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April 2021

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In a difficult economic climate, companies turn to managing the one thing they can control – their cost base. While companies tighten their belts, there is actually sizeable cost reduction to be made in the area of VAT recovery.

Now is not the time to be leaving money on the table.

Recoverable VAT amounts are significant, often adding up to the millions. They can be recovered quickly, helping companies reduce their cost base, improve profits and increase cash reserves.

This white paper, sponsored by Quipsound looks at some of the most effective ways companies can reclaim VAT.

Download now (link to https://www.subscribepage.com/vatreclaim )

UK – Making Tax Digital Stage 2

The 1st of April 2020 saw the coming into force of Stage 2 of the UK’s Making Tax Digital provisions. These include:

  • The enforcement of “digital link” requirements in audit trails and
  • The end of the “soft touch” environment with respect to penalties for infringements

The application of digital link requirements may be particularly troublesome for some taxpayers, especially those using manually manipulated spreadsheets as part of their VAT return preparation processes. It will be necessary to review processes to make sure they comply with the new regime. More reading on MTD Stage 2 can be found from HMRC here.

Poland – changes coming into force as of 1 April 2020

As of the 1st of April 2020 a number of changes will come into force in Polish VAT, namely:

  • Replacement of the currently separately submitted VAT returns (VAT-7 and VAT-7K) and SAF-T files with a combined extended SAF-T file upload called ‘JPK_VAT’ (i.e. JPK_7M’ for monthly filing frequency and JPK_V7K’ for the quarterly one). The new SAF-T file not only will combine the information that is currently reportable within the VAT returns and SAF-T files, but it will also include some additional pieces of information, which has never been required to date to be reported to the Polish tax authorities for VAT purposes, i.e. on the sales side it will be necessary to mark certain transactions with a specific code assigned to each category of products, services or types of documents. E.g. certain waste supplies will need to be marked with a code ‘05’, supplies of certain intangible services like consultancy, accountancy will need to be marked with a code ‘12’, distance sales made from Poland will need to be marked with a code ‘SW’, transactions subject to the split payment mechanism will need to be marked with a code ‘MPP’. Each error made on the new combined extended SAF-T file may be subject to a fine of PLN 500 (GBP 100; EUR 115; USD 125). The submission of the new combined SAF-T files from 1 April 2020 will be mandatory only for large companies (those with at least 250 employees or with an annual turnover exceeding EUR 50m). The remaining companies will be obliged to submit these new combined SAF-T files only starting from 1 July 2020.
  • New reduced VAT rates matrix – currently the goods and services falling under one of the two reduced VAT rates in Poland (5% and 8%) are identifiable by the Polish Classification of Goods and Services (PKWiU) whereas as of April 2020 the goods, to which a reduced VAT rate can apply will be listed using the Combined Nomenclature (CN) codes. Moreover, the scope of the application of the reduced VAT rates will slightly change, i.e. the aim of the Polish legislator was to simplify and make the application of reduced VAT rates more transparent and user-friendly by: i) covering as much as possible the entire product groups (CN divisions) with one rate; ii) general reduction of rates (‘downward equation’) if it was necessary to change the rate for given products. E.g. the VAT rate for tropical and citrus fruit will decrease from 8% to 5%, VAT rate for some spices like mustard or ground pepper will decrease from 23% to 8%, VAT rate for some hygiene products or products for babies and children like food, dummies, nappies, car seats will decrease from 8% to 5%. To balance out the effect of the reduced VAT rates simplification, on few selected goods the tax rate will increase (e.g. lobsters, octopus, crabs, shrimps as well as dishes which include these products will be subject to 23% standard VAT rate instead of the current 5/8% rate).
  • ‘Binding Rate Information’ (in PL ‘WIS’ – Wiążąca Informacja Stawkowa) –separately to the already existing institution of a ‘binding ruling’ (in PL ‘Indywidualna Interpretacja’) a new institution of a ‘binding rate information’ will be introduced. Currently, in order for a taxpayer to receive a binding ruling on the applicability of a reduced VAT rate to its products, the applicant of the ruling has to inform the tax authorities of the relevant Polish Classification of Goods and Services (PKWiU) code applicable to its products and the Polish tax authorities are not competent to interpret within the ruling whether or not the provided PKWiU code is correct (and the opinion issued by the Statistical Office was not binding as such). The new ‘Binding Rate Information’ will be an administrative decision, in which, on the basis of the taxpayer’s description of the supply/ingredients of the product etc., the tax authorities will confirm i) the CN (for goods), Polish Classification of the Building Objects (PKOB) or PKWiU (for services) code and ii) the relevant VAT rate applicable to the goods or services. Moreover, the ‘Binding Rate Information’ will be published by the National Tax Information in the Public Information Bulletin under the following link and it will be binding not only the person, to whom it was issued, but also other persons supplying identical goods or services:

https://www.kis.gov.pl/informacje-podatkowe-i-celne/wiazace-informacje-stawkowe-wyszukiwarka

