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Following the lifting of the COVID-19 lockdown, national governments are currently trying to revive their economies. To help boost consumer spending, in particular in those most-hit by COVID-19 pandemic industries like tourism and hospitality sectors, some countries have recently decided to cut their VAT rates. Others continue to address administrative disruptions by the postponement of new measures or burdens.

EU

With a view to addressing severe disruptions created by the COVID-19 pandemic, on the 24th of June 2020 the EU Council agreed on the 6-month deferral for introducing the e-Commerce VAT package.

In light of the above, the new rules for e-Commerce in the EU will apply only from 1 July 2021.

In a nutshell, the e-Commerce VAT package will apply the principle of taxation of B2C supplies of cross-border goods and services at destination/place of consumption. The corresponding pan-EU VAT compliance obligations will be facilitated by the OSS (One-Stop-Shop) special scheme, which in essence is the extension of the currently operating MOSS (Mini-One-Stop-Shop) scheme.

Austria

Between 1 July – 31 December 202 0 the Austrian authorities https://www.bmf.gv.at/rechtsnews.html will temporarily cut VAT rate of 5% will apply on food and drinks in catering establishments, accommodation services, visits to museums, cinemas or music events, publications as well as e-books.

Belgium

Belgium has halved its VAT rate to restaurant and catering services (excluding alcoholic beverages) from 12% to 6% from the date of reopening of the hotel, restaurant and catering industry until 31 December 2020.

Germany

As of 1st of July 2020 the new standard VAT rate in Germany has been decreased from 19% to 16% and the reduced VAT rate of 7% was cut to 5%.

The reduced rates will apply only between 1 July – 31 December 2020.

https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/2020-06-25-FAQ_Corona_Umsatzsteuer.html 

Poland

The Polish Ministry of Finance has decided to further postpone the introduction of the new SAF-T file upload that will be combined with the VAT return (‘JPK_VAT’) from the previously announced go-live date of 1 July 2020 onto 1 October 2020 for all taxpayers.

UK

For a temporary period between 15 July 2020 and 12 January 2021 the UK will apply a reduced 5% VAT rate to certain supplies related to hospitality, hotel accommodation as well as admission to certain attractions. https://www.gov.uk/government/news/rishis-plan-for-jobs-will-help-britain-bounce-back

Saudi Arabia

On the other pole of governmental approach to the post-pandemic recovery Saudi Arabia has tripled its VAT rate from the previous 5% to 15% with a view to tackling the economic difficulties caused by the COVID-19 pandemic.

The ‘Transitional Provisions Guidelines’ related to the VAT rate increase published by the General Authority of Zakat & Tax can be found under the following link:

https://gazt.gov.sa/en/HelpCenter/guidelines/Documents/Transitional%20Provisions%20Guidelines%20of%20VAT%20Rate%20Increase%20to%2015.pdf

EU – New tax package and VAT-related reforms

With a view to achieving fair, efficient and sustainable taxation in the EU, on 15 July 2020 the European Commission adopted a new Tax Package. As part of the Tax Action Plan the Commission presented 25 new initiatives to be implemented by 2024 to make taxation fairer, simpler and better adapted to our digital world. Amongst others, the Commission announced the following VAT-related reforms:

  • modernising VAT rules to fit the online platform economy;
  • moving towards a single EU VAT registration system;
  • updating VAT rules on financial services;
  • improving the use of technology and information sharing between Member States to fight VAT fraud.

More information on this new tax package can be found here: https://ec.europa.eu/taxation_customs/general-information-taxation/eu-tax-policy-strategy/package-fair-and-simple-taxation_en

Hungary – changes to invoice real-time reporting as of 1 July 2020

Some of Essentia’s VAT life readers may already be aware of the existing Hungarian invoicing real-time reporting requirements. I.e. according to the existing rules, VAT-registered taxpayers in Hungary issuing invoices to other VAT-registered taxpayers in Hungary must electronically report to the Hungarian tax authorities the details of those invoices, on which the VAT amount is equal to or more than HUF 100.000 (approx. EUR 325). The reporting of the said invoices is made via a special invoicing software that automatically transmits the details of the qualifying invoices in XML format at the time of issue (real-time).

As of 1 July 2020 the HUF 100,000 threshold for the VAT element for the invoice to qualify for the real-time reporting requirement will be abolished, therefore all B2B invoices issued to Hungarian VAT-registered customers will need to be reported to the Hungarian tax authorities through the real-time invoicing software regardless of the value of the VAT included on the invoices. This means that the VAT exempt as well as the invoices falling with the domestic reverse-charge mechanism will also fall within the real-time reporting obligation.

