TaxTech – March 4th, 2019
Germany – VAT refunds
The European Commission referred Germany to the European Court of Justice over its rejection of various claims for VAT refunds to companies located in other EU countries. Germany refused in some cases to refund VAT without giving the tax payer the possibility to provide any additional (requested) information. This resulted in situations where a VAT refund was denied, although the conditions for a VAT refund were formally fulfilled.
The European Court of Justice has answered similar questions before, but in cases where the EU country had in fact asked additional information. In a recent case (which we covered in our previous newsletter) the EU country is allowed to deny the VAT refund in case the company asking for the refund did not respond within the deadline set by the EU country (provided that the given deadline is reasonable).
Although it is not certain that this will become a case before the ECJ, the European Commission has made clear its opinion that EU countries cannot just deny a VAT refund request, without requesting for additional information first.
VAT refunds – How long do they take?
Remaining with the topic of VAT refunds for the moment, there are several countries that are very slow paying back VAT to businesses.
South Africa did pay back VAT at the end of January, but there is still more than USD 2 billion (!) outstanding. In addition, in India there is a huge back-log in processing VAT refunds.
Still, in general, local tax authorities are trying their best in setting up efficient procedures for claiming back VAT. Not just for businesses, but also for tourists. For example, Indonesia is working on a regulation that would allow foreign tourists to get tax refunds for their spending and Bahrain announced that it started working on the Bahrain Tourist Refund Scheme, which is expected to be implemented later in 2019.
United Kingdom – Brexit
We cannot go around it: Brexit is in the headlines almost every day. The news is mostly political, as it is still unclear and uncertain if, when and what type of Brexit there will be. The United Kingdom and the EU are preparing and warning businesses for what happens if there will be a hard Brexit.
A hard Brexit will also have a direct impact on your foreign VAT refund positions to or from the UK. Still have 2018 & 2019 data to be processed for submission? Then contact us as soon as possible.
But there is also good news.
The United Kingdom published an Order in which they confirm that financial institutions, that perform financial services to recipients in (other) EU countries, will be allowed to claim back input VAT for this part of their business. The main rule is that financial institutions, such as banks, are currently not allowed to deduct input VAT, as their own activities are exempt from VAT. However, this does not apply if the services are performed for customers outside the European Union, i.e., the banks still don’t have to charge VAT, but they can recover input VAT on (part of) their costs. This measure will only apply in case of a no-deal Brexit.
By now, many EU countries have published announcements and (temporary) measures. A good example is Bulgaria, who published clear instructions on the website of the National Revenue Agency. The guidance is only available in Bulgarian, but most of it is based on the website of the European Union.
European Court of Justice – Overview of case-law
- In Portugal, the tax authorities raised questions regarding the situation of Manuel Jorge Sequeira Mesquita, who owned the exploitation rights to a vineyard. In this case (C-278/18), Manuel Jorge Sequeira Mesquita entered into an agreement with a contractor, whereby he transferred the agricultural exploitation of a couple of vineyards to this contractor. The contractor is a grape grower and used the land to produce grapes.The Portuguese tax authorities argued that the transfer was subject to VAT, where Manuel Jorge Sequeira Mesquita held that the transfer of exploitation right should be treated as the right to use immovable property, and, thus, exempt from VAT (similar to rent).The ECJ agrees with the tax payer, and rules that that the exemption from VAT on the leasing or letting of immovable property is applicable to the transfer of the exploitation right.A summary of the case can be found HERE. The whole case can be found HERE.
- Even though there are only questions and no answers yet, case C-703/18 (Healthspan Limited) will be interesting to follow. The case concerns a company that is selling goods from a warehouse in the Netherlands to private individuals in the UK and thus falls under the distance selling scheme according to the UK tax authorities. The goods are transported, using a third-party transport company. The seller (Healthspan Limited) argues that it is the customer who orders/arranges the transportation of the goods, and Healthspan is only providing a suggestion as to which transportation company to use.The UK tax authorities have a different view, and they argue that Healthspan Limited is not really giving the customer a lot of choice, and that Healthspan Limited itself is organizing the transportation of the goods. Therefore, the distance selling scheme is applicable in view of the HMRC which leads the place of supply being the UK, and UK VAT should be charged on these supplies.If Healthspan Limited’s position would be accepted, the place of supply would be deemed to be in the Netherlands and Dutch VAT would apply.
As these situations are occurring fairly often, and with the Brexit approaching, it will be interesting to see what the ECJ will decide in this case.A summary of the case can be found HERE.
E-commerce, VAT and digital taxes
In the past months, several countries have announced new rules for the taxation of e-commerce activities, e-platforms, and e-services. In some countries new VAT rules are developed, or new taxes (digital tax) are implemented or announced. The ‘Amazon tax’, or Cyber Tax, are terms sometimes used.
In the United States, for almost a year, there have been significant changes in the sales tax regulations, caused by the Wayfair-decision. Almost half of the American states now have, or will have, rules in place where marketplace facilitators are held responsible for collecting and remitting sales tax on behalf of all marketplace sellers, including California, Florida, New York, and Texas.
Note: there are currently 5 states that do not have a sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.
South Africa will introduce new rules on 1 April 2019, broadening the VAT base for electronic services. International suppliers of services to South African customers, must evaluate whether their supply of services qualify as electronic services, and whether this would create a liability to register for VAT in South Africa. Austria is considering doing the same as of 1 January 2020.
In countries such as Germany and Canada, new rules have been implemented. Effective 1 January 2019, operators of online marketplaces, as well as the businesses and individuals that sell on them, must comply with significant additional VAT obligations.
If you are selling online, make sure that you check if there are any specific requirements or VAT obligations that you have to meet.
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