of the VAT system in 2017. In fact, this simplification resulted in many VAT practitioners losing their jobs, or finding other taxes to specialise in.
European Court of Justice – Overview of case-law
Case C‑449/17 (A & G Fahrschule-Akademie GmbH) deals with the question of whether a driving school should be considered as providing educational services. The driving school argues that it was educating road users to act responsibly. But the tax authorities claim that the VAT exemption for educational services only applies to the concept of ‘school or university education’, and that practical driving instruction was neither a necessary nor a desirable component of such education.
The ECJ repeats that the VAT exemptions are to be interpreted strictly. But they also say that the concept of ‘school or university education’ may also include activities that are taught in schools or universities in order to develop pupils’ or students’ knowledge and skills, provided that those activities are not purely recreational. However, the ECJ also notes that the tuition must be provided in schools or universities and that it must concern “an integrated system for the transfer of knowledge and skills covering a wide and diversified set of subjects, and to the furthering and development of that knowledge and those skills by the pupils and students in the course of their progress and their specialisation in the various constituent stages of that system.”
According to the ECJ, a driving school does not provide this type of education, and thus the VAT exemption does not apply.
A very interesting case is Case C‑647/17 (Srf konsulterna). The case concerns the question how ‘training events’ should be considered for VAT: as generic services, or as admission to (educational) events?
Srf konsulterna AB is part of a professional association for accounting, management and salary consultants, which organises training courses for its members. These courses take place both within Sweden, where both the organisation and the members are established, and some courses are organised outside of Sweden, in another EU country.
Srf konsulterna believes that the training courses are subject to Swedish VAT, treating the services as ‘generic B2B services’.
However, the ECJ decided differently. It qualifies the services as ‘educational events’, whereby the element of ‘granting admission to those courses’ is the most important part. The ECJ also considers that goods and services should be taxed as far as possible at the place of consumption.
That drives the ECJ to the conclusion that the training courses are to be regarded services in respect of admission to events, and as such are subject to VAT in the EU country where the training course takes place.
Angola – go-live of VAT is approaching for “Large Taxpayers”
Angola will be introducing a VAT system, replacing the current consumption tax. The National Parliament has recently approved the VAT Code. The standard VAT rate will be 14%, which replaces the current 10% consumption tax. For small taxpayers a 50% reduction will apply resulting in a rate of 7%. For certain goods and services, a VAT exemption will apply. VAT will be introduced per 1 July 2019, in different phases. First for “Large Taxpayers” (and businesses that voluntarily opt to be included) and the second phase, from 1 January 2021, applies to all other taxpayers. More info can be found HERE and HERE.
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