The CJEU (Court of Justice of the European Union) judgement in Volkswagen AG (C-533/16) confirmed that when VAT is charged by a supplier to a customer – several years after the supply took place – Member States cannot deny a VAT refund to that customer solely based on the expiry of a time limit running from the date of the supply.
In this specific case, Slovakian companies that supplied car light moulds to Volkswagen did not charge VAT to the German automotive manufacturer, as they had incorrectly considered their supplies to be VAT exempt. Subsequently, the suppliers invoiced VAT on the supplies for a number of years, collected this VAT from VW, and paid it to the Slovakian tax authorities.
Volkswagen was not established in Slovakia, therefore, submitted an 8th Directive claim for this VAT. This claim is for traders that are not VAT registered, or established in a Member State, and are seeking to recover VAT. The Slovakian tax authorities had a five-year time limit for VAT recovery, from the date of the initial supply. Therefore, Volkswagen’s claims for VAT recovery on invoices relating to supplies, which took place more than 5 years earlier, was disallowed.
Nevertheless, the CJEU found that when a taxpayer has not been invoiced and has not paid VAT arising on a supply, VAT recovery cannot be denied. This is simply due to a time limit from the date of supply, which had expired before the refund claim was submitted.
Do note the judgment, in this case, was based on a specific pattern. Businesses which incur foreign VAT should pay close attention to the relevant time limits for submitting refund claims.
Poland: abolition of VAT Returns
In another “sign of things to come” Poland has become the first European country to announce the abolition of VAT returns. As of 1 July 2019, VAT returns will no longer be required, but will be replaced with a submission of a data file on all transactions in a standard format. The file – called JPK – is an updated version of the JPK file that Polish taxpayers must file already in addition to VAT returns.
Italy: 2019 rules for E-invoicing
The Italian 2017 Budget introduced mandatory electronic real-time invoicing for domestic transactions taking place between private businesses with effect from 1 January 2019. From this date, invoices must be issued using the Agenzia delle Entrate e-invoicing platform, Sistema di Intercambio or SdI. The use of the platform will allow the tax authorities to monitor all domestic VAT transactions in real time; hence, the old “Spesometro” periodic data file submissions become redundant and will be abolished from the same date.
Unlike in Poland, where data submissions are seen as rendering VAT returns obsolete, in Italy, the obligation to submit VAT returns will remain. This is a monthly data file submission declaration required from resident businesses only of all transactions concerning goods and services to be submitted electronically, unless these transactions are recorded via electronic invoicing.
If you would like to read further, here is a link to Agenzia delle Entrate’s guidance (in Italian).
Should you require any assistance or further information, please contact email@example.com
VAT Introduction In Bahrain
Bahrain will be introducing VAT from 1 January 2019. The VAT law, which was passed by the Bahraini parliament in October, is closely modelled on the systems in the EU and in its Gulf Co-operation Council neighbours of Saudi Arabia and the UAE. The standard rate is 5% with zero rates or exemptions for a range of supplies including medicines, education, oil and oil derivatives, financial services and international transport.
The law is available in Arabic here: http://www.legalaffairs.gov.bh/146342.aspx?cms=q8FmFJgiscJUAh5wTFxPQnjc67hw%2bcd53dCDU8XkwhyDqZn9xoYKj8m0dXr6j6QBp%2bA0lBwNtbkk%2fKrexGjWJQ%3d%3d#.W7yYTHkUm3B
We are preparing an English translation and cross-referenced index of the law. If you would like a copy when it is ready, please contact firstname.lastname@example.org
Essentia and Quipsound will be delivering a webinar on Bahraini VAT introduction in Q1 2019 (date TBC). If you would like to attend, please email email@example.com
This month, HMRC launched a pilot for its new online VAT service, Making Tax Digital. The Making Tax Digital (MTD) scheme will require digital transactional recording and filing of UK VAT returns from 1st April 2019.
From April, Making Tax Digital will mean that around 1 million businesses who are registered for VAT will need to keep their VAT records digitally and file their domestic returns using software that is compatible with MTD. However, this will only be for businesses that have a taxable turnover of £85,000 or over.
Theresa Middleton, Director for Making Tax Digital for Business, said that MTD will help businesses “manage their business income and expenses and getting their tax right builds on this momentum and will also help them get more control over their finances.” With so many businesses using digital tools, Mel Stride MP, Financial Secretary to the Treasury commented that it was “a major step towards bringing VAT into the 21st century.”
Users of UK versions of reputable accounting software packages will obtain updates from their suppliers to achieve this, but the new requirements may be an issue for businesses which do the final stages of their VAT accounting in Excel rather than within the system. In response to this problem there has been a delay until 1 October 2019 for charities, VAT groups, public sector entities, and foreign companies that are VAT registered in the UK, all of which are among the businesses most likely to either be doing bespoke VAT accounting outside their accounting package, or to be using non-UK software versions.
Essentia has developed a bridging tool that allows people who are doing their VAT accounting Excel (or in another medium that can be imported into Excel) to submit digitally from Excel and become fully MTD compliant.
The UK government guide to Making Tax Digital is here: https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat
If you would like some more details on Essentia’s bridging tool please contact firstname.lastname@example.org
Until recently, submission of the Certificate of Status document issued by non EU countries and the supporting cover letter that details any additional company information (such as registered business address) had been accepted by HMRC as sufficient proof of the legitimacy of the company requesting the VAT refund.
Over the course of the last few months, claims filed on the UK Tax Office by businesses registered in non EU member countries have been rejected on the basis that the Certificate of Status no longer meets HMRC requirements for a valid certificate which must include ALL of the following criteria:
- The name, the address and official stamp of the authorising body
- The company name and address
- The nature of the company business
- The company registration number
- Original document (not a copy)
- Valid one year from the date of issue
Quipsound have been lobbying HMRC for a review of the changes and the IVA (International VAT Association) and the CIOT (Chartered Institute of Taxation) have also met with senior HMRC leaders in October 2018 to voice their concerns about the un-notified change in requirements.
As it is no longer possible to use Certificates of Status that do not fully meet the above criteria to substantiate 13th Council Directive 86/560/EEC claims on the UK, Quipsound have been working with all bodies involved to find a workable solution. In the immediate term, the IRS have agreed to validate HMRCs form VAT66A which will now be submitted along with the usual 8802 Certificates for any VAT claims submitted to the UK Tax Authority on behalf of US registered companies.
Quipsound are continuing to work with other 13th Council Directive countries on behalf of our global clients to identify an acceptable solution for all parties.
Preparation For No Deal Brexit
As of the time of writing (5 November) the UK and EU have still not agreed the terms of Britain’s departure from the EU, scheduled for 29 March 2019. The UK has published a paper to assist businesses with the VAT aspects of a “No Deal” Brexit, should no agreement be reached. This can be accessed here:
The EU has also prepared a briefing paper on the VAT impact of Brexit for its businesses. This can be accessed here:
Essentia and Quipsound will be delivering a webinar on Brexit once the shape of the deal becomes clear. If you would like to attend, please email email@example.com
EU VIES System Update
After Brexit, the EU’s VIES system will still be available for UK users to check EU VAT registration numbers, but UK data will no longer be available although access to historical UK VAT registration status on VIES will remain available until December 2024. The UK tax authority, HMRC, has advised that it intends to develop a system that will enable UK VAT registration details to be checked and has written to software developers to seek their views on how this might best be achieved. Developers are invited to contact HMRC to arrange a discussion.