Inside Indirect Tax · National Executive Power Decree 567/2019, which reduces to zero the VAT rate applied on 14 food products (including corn oil, sunflower oil, sugar, rice, cornmeal,

About this Newsletter

Welcome to Inside Indirect Taxmdasha publication from KPMGs US Indirect Tax practice focusing on global indirect tax changes and trends from a US perspective Inside Indirect Tax is produced on a monthly basis as developments occur We look forward to hearing your feedback to help us in providing you with the most relevant information to your business

Announcement

KPMG Report on Overview of Tax Systems in the Middle East and South Asia

KPMG member firms in 14 countries in the MESA region (the Middle East and Southeast Asia) have prepared a report that focuses on the tax and regulatory regimes in those countries as well as economic and financial environments Countries in the MESA region have taken steps recently to improve the exchange of tax information between institutions regulators and governments Key to those efforts is the Organisation for Economic Cooperation and Development (OECD) initiative on base erosion and profit shifting (BEPS) Other initiatives include plans to diversify income sources with the introduction of value added tax (VAT) and excise tax in the Gulf Cooperation Council

Global Rate Changes

mdashArgentinai On August 16 2019 Argentina published in the official gazette National Executive Power Decree 5672019 which reduces to zero the VAT rate applied on 14 food products (including corn oil sunflower oil sugar rice cornmeal wheat flour eggs milk bread dried pasta yogurt tea and mate) when sold to final consumers The measure expires December 31 2019

mdashJapanii Effective October 1 2019 Japan increased the consumption tax rate from 8 percent to 10 percent However everyday essentials food and non-alcoholic beverages purchased for consumption offsite and subscriptions for printed newspapers published at least twice a week are

Inside Indirect TaxOctober 2019

copy 2019 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved NDPPS 828983

subject to a reduced 8 percent rate The government further introduced certain economic measures such as the point back system Under this system of cash-back rewards points when a consumer makes a cashless payment at a registered small and medium-sized shop 5 percent of the price is rebated and when cashless payment is made at a registered convenience store and foodservice chain the rebate is 2 percent of the price However there will be no rebates at large supermarkets This point back system is effective until the end of June 2020

mdashThailandiii The Finance Minister of Thailand recently announced that the government has agreed to retain the current VAT rate at 7 percent for another year until September 2020 due to the slowing down of the countrys economic growth The standard rate of VAT is 10 percent but has been reduced to 7 percent over the last couple of years

mdashTurkeyiv Effective October 1 2019 Turkey reduced the VAT rate for the following services from 18 percent to 8 percent legal services rendered dealing with legal remedies regarding disputes that are dealt with in family courts consumer courts and juvenile courts legal services rendered dealing with tutelage action mediation services for labor disputes and advocatory services regarding enforcement proceedings with judgments dealing with labor disputes

mdashUzbekistanv Effective October 1 2019 Uzbekistan reduced the standard VAT rate from 20 percent to 15 percent

The Americas

United States Marketplace Operator Responsible for Sales and Use Tax Collection in South Carolina

An Administrative Law Judge (ALJ) for the South Carolina Administrative Law Court ruled recently that an online marketplace that facilitated sales for third-party merchants was required to collect sales and use tax on sales to South Carolina customers Amazon Services LLC v South Carolina Deprsquot of Revenue The tax period at issue was January 1 2016 through March 31 2016 which pre-dated the Wayfair decision The marketplace was also a retailer in its own right and was registered as a retailer in South Carolina The marketplacersquos agreements with sellers generally required the merchants to be responsible for the collection reporting and payment of taxes However the marketplace would collect sales tax on behalf of professional sellers if the merchant agreed to pay for tax collection services In that case the marketplace would collect ldquothe value of the taxrdquo owed but would transmit that amount to the merchant who would then be required to remit to the relevant state Individual sellers did not have the option of paying for tax collection services The South Carolina Department of Revenue argued that

the marketplace was a ldquoretailerrdquo concerning the sales it facilitated for third-party merchants and was therefore required to collect and remit sales and use taxes on facilitated sales to South Carolina customers

The ALJ concluded that the marketplace was in the ldquobusiness of sellingrdquo tangible personal property at retail because it was a person accepting money in exchange for products The key to this finding was the fact that customers meaningfully interacted only with the marketplace and payments were processed by an affiliate of the marketplace While not a formal consignment relationship the ALJ concluded that the relationship between the marketplace and the third-party merchants essentially functioned as such for purposes of the sales tax because a customerrsquos interaction was almost entirely with the marketplace The ALJ also noted that under the marketplacersquos business model where the marketplace processed payments and provided receipts to customers it would be almost impossible for a non-professional merchant (ie individual seller) to collect tax and to give customers a receipt at the time of sale as required under South Carolina law After determining that the marketplace was in the ldquobusiness of sellingrdquo for purposes of the sales tax act the ALJ further rejected the marketplacersquos constitutional claims Throughout the analysis the ALJ relied heavily on the reasoning of the state supreme court in its Travelocity case involving a hotel intermediary Amazon has filed a notice of appeal with the South Carolina court of appeals on the matter For more information click here

Argentina Overview of Recent Indirect tax Developments

On July 18 2019 Argentinarsquos tax authority (Administracioacuten Federal de Ingresos Publicos AFIP) published in the official gazette General Resolution 45302019 which implements the VAT refund process to utility companies in the energy sector The VAT refunds apply to utility companies that received subsidies from the federal government to lower their tariffs The amount of VAT paid on expenditures that exceeds the VAT collected on sales as a consequence of those subsidies may be refunded in cash or offset against other taxes collected by the AFIP According to the resolution utility companies requesting a refund must be VAT and income-tax-registered taxpayers and must have fulfilled all the related formal obligations with the AFIP The refund must be requested from the AFIP by a written request accompanied by a special report signed by a public accountant attesting the existence and veracity of the VAT refund amount as well as demonstrating that it relates to the subsidized services The request must be submitted annually in July and must relate to the VAT generated in the previous calendar year For each request the Secretary of Energy will confirm whether the company is allowed to receive the refund and the amount of subsidies the company has received The AFIP will then verify the information reported by the company and will notify it of refund approval

