Nov 12, 2018

TaxTech November 12, 2018

European Union: Council supports equal treatment for electronic publications. The European Council finally agreed to allow reduced rates for electronic publications (e-books, electronic newspapers, etc.), to align their VAT treatment to that of physical publications. A Council Directive was released to change the EU VAT directive, which should allow European Member States to charge reduced, super-reduced or zero VAT rates on digital publications. Member States that wish to make use of this opportunity, will have to implement this change in their national legislation. A summary can be found here.

European Union: Split payments. In some countries, companies can of must not pay the full invoice amount to the supplier, but instead only pay the net amount (exclusive of VAT) to the supplier, and the VAT amount directly to the tax authorities. Examples are Romania and Poland, but also other countries are considering implementing similar rules.

The European Commission has sent Romania a letter of formal notice regarding their VAT split payment mechanism. Romania has been using this alternative VAT collection mechanism since 1 January 2018. However, the European Commission noticed the system has been causing a major administrative burden, as taxpayers need to open a separate blocked VAT bank account, and therefore the system seems to conflict with the freedom to provide services. Read the article here.

The UK is also reviewing a split payment collection model, in particular to reduce online VAT fraud. Following a consultation, a summary of responses has just been published. The UK tax authorities explained that split payment is seen as a potential long-term solution, but it will take time to develop and implement the system successfully. A formal industry working group will be set up. More here.

The Netherlands: VAT treatment for services to pension funds. Dutch pension funds have recently reached out to the European Commission in Brussels, to try to persuade them to allow for a VAT exemption for management of pension funds. Since the scope of the VAT exemption was narrowed, a few years back, Dutch pension funds are incurring almost 300 million Euro of VAT on management services every year. See this article (in Dutch). Should the Dutch pension funds manage to open up the discussions regarding the application of the VAT exemption, other EU countries will follow these discussions with great interest.

Italy: Simplifications  e-invoicing rules. In earlier newsletters we have indicated that Italy will require domestic businesses to start with e-invoicing as of 1 January 2019. This is still the case, but the Italian tax authorities have announced that there will be a ‘grace period’ until 30 June 2019, during which companies can still adjust their invoicing system. You will still need to meet the requirements, but no penalties will be levied immediately. More details here. An article about the future of e-invoicing can be found here.

Bahrain: Preparing VAT go-live. As VAT is becoming a reality in Bahrain (see this article), the Ministry of Finance is already inviting certain business to start with their VAT registration (see here). The new Value Added Tax will be implemented in Bahrain on 1 January 2019. It will be mandatory for businesses which exceed the mandatory registration threshold of approximately 37,600 BHD (or USD 100,000) in annual taxable supplies to register for VAT and submit VAT Returns.

Saudi Arabia and United Arab Emirates: Various guidelines issued. In the GCC countries where VAT is already implemented, the authorities are continuously providing clarifications. Saudi Arabia published guides about invoicing and record keeping requirements and simplified VAT filing, whereas the United Arab Emirates’ government provided clarifications in respect of designated zones, entertainment services, and public transportation.

VAT refunds update. A quick update on VAT refund news around the world:

  • The United Arab Emirates clarified that VAT on entertainment will not be recoverable.
  • In India, tax authorities have begun blocking input tax credit claims in situations where they expect the VAT amount not to be (fully) paid by the supplier. Many companies believe this to be against the VAT principles.
  • Greece announced that they will speed-up VAT refunds.
  • The Philippines will have a VAT refund system for tourists in place by 2020. It is likely that they will be looking at an e-invoicing system, based on the example of South Korea.

European Union – ECJ case law. Last week we saw two judgments of the European Court of Justice.

  • Case C-495/17 (Cartrans Spedition). This case was about the evidence that is necessary to prove the VAT zero-rate for transport services directly linked to exports of goods and for services rendered by intermediaries involved in these transport services. The Court ruled that a Member State is not allowed to require a customs declaration of export of the goods concerned, but should also allow other means of proof. For a summary, go here. The full verdict is available here (only French version available).
  • Case C-502/17 (C&D Foods Acquisition). The ECJ had to answer the question if a company can deduct any input VAT when an anticipated sale of shares is cut-off. C&D Foods carried out management and IT services besides its role as shareholder. It obtained legal advice regarding a sale of shares, but that sale never took place. The Court ruled, not surprisingly, that a planned but unrealized sale of shares does not fall within the scope of the value added tax. And thus, the input VAT was not deductible. A summary can be found here. The full case can be found here.

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