  • Accounting for import VAT in VAT returns – taxpayers accounting for import VAT under the simplified provisions within the VAT returns will no longer be required to provide the tax authorities with the evidence of the import VAT having been accounted for in the VAT return.

Romania

With effect from 1 February 2020 the VAT split payment mechanism in Romania was abolished. It used to be applicable on a mandatory basis to insolvent or VAT indebted suppliers however, following the EU Commission’s warning that the measure was incompatible with the EU VAT Directive as it was disproportionate to the aims which it wanted to achieve, this mechanism was withdrawn by the Romanian government.

New Zealand

A wide ranging review of New Zealand GST is underway. The authorities have sought public comments on changes to the zero rating of land, the treatment of cryptocurrencies, the treatment of fund management services, new invoicing rules and treatment of second hand goods. The consultation document can be found here https://taxpolicy.ird.govt.nz/sites/default/files/2020-ip-gst-issues.pdf

As of the 1st of January 2020 a package of the so-called 4 ‘Quick Fixes’ came into force. One of the quick fixes was the Pan-EU simplification rule for call-off stock transactions. As our readers may know from reviewing our January newsletter, the application of the call-off stock simplification is conditional upon fulfilling certain requirements, one of them being to report in the recapitulative statement (EC Sales List) the VAT identification number of the intended acquirer.

Due to the fact that the existing EC Sales List forms do not allow reporting just the customer’s VAT number without entering the value, EU Member States are either amending their current forms or, alternatively, introducing some additional codes in the indicator columns/boxes for the purposes of the new call-off stock reporting obligations.

As an example, please find below the link to the UK tax authorities guidance on how to fulfil the company’s reporting obligations on the EC Sales List under the call-off stock arrangements using the three new codes that they introduced for these purposes in the indicator column: https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales#call-off-stock

Hungary: Real-Time Reporting Extended to B2C Invoices

B2B traders in Hungary have been obliged to upload real time data on transaction for the last two years. As of 1 April 2021, this is being extended to B2C transactions. Uploads are in XML format through the authorities’ specialist online invoice portal Online Szamla. Fines of up to HUF 500k (GBP 1,180/ EUR 1,380/ USD 1625) can be levied for each infringement. Essentia can assist if you need support in implementing an upload regime – please reach out to your regular Essentia contact or to william.morrison@essentiaglobalservices.com.

Further reading can be found at the official Online Szamla site Home | Online invoice (gov.hu)

Greece: Online Reporting and Electronic Books for B2B Transaction

Meanwhile, Greece is introducing electronic reporting requirements for B2B transactions on 1 July 2021. Not only do invoices need to be reported but books must be kept in the official myDATA portal in an approved format.

Further reading can be found at the official myDATA web page Τεχνικές προδιαγραφές – Εκδόσεις | ΑΑΔΕ (aade.gr)

Essentia can assist if you need support in implementing either upload regime – please reach out to your regular Essentia contact or to william.morrison@essentiaglobalservices.com.

On 1 July 2021, new VAT legislation is being introduced in the European Union (EU) affecting the VAT treatment of cross-border B2C sales.  The three main aspects of the changes are:

  • the withdrawal of the Distance Selling thresholds and introduction of the ‘One-Stop Shop’ (‘OSS’) single EU VAT return,
  • The removal of the low-value import VAT exemption and the new import one-Stop Shop (‘IOSS’), and
  • Digital marketplaces which provide a fulfilment services will become the deemed supplier for VAT purposes

The new rules will impact all businesses that sell products online to consumers (‘B2C’) in the EU, with mainly positive outcomes expected for suppliers.

Removal of ‘distance sales’ thresholds

Distance sales are sales of goods to consumers whereby the products are shipped from one EU-country to the consumer in another and for which the supplier is involved in the transport of the products.

The current EU VAT rules determine that cross-border sales of goods are subject to VAT in the EU-country of dispatch of the goods; however, once the value of sales reaches a specific turnover threshold in the country of, the business is required to register for VAT purposes in that country, undertake the local VAT compliance requirements and pay VAT in that country. The turnover threshold is €35,000 in most countries, but for instance in Germany, The Netherlands and Luxemburg it is €100,000.