On July 22 2019 the AFIP published in the official gazette General Resolution 45312019 which regulates the VAT refund process to construction companies concerning social housing programs In Argentina social housing construction works and complementary infrastructure are exempt from VAT Construction

companies engaged in these activities are allowed to offset the VAT incurred on expenditures against the VAT collected from other transactions apply the difference to pay other taxes or have it refunded in cash According to the resolution qualifying taxpayers must declare the deductible VAT in their tax returns and calculate the amount to be refunded or applied to other taxes This amount must be requested through an affidavit to be uploaded on the AFIPs website together with the details of bills approved by the Housing Secretary and a report signed by a public accountant confirming the existence reasonability and veracity of the deductible VAT The AFIP will audit the affidavit confirm the amount notify the taxpayer and credit the amount in the Tax Account System available on the AFIPs website

On September 2 2019 Argentina published in the official gazette Decree 6032019 which extends the application of the zero rate to taxpayers registered in the Simplified Tax System (Monotributo) and to VAT-registered taxpayers whose total gross receipts are below the threshold applicable for classification as a micro-enterprise The zero rate also applies to businesses whose main business activities are included in Annex II of Decree 6032019 (mainly retailing of food products) The zero rate is also extended to final consumers purchasing from the aforementioned taxpayers Each of these changes is effective September 1 2019 The resolution establishes that VAT-registered taxpayers must verify that they are qualified as micro-enterprises by verifying such on the AFIP website before requesting the VAT zero tax rate to be indicated in their registration certificate

Source Argentina ndash Refunding of input VAT to utilities companies in the energy sector ndash regulated (August 5 2019) Argentina ndash Refunding of input VAT to construction companies concerning social housing programs ndash regulated (August 7 2019) News IBFD Argentina ndash VAT zero rate ndash extended (September 10 2019) News IBFD

Chile Overview of Recent Indirect tax Developments

On July 26 2019 the tax authority of Chile (Servicio de Impuestos Internos SII) published Administrative Jurisprudence 19912019 confirming that companies operating intercommunal systems of public bicycles are considered urban mobilization companies and are thus exempt from VAT

On August 9 2019 the SII published Order No 2100 clarifying the taxation of leases for movable personal property when the lessor is a Chilean resident and the lessee is abroad In the case at hand a Chilean company leased medical equipment to a Colombian company The equipment was acquired outside Chile and delivered directly to the client in Colombia At no time were these items shipped to or imported into Chile The SII explains that movable property located in Chile and sent abroad is taxed in Chile The same applies to movable property that is located and leased abroad but later enters Chile However movable property located and leased abroad that does not enter Chile is not taxed in Chile because the benefit does not occur in Chile and the service is not considered to take place in Chile despite the lessorrsquos residency

In August 2019 Chiles Chamber of Deputies approved a tax reform package The legislation which is now under review by the Senate includes provisions to speed up the VAT recovery on the purchase of fixed assets improve the VAT recovery terms for construction businesses and apply VAT to digital services rendered to Chilean consumers by foreign businesses

Source Chile ndash Services provided by intercommunal system operators of public bicycles ndash VAT exemption clarified (August 5 2019) News IBFD Bloomberg Law News August 14 2019 Chile Tax Agency Clarifies VAT on Leases for Movable Personal Property Chile ndash Application of VAT rules to international lease of movable property ndash clarified (August 23 2019) News IBFD CCH Global VAT News amp Features Chiles Chamber Of Deputies Approves Tax Reform Law (September 4 2019)

Colombia Optional VAT Withholding Mechanism for Nonresident Digital Services Providers

On August 12 2019 the Colombian tax authority (DIAN) issued Resolution No 000049 establishing the procedures for foreign digital service providers to opt for the alternative VAT withholding system Recall effective January 1 2018 foreign-based service providers are required to register for and charge VAT on their sales made to Colombian consumers The new alternative VAT withholding system allows foreign-based service providers to opt to instead of having VAT withheld directly at source on payments for their services The withholding system is voluntary with non-Colombian providers required to apply with DIAN through the DIAN website or other means that may be made available The foreign service providers who have already register with the DIAN and are complying with their VAT obligations may also apply for the alternative VAT withholding system However taxpayers can only change once between the systems If a foreign-based service provider operates more than one business an application for each business must be submitted The withholding agents for the alternative VAT withholding system include issuers of credit and debit cards the sellers of prepaid cards and other intermediaries facilitating payment for digital or electronic services These withholding agents are required under the resolution to have the necessary systems in place to begin withholding VAT by February 1 2020 or September 1 2019 for prepaid card sellers For withholding DIAN will issue separate resolutions to list out the foreign-based services providers that have opted and been approved for VAT withholding Non-Colombian providers opting for the withholding system must continue to account for VAT and submit returns until the withholding agents begin to withhold at the source The request to apply for the alternative VAT withholding system does not relieve the foreign service providers from their historical VAT obligations (if any)

Source Orbitax Colombia Establishes Alternative VAT Withholding System for Foreign Digital or Electronic Services Providers (August 26 2019)

Europe Middle East Africa (EMA)

Austria Digital Tax Package Adopted by Lower House

On October 10 2019 the Austrian parliament approved the first part of a package of tax reforms that will introduce a five percent digital services tax as well as bring about changes to certain VAT rules The digital services tax will apply to companies with global sales of at least EUR 750 million ($824 million) and with digital advertising sales in Austria of at least EUR 25 million ($27 million) effective 2020 The other measures aim to tighten the tax rules surrounding the digital economy Effective 2020 digital platforms must assume full liability for tax disclosure obligations As a consequence platforms will be required to report all sales to the tax authority The bill will further reduce the VAT rate on sales of electronic publications from 20 percent to 10 percent in line with the VAT rate currently applied to physical publications Additionally the bill removes the VAT exemption for imports of small consignments below EUR 22 ($24) effective January 1 2021

Source Global VAT News amp Features Austrian Parliament Approves Digital Tax (September 25 2019) Bloomberg Law News October 11 2019 Austriarsquos Federal Council Approves 5 Tax on Digital Ad Revenue

Bahrain Overview of Recently Published VAT Guidance

On July 30 2019 Bahrains Nation Bureau for Revenue (NBR) published an updated version of its VAT General Guide which addresses primarily the eligibility requirement for forming or joining a VAT group According to the guide two or more persons can apply to form a VAT group provided all the following conditions are met (1) all applicants are legal persons (2) all applicants have a place of residence in Bahrain (3) all applicants conduct an economic activity (4) all applicants are registered for VAT purposes at the date of applying for registration as a VAT group (5) no applicant is a member of another VAT group in Bahrain and (6) all applicants are related Upon forming or joining a VAT group each member of the VAT group becomes jointly and severally liable for all the VAT grouprsquos VAT obligations including any VAT and penalties due during its VAT group membership That liability remains even after the member leaves the VAT group A member must leave the VAT group as soon as it ceases to meet the membership conditions A member may also leave the VAT group voluntarily A voluntary withdrawal is only permitted after at least twelve months has passed from the date of joining the VAT group

