Welcome to the Sovos Compliance monthly summary of Value Added Tax news and insights curated and summarized by our Tax Research Team. Here is the country-by-country summary for October 2016.
Belgium: VAT on Feminine Hygiene Products
On October 5, 2016, a bill was introduced in the Belgian Chamber of Representatives which, if adopted, would zero-rate supplies of feminine hygiene products for the purposes of VAT. This proposal follows the political volatility of the Brexit referendum, in which “Leave” campaigners pointed to the so-called “tampon tax” as one indication that the UK was unfairly beholden to foreign authority.
Previously, pursuant to the 2006 VAT Directive, the UK was not able to lower the rate of VAT from 5% to 0% on feminine hygiene products without the assent of all member states. Following an agreement between the member states earlier this year, additional rate flexibility has been introduced.
Bulgaria: Bill Amending Law on Excise Duties and Tax Warehouses Submitted to Parliament
The Bulgarian Parliament is currently reviewing Tax Bill No. 602-01-57. The bill was initially submitted to Parliament on October 11, 2016, and was adopted after a first read on October 19, 2016. There are various provisions in the bill which aim to amend excise duties and tax compliance procedures. Notably, the bill would introduce an obligatory electronic filing system for all companies registered in Bulgaria.
Additionally, an annual deadline of September 30 would be imposed for companies wishing to file adjustments to tax returns. Lastly, the bill contains provisions to amend the VAT adjustment rules for capital assets.
Proposed VAT Amendments
The Parliament of the Czech Republic is currently considering a bill that would introduce a number of amendments to the Czech VAT Act (Law 235/2004 Coll.) beginning on January 1, 2017. The bill would, among other things, introduce several domestic reverse charge provisions, including a reverse charge on staffing for construction work.
An additional category of taxpayer, the “unreliable person,” would also be introduced – this would apply to any party seriously breaching obligations related to VAT management, including, but not limited to, obligations arising from the national VAT Act.
Finally, the definition of “taxable supplies” would be updated to reflect recent decisions from the European Court of Justice. The bill has gone through a first reading in the Chamber of Deputies, and has been sent to the Budget Committee for further discussion.
Electronic Records of Sale for Restaurants
Alena Schillerova, the Czech Republic’s Deputy Finance Minister for taxation and customs, has recently touted the benefits of the country’s forthcoming Electronic Records of Sale system (EET), scheduled to be implemented on December 1, 2016.
In an interview given to Bloomberg BNA on October 12, Deputy Minister Schillerova stated that EET would help increase revenue collection from the hospitality sector, currently the fourth largest “shadow economy” in the country. In particular, VAT collection from small food outlets is expected to increase. To balance these effects, the VAT rate on meals and non-alcoholic beverages will fall from 21% to 15% on December 1.
Denmark: Recent VAT Rulings
The Danish Tax Administration (SKAT) has published three recent Tax Board rulings involving VAT exemption claims. In the first ruling, the Tax Board upheld an exemption for the importation of bilingual magazines from a third country, based on the fact that more than 50% of the magazine content was written in Danish.
In the second ruling, the Tax Board upheld an exemption for the supply of medical staff and equipment to a private operator of medical clinics, pursuant to § 13, para. 1, no. 1 of the Danish VAT Act, which exempts “hospital and medical services… and other actual health care.” The Tax Board did not find it significant that the clinics were privately run.
In the third ruling, however, the Tax Board denied a similar exemption claim by a company providing urine, blood, and hair analysis, as well as analysis of dust and air samples, intended for the diagnosis and treatment of exposure to environmental toxins. The Tax Board held that the mere analysis of samples would not by itself serve a therapeutic purpose, and therefore would not fall under the “health care” exemption, even if performed by a trained doctor.
Reclaimable VAT on Petrol
On October 21, 2016, the French Parliament approved a change to the VAT treatment of petrol, which will allow companies to reclaim an increasingly large percentage of VAT over the next five years. Reclaimable VAT on petrol will ultimately reach 80% in 2021, at which point the VAT treatment of petrol will match the treatment of diesel in France.