Once the new rules are introduced, there will be a single turnover threshold for all distance sales to another EU country.

If the business sells no more than €10,000 of goods and telecoms, broadcast and electronically supplied (TBE’) services to all other EU countries in total, it may continue to charge and pay the VAT in the country of dispatch. If it exceeds this threshold, then VAT must be paid in each destination country.

One-Stop Shop (‘OSS’) for

EU established businesses

A (mini) one-stop shop (‘MOSS’) already exists for businesses involved in making EU supplies of B2C TBE services to customers in other EU countries, and this is now being extended to include all other goods and services.  The extension to the scheme means that businesses no longer have to VAT register in every country in which sales exceeded the relevant distance sales threshold.  They will make the new OSS filing in the country where they are established, alongside their regular domestic VAT return. The new process requires that the seller pays all the VAT due to their home VAT authority, which then forwards the VAT to the countries where the supplies are received.

Although the new OSS is not compulsory, it is clearly beneficial for the majority of businesses which are not otherwise required to be VAT registered in the EU countries where goods are received.

The main advantages of registering for the scheme are:

  • The business is only required to VAT register in its country of establishment and not in all countries to which it makes supplies,
  • There will only be four VAT returns per year for all EU supplies,
  • The total VAT amount due in all EU-countries can be made with a single payment instead of making numerous payments to tax authorities in various countries; and
  • There will no longer be a requirement to meet the differing invoice requirements across the EU.

OSS – Non-Union scheme

Businesses which are not established in the EU (such as the UK) can apply to join a broadly similar ‘Non-Union’ scheme.  One of the main differences is that the €10,000 annual turnover threshold for small business does not apply, so unfortunately an EU VAT registration will be required for any EU trading. The business will need to nominate any single EU state to register and file returns, and depending on the country’s domestic regulations, may require the business to appoint a fiscal representative.

Import One Stop Shop (“IOSS”)

Low-value import VAT exemption

Until 1 July 2021, no import VAT is payable on imports of commercial goods into the EU up to a value of €10/€22 (depending on EU country of importation). This exemption is to be removed as of 1 July 2021 at which point all commercial goods imported into the EU from a third country or third territory will be subject to VAT irrespective of their value.

‘Import One-Stop Shop’ (‘IOSS’)

The Import One-Stop Shop (IOSS) was created to facilitate and simplify the declaration and payment of VAT for distance sales of imported goods with a value not exceeding €150 (NB if the value of a consignment  exceeds €150, then then the IOSS cannot be used and normal import rules apply).

Sellers registered for the IOSS apply VAT when selling goods destined for a buyer in an EU Member State. The VAT rate is the one applicable in the EU Member State where the goods are to be delivered.

If your business is not based in the EU, you will normally need to appoint an EU-established intermediary to fulfil your VAT obligations under IOSS. Your IOSS registration is valid for all distance sales of imported goods made to buyers in the EU.

Digital marketplaces

With effect from 1 July 2020, a digital marketplace facilitating the supply of goods through the use of an electronic interface such as a marketplace, platform, portal or means similar will become the ‘deemed supplier’ in case of:

  • Goods in consignments of an intrinsic value not exceeding €150 supplied to a customer in the EU and imported in the EU, irrespective of whether the underlying supplier/seller is established in the EU or outside the EU;
  • Goods which were already released into free circulation in the EU and goods which are located in the EU and these goods are supplied to customers in the EU, irrespective of their value, when the underlying supplier/seller is not established in the EU.

The result of this ‘deemed supplier’ provision is that the taxable person facilitating the supply through an electronic interface is treated for VAT purposes as if he is the actual supplier of the goods. This implies that he will be considered for VAT purposes to have purchased the goods from the underlying supplier and sold them onwards to the customer.

Next steps

The OSS and IOSS were originally due to be introduced on 1 January 2021 but were delayed until 1 July 2021.  Although the ‘go live’ date for registering for the scheme was 1 April 2021, we are aware that some EU countries have indicated that they are not ready to implement the new rules and have still to make decisions in terms of requirement tor appointing intermediaries. For this reason, Essentia are still seeking confirmation from various EU authorities to determine what the appropriate and simplest actions will be for our clients in terms of compliance cost and convenience.  We will keep our clients and contacts updated in order that suitable steps can be taken, if appropriate, to deregister existing VAT registrations that are necessary under the current rules.