On July 31 2019 the NBR published a public clarification in which it announced that certain services provided by travel agents are zero-rated effective August 1 2019 Under the VAT Executive Regulations the sale of goods and services directly or indirectly associated with the sale of international transportation of passengers and goods is zero-rated for VAT purposes According to the NBR if a travel agent provides ticketing services that are directly related to the international transportation of passengers any commission charges service charges or administrative fees charged

by the travel agent whether to the airline shipping company or the person travelling are zero-rated for VAT purposes if the ticketing services are sourced to Bahrain If the travel agent buys and sells international transport services (either as a principal or as an undisclosed agent) the entire sale (including any profit realized by the travel agent) is either zero-rated or out of the scope of VAT depending on the sourcing rules If a travel agent acts as a disclosed agent for a passenger and books an international transportation service for that passenger the cost of the ticket (as charged by the airline) when passed on to the travel agents customer is out of the scope of VAT The guidance further sets out rules concerning invoicing inclusion of income from such services on VAT returns and rules for mixed sales It finally underscores that services concerning domestic transportation are subject to VAT

The NBR recently published a guide on the VAT treatment of the transportation sector in Bahrain According to the guide international transport is defined as the provision of transportation services of passengers or goods using a qualifying means of transport This includes the transport of passengers or goods (a) from Bahrain to a final destination outside Bahrain (b) from outside Bahrain to Bahrain as the final destination or (c) carried out in Bahrain if it is part of an international transport of goods or passengers Qualifying means of transport include any vehicle ship or aircraft which (1) is intended for the transport of at least ten persons or the transportation of goods on a commercial basis (2) requires a driver pilot or crew as the case may be and (3) is operated mainly to carry out international transport Local transportation is defined as the provision of transportation services of goods and passengers by land sea or air from a place in Bahrain to another place in Bahrain International transportation services of passengers or goods are zero-rated if the services are sourced to Bahrain provided the services are provided using a qualifying means of transport Such services will be outside the scope of Bahrain VAT if they are sourced outside Bahrain International transportation services are sourced to where the transportation begins If a transportation service has multiple legs or parts the transport will be considered as beginning where the first leg starts

On August 22 2019 the NBR published an updated version of the real estate VAT guide which clarifies the treatment of certain aspects of the sale of real estate and construction services According to the guide the following transactions do not qualify as exempt sales of real estate the provision of permission to use specific areas vending machines and shelf space the rental of short-term retail and promotional stands for a period of less than one month and the rental of jetties and mooring rights for boats and ships The guide further clarifies that while land reclamation is not considered as zero-rated construction the sale of ready-mix concrete qualifies as construction work for the application of the zero rate Finally the guide provides rules on the apportionment of certain costs related to building extensions as between the zero rate and the standard rate

Source Orbitax Bahrain Publishes Updated VAT General Guide Including VAT Group Eligibility Requirements (August 9 2019) CCH Global VAT News amp Features Bahrain Issues VAT Guide On Travel Agents Services (August 12 2019) Bahrain GCC ndash Guidance on transportation sector issued (August

27 2019) News IBFD Orbitax Bahrain Publishes VAT Transportation Guide (August 13 2019) Bahrain ndash VAT guide on real estate updated (August 27 2019) News IBFD

Belgium Point in Time When VAT is Due Clarified

On July 9 2019 the Belgian tax authority issued Circular 2019C65 clarifying the rules on VAT claims In 2013 certain requirements for an ldquoadvance invoicerdquo (ie an invoice issued in advance of the delivery of goods or the sale of services) were repealed With this change there were certain practical challenges and eventually the rules were amended As a consequence effective January 1 2016 the VAT rules were revised so that the use of an invoice once again was critical to claiming a deduction of input VAT An invoice issued before the delivery of goods or the completion of services is required for purposes of making the VAT ldquoclaimablerdquo

The Circular clarifies that for domestic deliveries of goods in general the taxable event takes place and the VAT becomes claimable at the time when the goods are delivered However the amount of VAT becomes claimable based on the invoiced amount whether the invoice is issued before or after the time when the delivery is made If the invoice is not issued or is issued late VAT will become due on the fifteenth day of the month following that in which the chargeable event occurred In the case of intra-EU sales VAT becomes claimable at the time the invoice is issued at least insofar as this invoice establishes the chargeable event and is issued for the full amount after delivery As a pragmatic tolerance the tax authority accepts that an invoice that was issued no later than seven days before the taxable event (eg at the start of shipment) is a valid document The Circular further clarifies that for imports VAT becomes claimable at the moment that the customs debt is incurred in particular when the goods are cleared through customs If the imported goods are subject to a customs procedure the VAT becomes due at the time the goods are withdrawn from the relevant procedure in Belgium

In the case of deliveries of goods or services for individuals for which no invoicing obligation applies the receipt of the payment makes the VAT claimable even if an invoice is voluntarily issued For services the main tax point remains the provision of the service The VAT becomes due when the invoice regardless of whether this invoice was issued before or after the tax point The VAT on the price or part of the price also becomes claimable when a payment is received before the service is provided Moreover the VAT becomes payable on the fifteenth day of the month following the month in which the chargeable event occurred if no invoice was issued before this date For intra-EU services VAT becomes claimable at the time the service is provided or when a price or part of the price is received before the taxable event of the service takes place Finally for transactions with public bodies VAT is in principle due and payable at the time of receipt of payment The circular thoroughly comments on the exceptions to this principle The circular further provides a useful overview of several details that have been implemented for various professions in various decisions or circulars (eg architects lawyers directors-legal entities etc) To read a report (in Dutch) prepared by the KPMG International member firm in Belgium please click here