Expedited Repayment of VAT to Farmers
On October 4, 2016, Prime Minister Manuel Valls and Agriculture Minister Stephane Le Foll unveiled an assistance plan designed to boost France’s slumping agricultural sector. As part of this plan, farmers subject to VAT under the “agricultural simplified system” will continue to have the option of submitting monthly returns rather than quarterly returns, resulting in expedited repayment of VAT and corresponding cash flow benefits. This option was originally introduced in 2015, but was scheduled to expire after one year.
Greece: Threshold for exempt sales to foreign travelers reduced
The Greek government has decided to reduce the threshold for exempt sales made in Greece to foreigners traveling abroad. On October 7, 2016, the Greek Ministry of Finance issued regulation POL 1149/2016, which reduces from 120 to 50 euros the threshold required for the VAT exemption applicable on sales to persons who intend to take the goods outside of the country. Such sales are treated as retail exports. The decision adopted by the Greek Ministry of Finance was published in government gazette no. 3231, and entered into force on October 21 of this year.
Ireland: Budget 2017
On October 11, 2016, the Ministry of Finance of Ireland announced details concerning the 2017 budget. The budget includes several provisions related to indirect taxation. Notably, the Finance Minister confirmed that the reduced 9% VAT rate applied to the tourism and hospitality industry will be retained. The Finance Minister also discussed a potential tax on sugar sweetened drinks to be introduced in April 2018, which would be known as a “sugar-tax”. Finally, duties on packs of 20 cigarettes will be increased by 50 cents (including VAT).
Italy: Bitcoin Transactions
The Italian tax administration (Agenzia Entrate) has issued Resolution No 72/E, which states that transactions made using virtual currencies, such as bitcoins and other similar electronic tender, should be given the same treatment as transactions involving bank notes or other standard currencies.
That means that businesses performing brokerage transactions involving the sale or purchase of virtual currencies should not apply VAT. The decision comes as a result of the tax administration adhering itself to the interpretation given by the CJEU to similar issues examined in the rest of the European Union.
Luxembourg: VAT Threshold for Small Enterprises
The Luxembourg government presented a draft budget to the Luxembourg Parliament on October 12, 2016. One provision concerns the VAT threshold for small enterprises. Under the proposed budget, the threshold to qualify as a small enterprise will be increased from the current €25,000 to €30,000.
As a result, the supply of goods and services made by enterprises with an annual turnover below €30,000 would be exempt from VAT, effective January 1, 2017. Such enterprises would therefore be excluded from entitlement to VAT deductions, and would not list VAT on their invoices.
Netherlands: Guidance on Reduced-Rated Products
The Dutch Tax Administration has recently issued statements on the application of the 6% reduced VAT rate to two separate types of products: “quick-wrap film” and hemp seeds. “Quick-wrap film” is deemed to be standard rated in all cases; although a 6% rate applies to wallpapering in certain homes, use of quick-wrap film would not be limited to walls, and thus should not be reduced rated. The supply of hemp seed is also standard rated, as the 6% reduced rate imposed on “agricultural and horticultural seeds” does not apply to seeds that can be bred with products listed in Schedule I or Schedule II of the Opium Act.
Fuel Tax Compliance
This past August, the Polish government enacted legislation intended to prevent the unregistered sale of fuel as part of an effort curb the evasion of VAT and excises on fuel. On October 17, 2016, the government claimed that registered sales of fuel increased by 14%, representing a significant improvement for a nation in which approximately 20% of diesel sales were estimated to be illegal.
Quarterly VAT Returns
As part of its proposed VAT amendments, to take effect on January 1, 2017, the Polish government intends to eliminate the option of filing quarterly VAT returns for all taxpayers whose total revenue exceeds €1,200,000. The measure is intended to prevent tax evasion and to provide the Polish government with a more regular stream of revenue. The increased efficiency of electronic filing is thought by authorities to lessen the administrative burden of more frequent monthly filings.
Romania: Question to ECJ on Reverse Charge Mechanism
The Romanian Curtea de Apel Bucureşti, the high court, has referred to the Court of Justice of the European Union (ECJ) a question on whether a local reverse charge mechanism applying to land transactions is applicable when the transactions have taken place prior to a party’s VAT registration.
