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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.

We have set out below some of the practical post-Brexit cross-border EU VAT registration implications, which we believe that the UK businesses should consider carefully and start taking the relevant actions already now with regards to their business activities carried out on the EU market post 1 January 2021.

Obligation to appoint a fiscal representative – UK established companies with existing VAT registrations in some EU Member States

EU states have the right to insist that non-EU taxpayers that are VAT registered in their jurisdiction to appoint a local entity to be jointly and severally liable for their tax debts. From 1 January 2021 UK businesses VAT registered in the EU will fall into this regime. Unfortunately, because this involves the local representative taking on board a significant risk, it usually comes at a cost. One can think of it as a type of insurance premium, except it’s the government’s risk that is being insured! Not all EU states enforce this provision, but among the key ones that do are Belgium, France, Italy, Poland, Spain and Sweden. UK companies registered or registering there will have to bear this obligation in mind and find a fiscal representative prior to this year end.

Obligation to register for VAT in EU Member States

As of 1 January 2021 the UK will no longer be part of the EU Single Market. This means not only that controls will be placed on the movement of goods between Great Britain and the EU but also that certain cross-border transactions will need to be accounted for and reported for VAT purposes in a different way, as a result of which in many cases creating an obligation for the UK sellers to register for VAT in the EU countries, into which the goods will be delivered to.

The examples of such transactions are as follows:

  1. UK companies selling goods B2B from the UK to EU customers on delivery terms, like for example Delivery Duty Paid (DDP) Incoterms, making the supplier of the goods liable for customs duties (if any) and import VAT in the EU country of the delivery of the goods to the customer.
  • Currently such B2B intra-EU deliveries of goods do not require UK businesses to register for VAT in the country of the arrival of the goods as the EU customer self-accounts for the VAT due as intra-EU acquisition VAT in its local VAT return.
  • From January 2021 such DDP supplies made from the UK will no longer be considered as intra-EU supplies and, for VAT purposes, they will be broken down into an importation of goods followed by a domestic supply made in the country of the importation of the goods. The latter transaction will make the supplier liable to register for VAT in most of the EU countries, in which the goods will be imported. Please contact Essentia should you require a review of your business’ existing flows of the goods and the terms of your supplies.
  1. UK online retailers of goods (companies selling goods B2C) from the UK to EU consumers on Delivery Duty Paid (DDP) Incoterms.
  • Currently UK businesses can charge the UK VAT up until reaching the so-called distance selling threshold of the EU country, to which goods are delivered to the customers. The distance selling thresholds are set at EUR 35,000 or EUR 100,000.
  • From January 2021 such DDP online sales of goods fulfilled from the UK will no longer be within the EU VAT distance selling regime and therefore the distance selling thresholds will no longer be applicable to such transactions. This means that the UK online retailers will be required to VAT register in every single EU Member States, to which the orders will be fulfilled, regardless of the value of such sales.
  1. UK B2C sellers of digital services to consumers in the EU
  • Currently UK companies can account for the VAT on such supplies in their UK MOSS VAT Declarations.
  • From January 2021 UK companies will either have to register for VAT in each individual EU Member State, in which the recipients of their digital services reside or, alternatively, UK companies will be able to register for MOSS VAT purposes in one EU Member State of their choice and report their pan-EU digital supplies through those EU country’s MOSS VAT Declarations.

Due to the fact that Q4 2020 will be an extremely busy time for the local tax administrations to process the enormous amount of the additionally required VAT registration applications of the UK companies (on top of their current workload), we strongly recommend that the UK businesses take an immediate action and proceed with setting up the new required EU VAT registrations now to avoid disruptions to their business activities as well as penalties & interest arising from the delays in obtaining the new VAT numbers.

If you have any queries on the above, please get in touch with either your regular Essentia or Quipsound contact, or alternatively Marta Gałązka (+44 203 713 3535; marta.galazka@essentiaglobalservices.com)

Canadian province of British Columbia

As of 1 April 2021 foreign suppliers of digital services like software to consumers residing in the Canadian province of British Columbia will be required to register and charge the British Columbia’s Provincial Sales Tax (PST) at a rate of 7% once their revenues from making those sales exceed CAD 10,000.

British Columbia becomes the third Canadian province – after Quebec and Saskatchewan – imposing provincial sales tax obligations on non-resident sellers of B2C e-services.

Ecuador

Starting from 16 September 2020, 12% of Ecuadorian VAT will need to be remitted on B2C sales of digital services made to consumers in Ecuador by the non-resident suppliers included on the Ecuadorian tax authorities list. The list of the affected digital services suppliers published on 10 September 2020 can be found here . The list will be updated from time to time to include new suppliers or exclude those who have already voluntarily registered as VAT payers in Ecuador.

The Ecuadorian legislator has foreseen the following two VAT collection mechanisms:

  • Direct collection and remittance of VAT to the Ecuadorian tax authorities by the digital service provider; or

in respect of the services rendered by those suppliers, who do not voluntarily VAT register, the VAT will be withheld by the payment card issuers.

If you have any queries on the above, please get in touch with either your regular Essentia or Quipsound contact, or alternatively Marta Gałązka (+44 203 713 3535; marta.galazka@essentiaglobalservices.com)

Ireland – standard VAT rate decrease effective from 1 September 2020 

Following the same footpath as Germany, as part of the July 2020 Jobs Stimulus Plan the Irish government has introduced a temporary reduction of the standard VAT rate in Ireland from 23% down to 21%.

The new standard VAT rate of 21% came into force on 1 September 2020 and it will be applicable only for a six-month period until 28 February 2021.

The reduction in the standard VAT rate was implemented with a view to directly supporting businesses that were negatively impacted by COVID-19 pandemic.

Poland – replacement of VAT returns with new extended SAF-T files effective from 1 October 2020

We would like to remind our readers that, as per the flash news published in our July’s VATlife magazine, as of October 2020 companies registered for VAT in Poland will no longer be submitting VAT returns. The existing VAT returns and the current format of the SAF-T files will be replaced with a new expanded type of SAF-T file (JPK_VAT). Apart from some editorial changes to the format, in which the existing information should be presenting moving forward, as part of the new expanded SAF-T file companies will be required to report certain details, which has never been reportable to the Polish tax authorities to date, either within the VAT returns or the previous type of SAT-T files, for example a document type, goods and services codes or certain procedures indicators.

Please contact Essentia should you wish us to review your existing Polish VAT reports with a view of adjusting them to the new expanded SAF-T file reporting requirements.

Portugal – catching up with ‘quick fixes’

On the 24th of August 2020 Portugal has officially implemented into its national VAT legislation the provisions of the three out of four so -called ‘2020 VAT quick fixes’ making those provisions retroactive in effect back to 1 January 2020 (which is the deadline, by which all EU Member States were meant to incorporate the quick fixes provisions into their local VAT law).

The provisions implemented now into the Portuguese VAT legislation deal with:

  1. the simplification measure for call-off stock transactions;
  2. the rules concerning determination of the intra-EU transport to be assigned within the chain transactions; and
  3. making the EU customer’s valid VAT number being a substantive condition for the application of the VAT exemption for intra-Community deliveries of goods.

Due to the fact that the fourth quick fix concerning the proof of transport to support the VAT exemption for intra-Community deliveries of good did not have to be officially transposed into the national legislation due to the fact that the provisions of the Council Implementing Regulations, which were dealing with this issue, are directly applicable in all EU Member States.

If you have any queries on the above, please get in touch with either your regular Essentia or Quipsound contact, or alternatively Marta Gałązka (+44 203 713 3535; marta.galazka@essentiaglobalservices.com)