Czech Republic Guidance on VAT Treatment of Vouchers

The General Financial Directorate of the Czech Republic (GFD) recently issued an Information Notice clarifying the application of VAT to various types of vouchers and providing several examples Recall effective January 1 2019 vouchers are divided for VAT purposes into single-purpose and multi-purpose vouchers A single-purpose voucher for which the sourcing of the goods or services to which the voucher relates and the VAT due on those goods or services are known at the time of issue of the voucher A multi-purpose voucher is any other type of voucher The Information Notice distinguishes the vouchers that are subject to new VAT regulations and discount vouchers The basic criterion is whether a voucher is associated with the right to receive goods or services If it is associated with such a right it is a voucher for the VAT Act if not it is not a voucher for the VAT Act An example of a discount voucher would be a CZK 100 ($425) voucher that can be used on a purchase exceeding CZK 500 ($2130) Such a voucher is generally considered a token of value in accordance with the Act on Accounting

If a taxpayer accepts single-purpose vouchers issued by an issuer in its name it is worth paying attention to the related legal fiction under which a sale is effected between the entity accepting the voucher and the issuer In addition in the case of complaints regarding goods or services it is necessary to monitor the flow of sales This means that when a complaint regarding goods or services is made with an entity that has not issued the single-purpose voucher in its name but only accepted it as consideration the voucher recipient must make a correction of VAT vis-agrave-vis the issuer Subsequently the issuer must make a correction vis-agrave-vis the person who has delivered the single-purpose voucher The Information Notice emphasizes that if single-purpose vouchers are not used within three years of the end of the taxable period in which the taxpayer could claim a VAT deduction the VAT deduction must be refunded except when it is proven that vouchers have been destroyed lost or stolen The fact that a voucher has not been used does not affect the voucher issuerrsquos tax liability The same applies to transfers of single-purpose vouchers within the EU and in third countries

For multi-purpose vouchers the GFD clarifies that the price for which a voucher has been bought represents the tax base However if this price cannot be determined it is the nominal value of a multi-purpose voucher In the Information Notice the GFD also pays attention to rounding differences giving several examples when payment is made through a meal voucher in the form of a multi-purpose voucher If the customer pays with a meal voucher and the seller does not return cash the difference is regarded as a tip that is not included in the tax base Rounding differences in the payment through meal vouchers are not included in the tax base To read a report prepared by the KPMG International member firm in the Czech Republic please click here

Czech Republic Update on Digital Services Tax Proposal

On September 5 2019 the Ministry of Finance of the Czech Republic presented a proposed bill to introduce a digital service tax (DST) on selected digital services The DST would apply a seven percent tax on gross receipts from advertising multilateral digital interfaces and the sale of user data

The tax would be imposed on companies included in groups with a consolidated turnover exceeding EUR 750 million ($823 million) the threshold is based on gross total turnover not just receipts generated from digital services To be subject to the DST the taxpayerrsquos gross receipts generated from digital services in the Czech Republic must exceed CZK 50 million ($213 million) In addition to the general thresholds specific thresholds would also apply based on the service type For advertising and the sale of user data a CZK 5 million ($213000) threshold applies before the DST is levied For intermediation services the DST is levied if an interface has more than 200000 user accounts

According to the bill digital services would be sourced to the Czech Republic based on the place of registration of the userrsquos computer or mobile phone IP address If a targeted ad is viewed from an IP address registered in the Czech Republic and the advertising service is subsequently invoiced to the foreign entity that has contracted the ad part of the income from this advertising will be subject to tax in the Czech Republic The specific part of the income would depend on the share of Czech entities (ie IP addresses registered in the Czech Republic) that have seen the ad Similar rules would also apply to the intermediation of businesses via multi-purpose interfaces as well as to the sale of user data A key determinant of taxability will be whether at least one entity for which a transaction was intermediated was a Czech entity or whether the data sold were generated by Czech users

The bill clarifies that the Specialized Tax Authority will be the digital tax administrator and that the taxable period for digital tax will be a calendar year Digital tax returns must be filed by the end of March of the following year The bill is now awaiting its comment procedure then it will be submitted to the government To read a report prepared by the KPMG International member firm in the Czech Republic please click here

Source Orbitax Czech Ministry of Finance Submits Draft Bill for Digital Services Tax

European Union European Commission Publishes Reports on EU VAT Gap and Mini One Stop Shop Statistics

On September 5 2019 the European Commission released a report of the EU VAT gap which is the overall difference between the expected VAT revenue and the actual amount collected The VAT gap measures the effectiveness of VAT enforcement and compliance measures in each EU Member State because it provides an estimate of revenue loss due to fraud and evasion tax avoidance bankruptcies financial insolvencies as well as miscalculations According to the report EU countries lost EUR 137 billion ($150 billion) in VAT revenues in 2017 Romania recorded the largest national VAT Gap with 36 percent of VAT revenues going missing in 2017 This was followed by Greece (34 percent) and Lithuania (25 percent) The smallest gaps were in Sweden Luxembourg and Cyprus where only 1 percent of VAT revenues on average fell by the wayside In absolute terms the highest VAT Gap of around EUR 335 billion ($3678 billion) was in Italy Individual performances across Member States still vary significantly The VAT Gap decreased in 25 Member States and increased in three Malta (-7 percentage points) Poland (-6 percentage

points) and Cyprus (-4 percentage points) showed a large decrease in their VAT losses Seven Member States namely Slovenia Italy Luxembourg Slovakia Portugal the Czech Republic and France reduced their VAT Gap by more than 2 percentage points The VAT Gap grew noticeably in Greece (26 percent) and Latvia (19 percent) and marginally in Germany (02 percent) While the VAT gap has declined over the years the European Commission emphasized that a thorough reform of the VAT system is needed to make it more fraud-proof

On September 11 2019 the European Commission published a factsheet on the statistics for the ldquoVAT mini one-stop shoprdquo (MOSS) for the period from 2015 to 2018 The VAT MOSS is the system for the collection and remittance of VAT for telecommunications broadcasting and electronic services (TBE services) provided to final consumers across the 28 EU countries It was introduced in 2015 According to the Commission the statistics show a clear positive result in terms of VAT collection for all EU countries with VAT revenues collected under MOSS growing from EUR 3 billion ($33 billion) in 2015 to more than EUR 45 billion ($53 billion) in 2018 Moreover the total number of MOSS registrants had increased from 12440 to 13968 in the same period While the revenues and registrant numbers for non-EU businesses appear to be low (EUR 450 million ($494 million) in revenues from 1033 registrants in 2018) the European Commission notes that that the major non-European TBE providers (non-EU companies which provide services to the EU consumers) are established in the EU for VAT purposes As such the VAT on their EU activities is reported under the Union scheme and not under the Non-Union Scheme These statistics are encouraging for the European Commission as the MOSS compliance mechanism will become available for all vendors of services provided to final consumers and remote sellers of goods effective January 1 2021 when the EU VAT e-commerce package is implemented (For KPMGrsquos previous discussion on the EU VAT e-commerce package please click here)