The case, Marcu Dumitru v. Agentia Nationala de Administrare Fiscala (ANAF), Directia Generala Regionala a Finantelor Publice Bucuresti (C-392-16), inquires whether the Sixth VAT Directive (77/388) and the EU VAT Directive (2006/112) preclude legislation under which the reverse charge mechanism – although mandatory for land transactions between taxable persons – would not apply to a person who had not applied for or been granted registration before the transactions were carried out, but instead had been subject to an investigation and registered, automatically, for VAT purposes following that investigation.
Slovak Republic: Interest Payments on VAT Refunds
The Parliament of the Slovak Republic is currently debating several proposed amendments to the national tax code, which, if passed, would take effect on January 1, 2017. Included in the amendments is a proposal mandating that the government make interest payments on VAT refunds that are postponed for more than six months due to a tax inspection. The interest payments would be calculated for each extra day outside of the six-month period. The rate of the interest payment would be 1.5% or higher, though an exact rate is not specified.
Spain: Waiver of Filing the Annual VAT Return 390, Clarified
The Spanish Tax Administration has issued Order HAP/1626/2016, by which it clarifies that the only entities exempt from filing the Annual VAT return 390 are those entities under the simplified regime and those dedicated exclusively to the rental of real properties in urban areas. Those entities exempt from filing the annual return will be required to provide the additional information included in the fourth quarter periodic VAT return.
Sweden: VAT on Digital Services
In Sweden, rates of VAT collected on sales of publications differ depending on whether the content is digital or printed. Digital media is currently taxed at the standard 25% rate, whereas print media is taxable only at Sweden’s super-reduced 6% rate. However, there is rising political will, as articulated by Swedish Moderate MPs, to reduce the rate on digital services to mirror the rate levied on print publications. The debate in Sweden has arisen in anticipation of a forthcoming proposal within the European Commission which, if passed, would permit member states to lower the rate of VAT on digital media. The proposal is expected to be introduced in late November.
United Kingdom: Consultation on Penalties for VAT Fraud
HM Revenue and Customs (HMRC) has opened a consultation on possible penalties for businesses participating in VAT fraud. While noting that the vast majority of businesses will be unaffected, HMRC proclaims a need for combatting organized VAT fraud, which presents a significant drain on public revenue. HMRC suggests that the penalty be structured either as a fixed rate system or as an early payment system, and is seeking opinions on whether the penalty should apply to company officers, whether the penalty should be reduced upon a show of cooperation, and whether those participating in VAT fraud should be “named and shamed.”
COUNTRIES OUTSIDE THE EUROPEAN UNION
Norway: Proposal of New Financial Excise Tax
The Norwegian government has published its proposed 2017 fiscal budget, where it lays out a proposal of a new 5% excise tax on wage costs in the financial sector, while leaving in place the 25% corporate tax rate. If approved, the new excise tax would likely affect businesses involved in insurance, banking, mutual funds brokerage, investment holding, pension funds, and private fund management, as well as investment brokers and others. No changes would be made to the general exemption of financial services from VAT.
Switzerland: VAT Reform Approved by Parliament
Switzerland’s Parliament has approved a set of reforms to Swiss VAT law, aimed at leveling the playing field between domestic and international businesses. Currently, international suppliers are required to register for Swiss VAT only when making taxable sales into the country of CHF 100,000 or more. Moreover, an exemption exists for imported goods that are subject to less than CHF 5 in VAT. For companies importing low-value goods into Switzerland, the lack of VAT represents a competitive advantage over Swiss businesses.
To rectify this problem, the new reforms will eliminate the VAT exemption for low-value imported goods when supplied by companies with worldwide revenues of CHF 100,000 or more. Foreign businesses above the threshold will have to import the low-value goods themselves and register for VAT in Switzerland. The government expects that approximately 30,000 foreign businesses will need to register for VAT under the new scheme.
In addition to these provisions, the government will reduce the VAT rate on digital books and newspapers from 8% to 2.5%, and will relax e-invoicing standards to be more closely harmonized with EU practices. All of these changes are expected to be in place by January 1, 2018, though no specific effective date has been given.
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