TaxTech September 17, 2018
After two busy weeks for tax authorities, policy makers and judges around the world, we are happy to update you with the latest news from the finance industry.
European Court of Justice. The summer break is over for the judges and Advocate Generals of the European Court of Justice (ECJ). Last week they produced one judgment, two new preliminary questions and three opinions relating to VAT. We will skip the opinions on the travel agents scheme, but here are the others.
- The Siemens Gamesa case (Case C‑69/17) concerns a Romanian company that was temporarily ‘inactive’ for VAT purposes. The tax authorities argued that the company was not allowed input VAT relating to this inactive period, but the ECJ decided differently. A summary is available here.
- In the Agrobet case (Case C-446/18) the question is raised in how far the tax authorities can base an assessment on a review of only a part (sample check) of the administration of a business. This is something that happens a lot in practice, so it could be an interesting case to follow.
- C&D Foods Acquisition (Case C-502/17) wanted to recover input VAT paid on the costs it had made for the sale of the shares in a grand-daughter. A ‘pure holding’ cannot deduct input VAT, but if the holding has economic activities, it may be able to get (some) input VAT back. The A-G believes that a VAT deduction is not possible, if the input VAT relates to exempt activities. This opinion may or may not be shared by the ECJ. Read the summary here.
- The Vetsch-case (Case 531/17) deals with a customs agent who imports goods into the EU on behalf of a non-resident business. The imported goods are moved to another EU country right after the importation, which means that for the importation a VAT exemption can be claimed. However, the customs agent does not know that the owner of the imported products does not charge output VAT on its sales. The question is if the customs agent was allowed to use the VAT exemption in that situation. A summary is available here.
Canada: Visa Does Not Supply GST/HST Exempt “Financial Services”, Tax Court Rules. Most countries’ VAT, GST or HST rules contain an exception (exemption) for financial services. However, it is not always clear if payment facilitators are covered by this exception. The Tax Court of Canada concluded that a Canadian bank correctly charged GST/HST for its credit card administration services. Details here.
Denmark: Payment of parking services via app. A Danish entrepreneur requested a binding ruling from the Danish tax authorities, to determine if the VAT exemption applies to facilitating payments via an app for parking services by third parties. The tax authorities concluded that the provider ‘only transferred data’ and that the service did not qualify as a VAT exempt financial service, but was subject to VAT. More information can be found here.
The Netherlands: VAT exemption for services by insurance intermediary. The Dutch District Court ruled that VAT exemption is applicable to the services provided by an insurance intermediary. A broker operated a call center, selected potential insured persons from a database and contacted these potential customers. The VAT inspector believed that the broker was merely providing back-office/administrative services, which are not exempt from VAT. However, the District Court ruled that the VAT exemption is applicable as the broker was closely connected to the insurance company and the insurance would not be closed without the involvement of the broker. This case is slightly different from the ECJ Aspiro case, where an insurance contract was in place already, and the intermediary was (only) handling the administrative side of the claims. The ECJ decided in this case that the handling of insurance claims was not exempt from VAT.
Serbia: VAT refunds to foreign taxpayers. Starting January 1, 2019, a foreign taxpayer can claim input VAT if it sells goods and services to Serbian VAT businesses. This is also the case if the VAT for these sales is self-assessed by the customer via the reverse charge mechanism. Previously non-established businesses could not obtain refunds of VAT incurred in Serbia if they performed any supply of goods or services in Serbia (except for international transportation services). The official publication can be found here.
United Arabic Emirates: Refund system for tourist. The UAE has announced a refund system for tourists. This is expected to come into effect November 2018. It is not clear yet whether the VAT incurred on purchases made before the scheme comes into effect will be refunded and what would be the limitations on claiming the refund.
United Kingdom: Scrapping of compensation for delays to the payment of VAT refunds. The Chartered Institute of Taxation is worried about the proposed scrapping of compensation for delays to the payment of VAT refunds by the tax authorities. The Government’s proposal is to remove the five per cent repayment supplement and pay simple interest (currently at 0.5 per cent per annum) on amounts repayable by HMRC. HMRC would not pay any interest for the period in which the tax authority makes enquiries into the VAT return, or if there are other outstanding VAT returns. Currently, if a business submits a VAT return to HMRC claiming a repayment, but the tax authority does not process the return within 30 days, the taxpayer may be entitled to a repayment supplement of five per cent of the amount of the reclaim.
Russia: VAT registration required for e-services provided to business customers. Starting January 1, 2019, foreign providers of electronic services (e-services) will have to register, invoice and remit Russian VAT on these services when provided to legal entities and individual entrepreneurs registered with the Russian tax authorities. Under the existing rules that apply until January 1, 2019, foreign companies supplying B2B e-services are not required to register with the Russian tax authorities, as VAT was collected from the Russian business customers via the reverse charge mechanism. Read more here.
Ghana: VAT rate increase or decrease? Initially there was talk about a VAT rate increase in Ghana. The rate would increase from 17,5% to 21,5%. But, after protests, the government backed away from this plan, and came up with a surprising alternative. The VAT rate was decreased to 12,5%, and the remaining 5% was converted to a National Health Insurance and Education Trust Fund levy. However, as the 5% levy is not VAT, and cannot be claimed as input tax, this change triggered an additional burden for businesses. As most businesses in Ghana have wide distribution channels, this causes tax on tax, which in the end would create price inflation. The Association of Ghana Industries has asked the government to reconsider. Read more about it here.
United States of America: ‘Wayfair‘ developments. We have to mention this topic again, as there is still a lot of turmoil going on after the Wayfair decision in the United States. For remote sellers, it will be important to review which state’s rules apply (which can be tricky for example if the customer is a large organization with many locations). Does the specific state levy sales tax on the foreign trader’s products (e.g. some states do not collect sales tax on services)? What is the applied threshold? And is there an exemption (for example for goods or services used in manufacturing or industrial processing, for re-sale, or for sales to non-profit, government or other tax exempt entities)? Please find a more detailed analysis here (starts from page 12).
Attention compliance avoiders: Automation to the rescue. Digital technology and globalization are driving the demand for enterprises to modernize their tax departments and implement processes to meet compliance requirements. Automation and supporting technologies have been introduced to help businesses succeed in today’s regulatory environment. More here.
See you in two weeks!
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