European Union High Penalties Imposed for Noncompliance with Hungarian Advertisement Tax are Compatible with EU Law

On September 12 2019 the Court of Justice of the European Union (ECJ) published the Opinion of its Advocate General (AG) in Google Ireland Limited Case C-48218) regarding whether Hungaryrsquos advertisement tax complies with EU law Hungaryrsquos advertisement tax which was first introduced in 2014 applies to taxable advertising revenue earned by companies regardless of their country of residence Taxable activities include digital advertising if the advertisement or the website on which it appears is primarily in the Hungarian language The taxpayer has thus far failed to satisfy its obligation to register for Hungarian advertisement tax purposes As a consequence the Hungarian tax authority imposed on the taxpayer an initial fine of HUF 10 million ($33000) for failure to comply with the obligation to register followed by a daily fine for failure to comply which tripled the amount of the earlier fine bringing the total amount of the fine to HUF 1 billion ($33 million) The taxpayer brought an action against the decisions of the tax authority requesting that the decisions be annulled primarily based on the amount of the fine The fine is much (as much as 2000 times) higher than for domestic undertakings which are not subject to this specific obligation to register but only a general obligation

Besides domestic undertakings are registered automatically on being entered in the Hungarian companiesrsquo register with the result that the penalty applies only to foreign persons

The AG first addressed the taxpayerrsquos claim that it was subject to the advertisement tax The AG observed that the use of the Hungarian language represents a sufficient nexus for activities that until recently would not have been feasible without establishing a taxable presence in Hungary The revenue may otherwise go entirely untaxed and alternative nexus standards such as usersrsquo internet protocol addresses have imprecisions of their own The taxpayer thus generates revenue with the lsquohelprsquo of the Hungarian population which is not taxed in Hungary If the internet had not been invented the major share of that revenue could probably have been generated only by becoming established in Hungary in which case Hungary could have simply levied income tax as appropriate

The AG further rejected the argument that the penalties imposed for a nonresidentrsquos failure to register violates the freedom to provide services under the Treaty on the Functioning of the European Union which states that any measure that treats services provided by nonresidents from another EU member state less favorably than those provided by residents is a restriction on the freedom to provide services The penalty regime applies only to nonresidents because Hungarian enterprises are considered automatically registered The penalties for failure to register are reasonable under the circumstances Under the advertisement tax law nonresident companies that fail to register within 15 days after starting to perform a taxable activity are subject to an initial fine which triples for each day the noncompliance continues up to a maximum of HUF 1 billion Although the fine may dwarf a companyrsquos actual advertisement tax liability the strict penalty regime is justified by the need to ensure compliance with the law However the AG concluded that the appeal procedure stipulated by the advertisement tax legislation is an unlawful restriction on the freedom to provide services Although restrictive measures may be justified if they serve a recognized objective of overriding importance they must not go beyond what is necessary to achieve that purpose The ECJ must now decide whether it will follow the nonbinding Opinion of its AG Hungaryrsquos advertisement tax has been amended multiple times since its introduction in 2014 and is considered by many observers as a similar tax to the digital services tax recently introduced in France and proposed in several other jurisdictions In June the General Court of the EU annulled the European Commissionrsquos 2016 decision that the original lawrsquos progressive rate structure violated the prohibition on state aid In the case at hand the taxpayer carried on activities that were subject to the tax on advertisements (For KPMGrsquos previous discussion on the General Courtrsquos decision please click here)

Source Tax Analysts Language Can Create Nexus for Hungaryrsquos Advertising Tax AG Says (September 13 2019)

European Union Draft Explanatory Notes on 2020 Quick Fixes

On September 19 2019 the VAT Expert Group of the European Union (the VEG) discussed the European Commissionrsquos draft Explanatory Notes on the

amendments in respect of call-off stock arrangements chain transactions and the zero-rating for intra-EU sales of goods under the Quick Fixes Directive and related Implementing Regulation The Directive and Regulation become effective January 1 2020 (For KPMGrsquos previous report on the Quick Fixes click here) The amendments include

mdashA mandatory check of the customerrsquos VAT identification number (an additional substantive condition for the application of the zero-rating concerning an intra-EU sales of goods)

mdashIncreased legal certainty and harmonized application of VAT rules when determining the VAT treatment of drop shipments (also referred to as chain transactions) including triangular transactions

mdashModified VAT rules for call-off stock arrangements (ie transfer of goods from one Member State to another to create a stock of goods from which their customer can use and pay for the goods when required) for uniform application in the EU allowing vendors using such arrangements not to register anymore in the Member State of arrival of the goods provided certain conditions are met and

mdashIdentification of the documentary evidence to be used to claim zero-rating for intra-EU sales of goods

The Explanatory Notes which are prepared by the European Commission aim at providing a better understanding of the EU VAT legislation While they provide much detailed information there are elements that are not included in the document The draft Explanatory Notes highlight a very strict interpretation of the requirement to have a valid VAT ID If the acquirer does not give any indication of his VAT identification number to the vendor the vendor must charge VAT Moreover if at the moment the vendor is issuing the invoice the acquirer has not provided a VAT identification number because the tax authorities are still processing the acquirerrsquos request for a number the vendor cannot apply the zero-rating since all conditions are not fulfilled The fact the vendor charges VAT on the sale because all the zero-rating conditions are not met does not affect the VAT treatment of the intra-EU acquisition made by the customer in the Member State where the shipment of the goods ends As a consequence the acquirer would have to self-assess VAT on the intra-EU acquisition even in situations where the vendor charges VAT because one of the zero-rating conditions is not met Concerning the proof of shipment the draft Explanatory Notes clarify that while maintaining proper documentation is necessary for substantiating the zero-rating of intra-EU sales of goods the vendor should be able to prove via means other than those provided in the Implementing Regulation that the goods were shipped from one Member State to another Finally concerning chain transactions the draft Explanatory Notes clearly state that the new rules also apply in situations in which the final party in a supply chain is a final consumer Moreover the draft Explanatory Notes appear to open the possibility of using the triangulation simplification in certain circumstances involving four parties

