VAT Country News Summary for July 2017

Keep current with VAT news without having to sift through the news every day. Here are the most significant happenings in the world of VAT reporting from July:

United Kingdom Announces Change in Timetable for “Making Tax Digital” Initiative for Businesses

On July 13, 2017, the parliament of the United Kingdom, along with Her Majesty’s Revenue and Customs (HMRC), announced that the roll-out of the ‘Making Tax Digital for Businesses’ will be delayed until April of 2019. This initiative, first decided upon in December of 2015, is an effort by the government of the U.K., to digitize all tax records and filing obligations that U.K. registered businesses have for value added tax purposes. This move to digital technology is seen by the government as a way to reduce the amount of avoidable tax errors that have been made in recent tax filing years.

As previously reported, HMRC’s initial timetable for implementing “Making Tax Digital,” with a start date of April 2018, was criticized in both houses of Parliament. The new roll-out plan will require businesses with a turnover above the VAT threshold (currently £85,000) to keep digital records for VAT purposes only. This requirement will be imposed as of April of 2019 for businesses above the VAT threshold, and will be voluntary for smaller businesses.

SII Reporting to be Adopted in the Basque Region

Organizations operating in the Basque region of Spain will soon be required to comply with SII reporting requirements. As reported in this forum, effective July 1 most companies operating in Spain are now required to transmit information to the Spanish Tax Administration (AEAT) regarding purchase and sale transactions within a few days of invoicing. Today, these requirements do not apply in the Canary Islands, Ceuta, Melilla, Navarra and the Basque regions (which include Alava, Guipúzcoa and Vizcaya). With respect to Navarra and the Basque Regions, the reason the requirement does not apply is due to the special relationship these locations have with the federal government whereby VAT is collected and remitted under a parallel but separate system.

Over the last several days, the Basque Regions and Navarra have announced that they will implement the SII starting January 1, 2018, While the rules will be similar to standard Spanish SII, administration will handled through local authorities and not AEAT. We expect additional regulation and technical specifications to follow shortly.

United Kingdom to Modify Place of Supply Rules for Telecommunications Services

The United Kingdom has announced plans to eliminate its “use and enjoyment” provision for VAT on business-to-consumer (B2C) telecommunications services used outside of the European Union. Schedule 4A of the VAT Act of 1994 currently treats telecommunication services used outside of an EU member state as taking place where consumed, even if the service would otherwise be taxable in the UK. Absent this “use and enjoyment” rule, B2C telecommunications services will be sourced to the billing address of the customer. The UK currently sources telecommunication services used within the EU to the billing address of the customer; the proposed amendment to the VAT Act will apply the same treatment to such services used outside of the EU.  

There are large implications for both private consumers and suppliers of telecommunication services. If a private consumer uses his or her mobile phone to make a call while visiting Canada, the roaming charges, which previously were not subjected to VAT, will now have VAT assessed on the call.

The new change will affect services made on or after November 1, 2017. The change will bring the United Kingdom into line with international standards and will reduce inconsistencies in VAT assessment for telecommunication services.

French Court Strikes Down Google VAT Bill

On July 12, 2017, the Tribunal Administratif de Paris struck down a bill of more than 1 billion euros assessed by the French government against Google for back taxes, including VAT. The Tribunal found in particular that Google did not have sufficient human and technical resources in France to subject the company to VAT; instead, the Tribunal held that Google was based in Ireland and merely carried out certain operations in France. The French government has stated that it will analyze the judgment with an eye towards a possible appeal.

Germany Publishes Guidelines on VAT Exemption for Frozen Gametes

The Federal Ministry of Finance has released guidance related to a VAT exemption on storage fees for frozen reproductive material. When frozen gametes are stored for therapeutic purposes – such as contributing to a pregnancy as part of fertility treatment – the storage fee is properly VAT exempt. Absent a direct therapeutic purpose, however, storage fees for frozen gametes are taxable. This may arise when gametes are stored for precautionary reasons, or by third-party entrepreneurs in cryobanks.

Italy Provides Clarification on Communication of Data on Invoices

The Italian Tax Authorities issued Resolution No. 87/E on July 5, 2017, confirming that a taxable person may amend a previously filed communication even after the 15th day following the day on which the deadline expires. The communication must include sales invoices issued and purchase invoices recorded in the VAT ledger during the period of reference. Invoices for composite supplies of goods and services must be recorded according to the criterion of “prevalence”, i.e. according to the supply with the higher value. Finally, the taxable person may benefit from favorable measures to reduce administrative penalties provided by article 13 of the Legislative Decree No. 471 of 18 December 1997.

Czech Republic Publishes Guidance on Changes to Filing Instructions for the VAT Control Statement

The Financial Administration of the Czech Republic recently published amended filing instructions for the “Kontrolní hlášení”, or the “Check Report” form, which is a required filing for all taxable persons under the Czech VAT Act. Among the changes to the instructions is, first, a new requirement for contract companies (partnership-structured entities) to now file by individual partner instead of as a company group, and second, the assignment by the Financial Administration of numerical codes under which supplies are reported on the Check Report.

For people working as a part of a partnership or contract company, the partners will now be required to file a control statement individually, rather than as a tax group under the company’s name. This change will be on a phased implementation schedule, with all partnership companies that are already engaged in contracted business activities to be compliant with the new system by January 1, 2019. However, any new company contracts that are made by individuals would require immediate application of these new filing requirements.

