TaxTech – May 14th, 2019
European Union – Super weapon against VAT fraud
The European Union is fighting against VAT fraud already for many years. The so-called ‘carrousel fraud’ is costing the EU approximately EUR 50 billion per year. This was emphasised again in a report that was published as part of a larger study called ‘Grand Theft Europe’.
The latest action the European Commission is looking at, it the introduction of a ‘superweapon’, which consists of data mining software developed in Belgium. The software, which is called The Transactional Network Analysis (“TNA”) has intuitive algorithms which quickly assess multiple international databases and review huge amounts of data, pointing out suspicious VAT activity and likely cases of fraud.
The Belgian tax authorities are using similar software already for several years and with success: since 2002 they have managed to reduce the damage caused by VAT carousels in Belgium from €1.1 billion in 2001 to under €45 million in 2018, an impressive 96% reduction in just 15 years. And also Greece is successful in fighting VAT fraud with a transaction analysis tool, which should check bank deposits and tax declarations within just two minutes.
This trend of tax authorities relying on and using more and more technology based solutions in their mission to collect tax and fight tax crime will continue and most likely accelerate and become more advanced now that the European Union is trying to combine the data of all EU Members States. The latest pubication from the European ParliamentCommission on VAT fraud can be found HERE.
Saudi Arabia – VAT refunds
If you do business outside your country of establishmen and would like to recover the VAT on those business expenses, such as travel expenses but also attendance of events or certain products purchased abroad, you have to keep in mind that there are specific processes and deadlines that must be met in order to make sure this VAT does not turn into a cost.
Saudi Arabia announced that non-resident businesses that want to reclaim 2018 incurred Saudi VAT , will have to apply for a VAT refund by 30 June 2019. Although the General Authority of Zakat and Tax (GAZT) has not yet provided the full detailed guidance on the refund mechanism we recommend to ensure that business already prepare by selecting and collecting the relevant transactions and supporting documents
European Court of Justice – Recent case law
The European Court of Justice has rendered several judgments in the past weeks. We have summarised two.
Case C-127/18 (A-PACK CZ sro) deals with VAT on bad debts. It is of course never good if your customer cannot or does not want to pay your bills, but it’s even worse if you are also not able to claim back the VAT that you charged and remitted on such unpaid bills
Many countries have specific rules and requirements for claiming back VAT on so-called bad debts. The Czech Republic also has these rules. One of the conditions to claim back Czech VAT is that the customer must be VAT registered.
In the case of A PACK CZ sro, the customer was no longer VAT registered at the moment the unpaid customer invoices tunred into a bad debt.
The European Court of Justice rules that the conditions set by the Czech Republic are against the principal of fiscal neutrality, and that a taxable person should be able to receive a refund of VAT in the case of a bad debt, also if the customer is no longer tax registered.
Although not a big surprise, this judgment still means that businesses in the EU Member States may want to have another look at their debt positions that could be impacted by this judgment.
In case C-712/17 (EN.SA Srl), the question is if the deduction of input tax and application of the VAT zero-rate/exemption can be refused in case of fictitious transactions.
EN.SA. Srl operates in electricity trading and trades in electricity on the basis of forward contracts. It sold large quantities of electricity to companies of the “Green Network” group and, in a kind of circular movement, they were bought back from this group. The transactions were recorded in the accounting for the correct amount. The corresponding invoices for these transactions were also drawn up. It all looked fine from a VAT point of view.
However, since EN.SA. sold and bought back exactly the same quantities, the Italian tax authorities concluded that they only did this to include large amounts into the company financial accounts of the companies involved, to give them (better) access to financing options at banks.
The Italian court concluded that, although there was no actual VAT carrousel fraud, the electricity transactions were in fact to be regarded as non-existent.
This conclusion of the Italian court made it fairly easy for the European Court of Justice to rule that EN.SA was not entitled to a VAT refund, as VAT is only deductible if a taxable person has taxable activities.
European Union – Study on domestic and cross border intra-EU VAT refunds
The European Commission published a study on domestic and cross-border intra EU VAT refunds.
The study describes the current VAT refund processes in the various EU Member States and highlights potential problems and areas of difficulties encountered by businesses when making VAT refund claims.
The conclusions from the study show that in 2016, tax administrations from 16 EU Member States received approximately 5.5 million VAT reimbursement claims, amounting to EUR 153.5 billion, giving an average value per reimbursement claim just under EUR 28,000. Most of the refund requests were processed within the legal deadlines, but the tax authorities also asked more questions to the businesses who filed a VAT refund claim.
The most common reason for not granting a VAT refund or for asking additional questions was that the tax authorities believed that the company asking for the refund should be VAT registered and should reclaim its input VAT via a regular local VAT return instead of a cross border refund request.