As highlighted in this report by the KPMG International member firm in Italy a business with operations in the EU should perform certain actions to prepare for the implementation of the Quick Fixes First vendors should verify

that all of their customersrsquo VAT identification numbers appear in the EU VAT Information Exchange System (VIES) Taxpayers should further review the current VAT treatment applied to chain transactions to ensure that effective January 1 2020 the correct VAT treatment is applied and that taxpayers are registered (or deregistered) for VAT purposes in the right Member States Taxpayers using a call-off stock arrangement should review whether their current arrangements meet the new EU-wide requirements assess whether they should apply for the new simplification in the Member States that did not apply the arrangement in the past and ensure that they have all processes and procedures in place to maintain the simplification Finally taxpayers should review the current procedure for collecting and retaining documentary evidence of intra-EU shipments of goods and ensure that they meet the more stringent requirements post 2020

France Proposed Amendments to VAT Law

On September 27 2019 France published the Finance Bill for 2020 which would amend the VAT provisions in the French tax code if approved Under this proposal paper (hardcopy) invoices would no longer be accepted as of 2023 and would be replaced by a mandatory e-invoicing requirement The French government plans to implement a system in which VAT returns would be pre-filled with the data gathered from the invoices exchanged between companies and the tax authority would then be in a position to compare automatically the purchase data with the sales data To read a report prepared by the KPMG International member firm in France please click here

Moreover the Finance Bill would introduce several measures to combat VAT fraud First it would require warehouses established in France to keep at the disposal of the tax authority the information necessary to identify the owners of the goods sold to define the nature provenance destination and volume of the flows of imported goods for transactions performed after December 1 2019 The Finance Bill would further create a new penalty consisting of publishing on the Internet the identity of platform operators who do not respect in a repetitive manner their obligations in tax matters This sanction would apply to platform operators who after being the subject of one of the measures provided for in the Bill would be the subject of one of these again within twelve months The publication whose duration cannot be longer than one year will be withdrawn as soon as the platform has paid the sums (taxes or penalties) that generated the publication

The Finance Bill would further implement into French law the EU Quick Fixes Package effective January 1 2020 (for KPMGrsquos previous report on the Quick Fixes click here) and the EU VAT e-commerce package effective January 1 2021 (For KPMGrsquos previous report on the EU VAT e-commerce package click here) Finally the Finance Bill would clarify the VAT treatment applicable to investment funds and introduce a mandatory import VAT postponement effective January 1 2022

France Proposed Extension of Reporting Requirements for Online Platforms

According to the French tax code operators of online platforms must submit a userrsquos activity report to the user themselves since 2016 and effective 2019 to the French tax authority (FTA) including the data on the users as provided by

the EU VAT e-commerce package Online platforms and companies regardless of where they are established will be required to send the first report to the FTA before January 31 2020 However these obligations apply only when users reside in France or make sales or services in France in application of the VAT regulation As part of its effort to reduce VAT fraud the French government published a draft decree to extend the scope of the data that platforms must communicate to the FTA

Under current regulations online platforms must include in the reports the following information its own identification elements (platform name establishment address VAT number) and the identification elements of the users either for private individuals (name id or tax number in some cases address etc) or for business (name place of establishment VAT number etc) Besides the platform should provide the amount of operations carried out by these users wherever they are established Determination of whether the user is an individual or business is the sole responsibility of the user To determine if the platform should communicate these elements to the user and the FTA the platform should determine if the user is residing in France or makes sales or services taxable in France for VAT purposes

Under the draft decree platforms would have to communicate the amount of taxable gross receipts related to their usersrsquo transactions subject to French VAT As a consequence platforms would no longer have only the obligation to transmit the data stored into the platforms databases but also to determine the applicable VAT rules In case of omission or reduction of the reported gross receipts amount a five percent penalty of the undeclared sums would apply This new obligation constitutes a first step toward the joint and several liability which will be imposed on online platforms effect of 2021 (ie related to transactions performed in 2020 through the platforms and reported by the platforms to the FTA in 2021) Under the joint and several liability the platform would be liable for the payment of VAT when a user has made repeated VAT violation but has not been targeted by platform measures although the FTA has identified this user To read a report prepared by the KPMG International member firm in France please click here

Germany Proposed Amendments to VAT Law

On July 31 2019 the government of Germany approved a draft bill concerning fiscal support for electromobility and various tax amendments If adopted by the German Bundestag and Federal Council the bill would become effective January 1 2020 in most cases The bill would implement the EU VAT Quick Fixes Package with some noticeable differences or clarifications to the EU text Concerning chain transactions the explanatory memorandum highlights that if an intermediary ldquoprovidesrdquo the vendor with its VAT identification number this requires a positive action by the intermediary at the latest upon the execution of the sale The VAT identification number used should be set down in writing in the respective contract document For a verbal contract the timely use of the VAT identification number should be documented by the intermediary Similarly it should be sufficient if the intermediary documents that it has declared to the vendor that it wants to use the VAT identification number issued to it by the Member State from which the goods are shipped for all future sales However a VAT identification number which is merely

printed on a document as a matter of form would not be considered as sufficient Moreover the Bill clarifies that if the vendor corrects an EC sales list (the submission of which is required to zero rate and intra EU sale of goods) which was originally incomplete or incorrect the corrected EC sales list should apply retroactively to the time the transaction took place The same would apply for the late submission of EC sales lists

The bill would also introduce a VAT exemption for a cost-sharing group The members must be carrying out a non-commercial activity for the common good or an activity that serves the common good that is exempt from VAT The VAT exemption would apply only to the extent these services are provided for the direct purposes of carrying out these activities and the cost sharing group merely requires the exact reimbursement of the individual share in the joint costs Besides the exemption may not lead to a distortion of competition Moreover the bill proposes to clarify that if the requirements for the VAT reimbursement process have been met and the nonresident vendor only owes VAT due to an incorrect or unwarranted tax statement the reimbursement of VAT incurred on purchases should take place only as part of a VAT refund procedure Moreover a branch from a nonresident taxpayer should only be excluded from the VAT refund procedure if the branch carries out transactions subject to VAT in Germany The Bill would further require fiscal representatives to submit quarterly preliminary VAT returns in addition to an annual VAT declaration Such representatives would also be required to include an annex to the annual VAT return with a listing of all taxpayers represented and their respective tax bases In addition fiscal representatives would be required to follow the same rules as other taxpayers for the submission of EC sales lists on behalf of taxpayers and the zero-rating for exported tourist goods would be limited to sales above VAT inclusive EUR 50 ($55)