Poland – VAT legislation to be changed in line with EU

Poland has formally amended its national VAT legislation in line with the EU quick fixes regulations only from 1 July 2020. However, before the formal adoption of those changes, at the beginning of the year the Polish Ministry of Finance announced that taxpayers had an option to either reply on the existing local VAT legislation in this matter or, alternatively, to directly apply the provisions of the EU VAT Directive in the interim period between 1 January – 30 June 2020.

Italy – quick fixes regulations

Italy has not yet fully implemented the quick fixes regulations, however the Italian tax authorities have recently published Circular 12/E (12 May 2020) to clarify the new EU proof of delivery requirements introduced by the quick fixes regime for zero-rating/exempting from VAT of intra-Community supplies of goods.

On the 1 July 2020 the deadline for the UK to apply for the extension of the transitional Brexit period passed. Since the UK did not opt to apply for the extension in question, as of 1 January 2021 the transition period with the EU will end and the UK will leave the EU Single Market. This means that controls will be placed on the movement of goods between Great Britain and the EU.

In order to recognize the impact of COVID-19 on businesses to prepare for the changes, the UK government has decided to introduce the new border controls in  three stages: from 1 January 2021, from 1 April 2021 and from 1 July 2021.

At the beginning of July 2020 the UK government published a policy paper ‘UK Border Operating Model’ outlining the new processes per each stage of their implementation. The document can be found here: https://www.gov.uk/government/publications/the-border-operating-model

UK VAT on B2C consignments of value below £135

As part of the above-mentioned paper, the UK tax authorities provided the details of the new UK VAT rules to be applicable from 1 January 2021 to online retailers selling goods to be imported into the UK with a value not exceeding £135. On such goods (excluding excise goods and gifts) UK import VAT will no longer be due at the border. In addition to that, the existing low value consignment import VAT relief will be withdrawn. Sellers will be required to register for VAT in the UK, charge UK VAT due at the point of sale and report it on their UK VAT returns. This mirrors measures pioneered by countries such as Australia and Norway.

There are two new joiners to the ever-growing list of jurisdictions demanding non-resident suppliers of digital services to consumers based in their countries to register and charge local VAT on their supplies:

Indonesia

Starting from 1 August 2020 10% VAT rate applies to B2C digital services rendered by foreign suppliers so long as:

  • Their Indonesian transactions exceed the threshold of 600m rupiah (currently circa GBP 32k , EUR 35k, USD 41k) per annum or 50m rupiah (currently circa GBP 2,6k, EUR 2,9k, USD 3,5k) per month; OR
  • Their web traffic in Indonesia exceeds 12,000 visitors per year or 1,000 per month.

Costa Rica

As of 1 August 2020 13% VAT rate must be applied on B2C digital sales made to consumers in Costa Rica by non-resident suppliers, who are included on the list of digital service providers published by General Directorate of Taxation. The list can be found here: https://www.presidencia.go.cr/comunicados/2020/06/servicios-digitales-transfronterizos-pagaran-13-de-iva-a-partir-del-01-de-agosto/ and it will be updated at least every six months in order to include new suppliers or exclude those who have voluntarily registered as taxpayers.

The Costa Rican legislator foresees two VAT collection mechanisms:

  • Direct collection of VAT 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.

As the governments’ announcements on VAT measures related to the COVID-19 epidemic outbreak continue to unfold at such great speed, here is our second summary of the recent developments. This is current as of the 30th of March.

For many countries there is uncertainty as to whether the below measures apply only to locally established businesses or have they been extended to non-resident companies. Essentia is investigating this on a country by country basis and we will publish the relevant updates shortly.