Handling these types of questions has to be done in a timely and efficient manner leveraging the dedicated expertise in this specific field. On one side to avoid an unjustified foreign VAT registration, but also to ensure the VAT refund request is approved in a timely manner combining the appropriate legal grounds with the knowledge of the applicants business. VATBox has a team of highly experienced professionals to deal with these types of cases efficiently and effectively. For more information about this process, please contact us.
The report can be found HERE.
Indonesia – 0% VAT rate for additional export services
EY and KPMG report that the Indonesian Ministry of Finance has recently expanded the list of services that can be exported against 0% VAT. The new regulation hopes to stimulate the economy by encouraging the export of services, and to improve the ability of domestic services providers to compete on an international level.
The new rules are applicable to service transactions entered into on or after 29 March 2019. The list includes services such as freight forwarding services related to exporting goods, technology and information services, research and development services, rental of transportation equipment, business and management consulting services (including legal services, marketing services, accounting and bookkeeping services, audit services, and tax services), and trading services (i.e., identifying domestic sellers to export their goods).
Businesses that are involved in providing or receiving electronically supplied services will have to check if these activities will be treated differently from a VAT perspective. Not just in Indonesia, but in many countries around the world, the VAT treatment of E-services are under discussion.
Russia – Russian customers that import electronic services may still act as VAT agents
Another country where e-services are in the spotlight is Russia. From 1 January 2019, foreign businesses that provide electronic services to Russian businesses are required to register with the Russian tax authorities and (unless the service qualifies for a VAT exemption) required to charge, report and pay Russian VAT.
Russian customers are no longer required to withhold this VAT and remit it to the Russian budget as a tax agent (a process similar to the “reverse charge”).
However, the Federal Tax Service has now announced that Russian customers are entitled to voluntarily act as VAT agents. If the Russian customer has voluntarily withheld VAT, the Russian tax authorities are instructed not to impose VAT on the foreign vendor or disallow the VAT credit to such Russian customer.
European Union – VAT Committee publishes two papers about invoicing
The EU VAT Committee is an advisory committee consisting of representatives of the different member states tax authorities’ only and has not been attributed any legislative powers. As such, the VAT Committee cannot take legally binding decisions. However, it does regularly give guidance on the application of the EU VAT Directive, which is often also used and interpreted in practice since it reflects the authorities’ view.
Recently the VAT Committee reviewed two items in respect of invoicing.
The first paper discusses Italy’s plan to increase the threshold for simplified invoices from EUR 100 to EUR 400. According to the Committee, this should not be a problem as the EU VAT Directive allows this threshold. This would mean that invoices for less than EUR 400 would not have to meet the full VAT invoicing requirements.
The second paper is about a study on the evaluation of the current invoicing rules under the EU VAT Directive. The study concludes that the fragmentation and complexity of e-invoicing rules have largely decreased in the few last years. There is considerable growth in the uptake of e-invoicing in the EU since 2014 (estimate of 5 billion e-invoices issued in 2017).
The study has a (short term) recommendation to clarify what is meant with ‘Business Controls that create a reliable Audit Trail’. Currently, this is one of the methods to guarantee the integrity and authenticity of an e-invoice, but it is regarded as not defined sufficiently for practical use in the set-up of electronic e-invoicing sultions by businesses and to avoid VAT risks potentially arising from that.
PwC’s 2018 Productivity in the Financial Services Sector Survey
PwC has identified six areas where businessesfocus on improving their productivity. In this report, PWC outline the actions you can take within each of these areas..
- Better understanding of the workforce;
- Rethinking change functions;
- Embracing the platform economy;
- Improving workforce digital IQ;
- Bringing an agile mindset to the mainstream;
- Mastering digital labour.
As John Garvey, global financial services leader PWC US mentions:
“What’s needed now is much more fundamental focus on productivity improvements, and that means digitalisation, and understating the meaning of ‘agile’ and applying it beyond IT.”
You can read the full agenda, and fill in the survey to find out were you stand against the industry benchmark HERE
Meet us at SAP Concur London
SAP Concur Fusion EMEA is a conference that brings together the entire community of current SAP Concur network and customers, as a leading SAP Concur partner and sponsor we would love to meet you there to help you streamline your VAT related transactions across all your entities and jurisdictions.
The event will take place in London on June 18 and 19, 2019 contact us to schedule a meeting.
Dutch National VAT Conference
VATBox is the proud sponsor of the 2019 Dutch ‘National VAT Conference’ (‘Nationaal BTW Congres’). The event will take place on the 6th of June in Maarssen, The Netherlands.
It will be a full day on national and international indirect tax topics with a combination of plenary and breakout sessions. Amongst the speakers are representatives of the Dutch tax authorities, advisors, scholars and business. The conference language is Dutch.
For our readers of TaxTech we can offer an exclusive 20% discount on the conference fee.
For more information and enjoying the exclusive VATBox Taxtech 20% discount on the conference fee click here. Be quick as discounted seats are limited.
VATBox Tax Knowledge
VP Tax & Product Strategy