Effective the day after the publication of the law in the official gazette the bill would repeal the special provisions related to sourcing benefits in kind Subsequent to the amendment the general regulations on determining the location of supply for benefits in kind would be applied Moreover publications in electronic formats would be subject to the reduced VAT rate of seven percent if they by their nature or function correspond to conventional books newspapers magazines or other named products listed in the VAT law Publications not benefitting from the reduced rate would be those containing primarily video content or audible music Sales that go beyond the mere transfer of electronic publications would also be excluded from the reduced VAT In addition the Bill would extend the application of the travel agent margin scheme to travel services provided to business recipients Finally effective January 1 2022 the Bill would repeal the possibility for travel agents to compute their margin base across a certain period rather than on a journey by journey basis To read a report prepared by the KPMG International member firm in Germany please click here

Poland Amendments to VAT Law Including Mandatory Split Payment Introduced Effective November 1 2019

On September 13 2019 Poland published in the official gazette a law implementing a mandatory VAT split-payment regime for selected transactions effective November 1 2019 Under the split payment mechanism the buyer

instead of paying the VAT inclusive amount to the vendor transfers the net amount to a regular bank account and separately transfers the VAT amount to a dedicated ldquoVAT accountrdquo Poland first introduced a voluntary split payment mechanism in July 2018 The new mandatory split payment mechanism will apply to invoices exceeding a VAT inclusive amount PLN 15000 ($3850) that relate to domestic sales that are currently self-assessed under the reverse charge mechanism (eg sales of steel bars mobile phones waste secondary raw materials) sales which are covered by the joint and several liability of the buyer (eg sales of fuel and steel pipes) and the provision of construction services The mandatory split payment will also apply to new categories of goods including parts and accessories for motor vehicles coal and coal products and television sets

Invoices subject to the new mandatory split payment mechanism are required to include a reference to the application of the mechanism (ie ldquomechanism podzielonej platnoscirdquo in Polish) Noncompliance with this requirement will result in a penalty of 30 percent of the invoiced VAT amount unless the buyer pays for the invoice using the split payment mechanism Another penalty of 30 percent will be imposed on the buyer who does not pay the VAT amount in compliance with the mandatory split payment mechanism However the penalty does not apply if the vendor accounts for the VAT amount resulting from the invoice Noncompliance with the new requirement may also result in criminal penalties

The law further allows buyers to pay for more than one invoice using a single payment message provided that the payment message covers all invoices received in a given period from a single vendor Due to the mandatory split payment taxpayers will be able to pay their other Polish tax liabilities using the money kept in the VAT account Moreover all taxpayers including nonresidents subject to the mandatory split payment mechanism will be required to open a Polish bank account Finally the law amends several other VAT provisions to include allowing a thirty-day refund period allowing VAT to be paid in advance into dedicated accounts and exempting applications to transfers VAT-account funds from stamp duty simplifying invoicing procedures introducing a new VAT rate matrix and lowering rates for certain necessary items including food and publication products effective April 1 2020 To read a report prepared by the KPMG International member firm in Poland please click here

The new law also introduces two reduced rates of 5 percent and 7 percent The 5 percent rate will apply to food items (mostly unprocessed) such as meat fish vegetables fruit soft drinks and electronic books and newspapers (with certain exceptions) and certain products (sanitary pads diapers) The 7 percent rate will apply to numerous products and services such as food items livestock and cultural events The Law further implements effective April 1 2020 a VAT rate ruling mechanism (called the binding rate information BRI)) which will contain the description of goods and services its classification in the Combined Nomenclature (CN) or other domestic nomenclatures used for VAT purposes as well as the applicable VAT rate The BRI will be issued at the request of a registered taxpayer or other entity engaging or planning to engage in transactions such as domestic sales intra-EU acquisitions

or imports Entities wishing to acquire goods or services as part of public procurement procedures will also be entitled to apply for the BRI An applicant will be entitled to request about a product or a service and about combined sales if the applicant considers forming a composite sale The BRI will be issued at a fee of PLN 40 ($1020) However if the issuance of the BRI requires extra costs of analyses the applicant will be required to cover these costs in addition to the fee The BRI will in general be issued within 3 months from the date of the application The tax authorities will be bound by the BRI after the date of delivery of the BRI

Source Bloomberg Law News September 5 2019 Poland President Signs Law Implementing Mandatory VAT Split Payment Regime Poland ndash Reduced VAT rates to be introduced ndash draft bill adopted by parliament (August 5 2019) News IBFD Orbitax Poland Publishes Law for Reduced VAT Rate Changes Binding VAT Rate Tool and Mandatory Split Payment System

Switzerland Swiss Supreme Court Clarifies VAT Treatment Applicable to Financial Intermediary Services

On July 17 2019 the Swiss federal supreme court published a decision on the Swiss VAT treatment of intermediation services by Swiss financial institutions BGE 2C_9432017 Under the old Swiss VAT in force until the end of 2009 a proxy (power of attorney to act for and on behalf of a client) was required for the associated services to qualify as VAT-exempt intermediation services With the introduction of the new Swiss VAT law from January 1 2010 a new practice was established by the Swiss tax authority stating that a proxy was no longer required to qualify as intermediation services even though there had been no relevant change to the wording in the law concerning this matter This change in practice but without a relevant change in the law has caused uncertainty in the market about the appropriate VAT treatment In the case at hand an unregulated Swiss company was contracted by a client to seek potential investors for the purchase of securities and to negotiate the respective contractual terms based on model agreements which had been drawn up with the client However the Swiss company was not permitted to conclude the contracts this was a matter for the client and the investor directly (ie the Swiss company had no direct proxy) The Swiss company received a volume-based commission for its services

The court confirmed that the commission income received by the Swiss company met the requirements to be considered as VAT-exempt transactions even though the Swiss entity did not explicitly act in the name and on the account of its client This confirms that a direct proxy is no longer a mandatory requirement for a service to qualify as a Swiss VAT-exempt financial intermediary service The courtrsquos decision also confirms that the new practice established by the Swiss tax authority is correct despite the lack of change to the relevant wording in the law While this case concerned an unregulated Swiss company the decision is equally relevant for all Swiss financial institutions performing brokerage transactions However the decision should not affect regulated fund distribution and discretionary wealth management Moreover the Decision could affect the Swiss VAT treatment of commissions received or paid in particular for acting as an intermediary in the following financial services transactions (1) the purchase and sale of shares bonds

currencies structured products derivatives and the like (2) the conclusion of financing transactions such as loans bonds and notes and (3) the issuance of guarantees letters of comfort pledges and the like As a consequence taxpayers involved in financial intermediary services in Switzerland should carefully review the VAT treatment applied to their transactions To read a report prepared by the KPMG International member firm in Switzerland please click here