  • ITALY – Italy has not implemented any further VAT measures apart from those outlined in our previous newsletter of the 17th of March. Moreover, it is uncertain whether or not those measures that have already been announced can apply to non-resident companies.
  • SPAIN – no further announcements have been made by Spain since our previous newsletter of the 17th of March.
  • GERMANY – the German tax authorities have extended the VAT deferment period until the end of 2020.
  • AUSTRIA – in addition to a payment plan provisions outlined in our newsletter of the 17th of March, the deadline to submit the annual VAT return for 2019 period has been extended from the 30th of June 2020 to 31st of August 2020.
  • FRANCE – as it stands at the moment there are no specific VAT measures approved in France;
  • UK – according to the latest (of the 26th of March) HMRC’s guidance, both resident and non-resident businesses that are registered for UK VAT will have an option to defer their VAT payment due for the period 20 March – 30 June 2020 until the 31st of March 2021 (at the latest). Businesses paying by direct debit should cancel their direct debit orders with their banks. Note that these measures do not cover VAT MOSS payments. Please follow the link for full HMRC’s guidance: https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19
  • IRELAND – in addition to the VAT measures outlined in our newsletter of the 17th of March, Ireland suspends all VAT debt enforcement activities until further notice.
  • POLAND – in addition to the VAT measures outlined in our newsletter of the 17th of March, Poland announced that the interest normally charged on the tax arrears will be temporarily abolished. Other VAT positions within the approved ‘anti-crisis shield’ include postponing the go-live date for the combined SAF-T file with the VAT returns for large companies from the planned 1st of April onto the 1st of July 2020 and the application of the new VAT rates matrix from the planned 1st of April onto the 1st of July 2020 as well as extension of the deadline for submitting a notification of payment to a bank account of the supplier not included in the Whitelist from 3 days to 14 days.
  • SWEDEN – the measures reported in our newsletter of the 17th of March can be backdated to January 2020 period.
  • DENMARK – as part of the Danish id package, businesses that settle VAT monthly received a 30-day extension of the deadline to pay the VAT whereas business settling VAT on a quarterly basis the payment for the first two quarters of 2020 can be combined and made by the 1st September 2020. Any businesses on a bi-annual frequency can pay the VAT for both half-yearly periods in a combined payment to be made only by the 1st of March 2021. For further details, please follow the link (in English): https://skat.dk/skat.aspx?oid=16900&lang=us
  • NETHERLANDS – the Dutch tax authorities may grant a 3-month VAT payment holiday upon receiving an application from a business struggling with its cashflow due to the COVID-19 crisis. Such applications can even be made by the companies over a telephone as far as the 3-month payment extension is concerned. If a business requires some a payment extension beyond 3 months, a written motivated application is required. In addition, the authorities are reducing the interest rate for such payments from 8% to 0,01%. Moreover, some extra VAT relief on customer bad debts related to the COVID-19 crisis are going to be granted and businesses in a regular VAT refund situation may switch from the quarterly VAT return filing frequency into the monthly returns to improve their cash flow.
  • SWITZERLAND – The Swiss tax authorities are going to allow the affected businesses to defer their VAT payments with no interest charge until the end of 2020.
  • NORWAY – the deadline for payment of VAT for January-February 2020 period has been postponed from the 10th of April to the 10th of June 2020. Moreover, the tax administration will not impose enforcement fines for late submission of the VAT returns. In addition to that, VAT rate for passenger transport, accommodation, public broadcasting as well as access to cinema, sporting events, amusement parks and adventure centres will be reduced from 12% to 8% from 1 April to 31 October 2020. Link to the Norwegian tax authorities’ announcement can be found here (in English): https://www.skatteetaten.no/en/package-of-measures-in-connection-with-the-coronavirus-situation/#value-added-tax-vat
  • CYPRUS – the measures reported in our newsletter of the 17th of March may now be reconsidered by the Cypriot government.
  • JAPAN – Japan may be reconsidering the implementation of the consumption tax measures, which were outlined in our newsletter of the 17th of March.

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)

Here is a summary of some emergency VAT measures to combat the financial impact of this pandemic, current as at 17 March 2020:

ITALY

  • The Italian Ministry of Finance announced on Friday, 13 of March that all the VAT payments due by March 16, 2020 will be postponed. Now it looks like the VAT payments for small businesses (with annual turnover below EUR 2m) will be postponed until 31st of May 2020 whereas for the remaining taxpayers the payments will be deferred until the 20th of March 2020. Moreover, all VAT declarations filings are to be postponed until the 30th of June 2020, including the Annual VAT Return for 2019 period. Businesses can apply for a 5-month payment plan.

SPAIN

  • Last week the Spanish Tax Agency published on their website a statement about the extension of the deadlines in VAT procedures. The Spanish Tax Agency also published on their website some provisional instructions on applying for a VAT deferral in accordance with the Royal Decree of 12 March foreseen for SMEs and professionals (with the last year’s turnover below EUR 6m), i.e. automatic 6-month VAT payment deferral will be granted for the VAT returns with a filing deadline between 13 March – 30 May 2020 and resulting with a VAT payment of up to EUR 30k. In addition, no late payment interest will be due for the first 3 months of a delay in payment. Link to the Spanish Tax Agency’s announcement can be found here:

https://www.agenciatributaria.es/AEAT.internet/Inicio/_componentes_/_Le_interesa_conocer/Instrucciones_provisionales_para_solicitar_aplazamientos_conforme_al_Real_Decreto_ley_7_2020__de_12_de_marzo_.shtml

GERMANY

  • The German tax authorities are offering a possibility to apply for delayed VAT payments as of the 13th of March 2020.