For the numerical code assignments for types of supplies, several new categories have been added to reflect the July 1, 2017 VAT Act Amendment changes. These additions can be seen on the most recently published Check Report instructions on pages 10-11.

Amendment to Treatment of Vouchers Before Dutch Parliament

Earlier this month, bill number 34755, which would modify the treatment of vouchers under the Dutch VAT Act, was introduced to the Dutch Parliament. The proposed law would differentiate between single use vouchers, defined as vouchers where the place of supply and amount of VAT on the supply are known at the time of the voucher’s issuance, and other vouchers. The transfer of a single use voucher would be considered a taxable act, while the transfers of other vouchers would be VAT free, with VAT collected on the actual delivery of goods or operation of service based on the value of the voucher.  The proposal is meant to bring the Dutch VAT Act into conformity with EU Council Directive 2016/1065.

Hungary Releases Additional Information of Invoice Reporting

Hungary has continued to release additional information about its upcoming invoice reporting requirements. Starting on July 1, 2018 VAT registered persons will be required to report B2B invoices of over 100,000 HUF to the government. The National Tax and Customs Authority (NAV) launched the KOBAK program at the beginning of July 2017. Registered persons can use the KOBAK system to submit test XML files in preparation for next year’s implementation of the new reporting requirements. Taxpayers can register to use the system at a separate website. The NAV has also made the XSD schema for the XML files available at the same website. As was previously reported, the implementation of the invoice reporting requirements, along with a lowering of the invoice threshold for the domestic summary report, was originally scheduled to begin on July 1, 2017 but was delayed to 2018 by the passage of Act LXXVII of 2017.

Denmark Clarifies Positions on VAT Exemptions

The Danish Customs and Tax Administration (SKAT) has announced a limitation on the VAT exemption for supplies of blood plasma. Previously, the SKAT had allowed for exemptions on all deliveries of the human blood plasma. Going forward this exemption will no longer apply to supplies of plasma to companies intending to use the plasma in the production of medical or pharmaceutical products. The exemption is now limited to deliveries used directly for health care or therapeutic purposes. This change in policy was made in reaction to the ruling in ECJ Case C-412/15.

The SKAT has also released a decision finding that the exemption for the teaching of language, music and other topics applies to teaching outside of traditional schooling so long as the teaching is of an academic nature and is not focused on profit making activities.

Romania Modifies Rules on VAT Refunds

Getting a VAT refund has become simpler for suppliers registered in Romania under the MOSS scheme. In the past, taxable persons established outside the EU who supplied electronic services in Romania were required to appoint a tax representative. But on July 13th, the Fiscal Administration (ANAF) released a press release announcing that in accordance with government decision 284/2017, the tax representative requirement would be removed for non-EU suppliers registered under the MOSS scheme.

Romania Modifies Rules on VAT Refunds

Getting a VAT refund has become simpler for suppliers registered in Romania under the MOSS scheme. In the past, taxable persons established outside the EU who supplied electronic services in Romania were required to appoint a tax representative. But on July 13th, the Fiscal Administration (ANAF) released a press release announcing that in accordance with government decision 284/2017, the tax representative requirement would be removed for non-EU suppliers registered under the MOSS scheme.

European Union: Overhaul of VAT System Discussed

Two major announcements on a modernized system of VAT have been made in the past month, as part of an ongoing discussion among European Union leaders.

First, the Estonian Presidency of the Council of the European Union stated its intention to launch negotiations on a definitive cross-border system of VAT, based on the principle of taxation in the Member State of consumption.

Secondly, Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, announced that he will present an overhaul of the VAT system in autumn of 2017. The Commissioner stressed that the current “temporary” VAT system has been in place for 20 years, and that reforming the system would promote tax fairness. The three elements of the Commissioner’s overhaul are:

  1. simplifying VAT obligations for companies;
  2. giving Member States greater flexibility in the use of reduced VAT rates; and
  3. combating cross-border VAT fraud.

These objectives are aligned with the European Commission’s VAT Action Plan, adopted in April of 2016.

VAT Trends in the European Union

The European Commission has published its 2017 report on Taxation Trends in the European Union. The Commission notes that consumption taxes grew slightly as a share of total tax revenue in 2015, and that VAT typically comprises between two-thirds and three-quarters of the implicit tax rate on consumption. This figure will likely hold steady in the near future, as Member States have achieved a measure of stability in standard VAT rates; the report notes that only two Member States (Greece and Romania) changed their standard rates in 2017, halting a trend of sharply rising rates across the EU.

European Union: Recent VAT Decisions

The Court of Justice of the European Union (CJEU) has issued recent opinions in two cases involving VAT:

  • In Case C-633/15 (London Borough of Eating), the CJEU held that the UK could not apply a condition to an exemption for services related to sporting facilities only on non-profit organizations governed by public law, without also applying the condition to other non-profit organizations.
  • In Case C-254/16 (Glencore Agriculture), the CJEU held that Hungary could not, when investigating a taxpayer’s claim for a refund of overpaid VAT, condition payment of the refund on release of the formal investigative report and refuse payment of default interest in circumstances where the investigation was excessively delayed, and where the delay was not entirely due to the taxpayer’s conduct.

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