AUSTRIA

  • Application can be made to the tax authorities to postpone payment of VAT or payment via instalments. Application can also be made for reduction/waiver of late payment interest.

FRANCE 

  • Businesses can apply for a suspension of their tax payments due in March 2020.

UK

IRELAND 

POLAND

  • On the 11th of March 2020 the Polish Ministry of Finance informed that entrepreneurs who, due to the coronavirus, will have problems paying their taxes in a timely manner can apply for a reduction/relief or waiver/remission of arrears. Further detailed support should be announced by the Ministry of Finance in due course. In addition, the go-live date for the implementation of the combined SAF-T file with the VAT returns for large companies (the details of which Essentia provided to its readers in our February 2020 VAT Life publication) will be postponed from the 1st of April 2020 onto the 1st of July 2020. Moreover, the tax authorities are also to make the VAT refunds quicker. For full details about the proposed ‘shield package for companies’ follow this link: https://www.gov.pl/web/koronawirus/pakiet-oslonowy-dla-firm-w-zwiazku-z-koronawirusem

SWEDEN

  • The government is proposing an opportunity for temporary deferral with payment of VAT which is proposed to enter into force on April 7. The deferral period may be set for a maximum of one year.

NETHERLANDS

  • The government has announced that the Dutch tax authorities will grant a deferral of payment for any VAT if a company will motivate in writing that it has run into financial issues due to the coronavirus. As soon as the tax authorities receive such a request, they will put the collection of tax on hold.

CYPRUS

  • Cypriot government announced a temporary reduction of the standard VAT rate from 19% to 17% for 2 months and bringing down the reduced rate of 9% (applicable mainly to hotel accommodation, restaurant and catering services or domestic passenger transport) to 7.5% for 3.5 months.

JAPAN

  • Japan is considering temporarily lowering its Consumption tax rate from 10% to 5% on top of delaying the filing and payment deadlines by 1 month until April 2020.

CHINA

  • The country where the first cases of the coronavirus epidemic were detected has put some extensive measures in place to overcome the crisis, e.g. expanding temporarily the scope of the VAT exemption for goods and services needed to combat the effects of the virus, exempting temporarily from VAT all small-scale VAT payers located in Hubei Province or extending monthly VAT returns filing deadline for February and March 2020 periods by 2 weeks and 1 week, respectively.

Not driven by the crisis, but nevertheless extremely timely, is a European Court of Justice case concerning remote consultations with Doctors (which may become much more popular in the coming months).

The case related to a German company X-GmbH providing medical advice to insured persons and running patient support programmes for those suffering from chronic or long-term diseases. The medical consultations were provided over a healthcare telephone line, supported by an on-line assessment which allowed the consultant to put the patients’ situation into a medical context before providing the advice. The German authorities felt that this remoteness brought the service out of the VAT exemption for medical care. However, the CJEU held that the main criterion for determining whether or not the medical services could be exempt from VAT is whether those services pursue a ‘therapeutic aim’ regardless of the place or means of providing of such services. More details of the case can be found here .

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

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

Non-resident providers of B2C digital services: Obligation to VAT Register

Regular VATLife readers will know that in almost every edition we cover new countries adopting this rule for providers of internet based digital products. The latest countries to come on board with such an obligation for foreign suppliers of B2C e-services are as follows:

  • Mexico – 16% of VAT applicable on both B2C and B2B digital services as of 1 June 2020;
  • Canadian province of British Colombia– 7% of provincial sales tax (PST) will be applicable as of 1 July 2020;
  • Algeria – reduced VAT rate of 9% applicable as of 1 January 2020;
  • Cameroon – 19.35% of VAT should apply with effect from 1 January 2020;

The additional countries that are considering to impose VAT/GST on the B2C digital services provided by foreign suppliers are:

  • Fiji – 9% of VAT (planned effective date: unknown yet);
  • Ukraine – 20% of VAT (planned effective date: January 2021) subject to reaching the annual sales threshold of UAH 1m (circa USD$40,200, EUR€36,500, GBP£30,800);
  • Chile – 19% of VAT (planned effective date: unknown yet but should be late 2020).
  • Moldova – 20% of VAT (draft effective date: April 2020);
  • Kazakhstan – 12% of VAT (draft effective date January 2021).