Ukraine Overview of Indirect Tax Developments

On July 12 2019 the supreme court of Ukraine published its decision in case No 2a-0770238812 in which it held that if shipping services include international shipping services that are zero-rated and transit shipping services that are VAT exempt the VAT treatment of such services must be based on the main service rather than split between the two As transit shipping services are deemed to be part of the international shipping services the services in question should be zero-rated

On July 15 2019 the State Fiscal Service of Ukraine (SFS) published Letter No 3260699-99-15-03-02-15IPK in which it clarified that adjustments to VAT invoices can only be recorded within the statute of limitations (ie 1095 days) If an advance payment for non-sold goods is reimbursed to a customer upon the expiry of the statute of limitations the customer will be unable to record the amendments to the VAT invoice and adjust the previously recognized VAT credit The customer must self-assess the VAT liabilities in the amount of the previously recognized VAT credit

On July 19 2019 the SFS published Letter No 3352699-99-15-03-02-15IPK in which it held that no penalties are imposed on the late recording of adjustments to VAT invoices if the adjustments to the VAT invoices were recorded by mistake and no goods andor services were sold

On August 7 2019 the SFS published guidance Letter No 3678699-99-15-03-02-15IPK in which it clarified that advertising services involving the placement of a trademark for a nonresident are not considered provided in Ukraine and therefore not subject to VAT

On August 12 2019 the SFS published Letter No 3960699-99-15-03-02-15IPK in which it clarified that upon receipt of an advance payment in a foreign currency for services provided to a nonresident in the territory of Ukraine the VAT liability is calculated based on the official exchange rate of the Ukrainian hryvnia (UAH) established by the National Bank on the working day prior to the date of transfer of funds to the account of the vendor

On August 15 2019 the SFS published Letter No 3593699-99-15-03-12-15IPK in which it clarified that staff training services provided by a nonresident to a resident outside of the territory of Ukraine are not subject to VAT since the services are sourced where the services are provided However if these services are provided in the territory of Ukraine VAT at the standard VAT rate is applicable

On August 21 2019 the SFS clarified that for VAT purposes the sourcing of transportation services depends on the providerrsquos place of registration As a consequence transportation services whether provided to a resident

or nonresident are subject to VAT if provided by a resident carrier and not subject to VAT if provided by a nonresident carrier without a permanent establishment in Ukraine The SFS further explained that the zero-rating applies to the entire route of transportation for passengers and goods under a single international transportation document

On August 29 2019 draft law no 1073 providing for the obligation to use cash registers was introduced in parliament According to the draft Law taxpayers applying the simplified tax regime would be required to use cash registers for all goods and services sold to customers effective January 1 2020 or February 1 2021 depending on specific criteria Receipts of payment issued via the cash registers would be registered with the tax authority In addition customers would be able to verify whether any receipt of payment exceeding UAH 100 ($4) is registered with the tax authority via the e-cabinet of the vendor and would be allowed to file a claim against the vendor if the payment is not duly registered If the payment is not registered with the tax authority the customer would also be eligible for a reward after a tax audit of the vendor is performed

On September 11 2019 the SFS published Letter No 3908699-99-15-03-02-15ITC in which it clarified that the leasing of film and lighting equipment to a nonresident is sourced to where the lessee is established and as a consequence the transaction is not subject to VAT

On September 12 2019 the SFS published Letter No 19699-00-07-03-02-15PKI in which it clarified that transactions involving goods and services that are not imported into Ukraine or exported from Ukraine do not fall within the scope of Ukrainian VAT As a consequence VAT returns should not include such transactions

Source Ukraine ndash Supreme Court decides on VAT treatment of international transportation services (August 15 2019) News IBFD Orbitax Ukraine Clarifies VAT Treatment of Advertising Services Provided to a Nonresident (August 16 2019) Ukraine ndash Adjustments to VAT invoices upon expiry of statute of limitations ndash SFS clarifications (August 20 2019) Bloomberg Law News August 28 2019 Ukraine Tax Authority Clarifies VAT Place of Supply Rule for Transportation Services Ukraine ndash VAT implications of staff training services provided by non-resident ndash STS clarifications (September 4 2019) News IBFD Ukraine ndash Calculation of VAT liability for advance payment made in foreign currency ndash STS clarifications (September 10 2019) News IBFD Bloomberg Law News September 17 2019 Ukraine Tax Authority Clarifies VAT for Transactions Without Import Export of Goods Services Bloomberg Law News September 17 2019 Ukraine Tax Authority Clarifies VAT Treatment of Equipment Leased to Nonresidents Ukraine ndash Draft law regarding obligation to use cash registers ndash introduced in parliament (September 27 2019) News IBFD

United Arab Emirates Overview of Recently Published VAT Guidance

In VAT Public Clarification VATP013 the Federal Tax Authority of the United Arab Emirates (FTA) clarifies the VAT treatment applicable to disbursements and reimbursements The VAT law defines consideration as all that is received or expected to be received for the sale of goods or services whether in

money or other acceptable forms of payment In commercial transactions a person may incur expenses and subsequently recover such expenses from another party The VAT treatment of the subsequent recovery of expenses depends on whether the recovery is a disbursement or reimbursement The Public Clarification discusses the VAT principles for differentiating between disbursement and reimbursement and the VAT treatment that should be applied to a disbursement and reimbursement of expenses The term reimbursement refers to the recovery of expenses that you incur as a principal The term disbursement on the other hand refers to the recovery of payments made on behalf of another person While a disbursement of expenses is out of the scope of VAT reimbursement of expenses falls within the scope of VAT

In VAT Public Clarification VATP014 the FTA clarifies the VAT treatment of options and option premiums According to the Public Clarification sales of options in respect of debt securities and equity securities in return for premiums are exempt from VAT However sales of options in respect of underlying commodities or other non-debt and non-equity instruments are taxable

In VAT Public Clarification VATP015 the FTA clarifies the VAT treatment applicable to a transfer of a business Under UAE VAT the transfer of an entire or an independent part of a business from a person to a taxpayer to continue the business is not considered a sale for VAT purposes Such a transfer of business commonly known as a transfer of a business as a going concern (TOGC) The Public Clarification provides the conditions to be met for the transfer to be qualified as a TOGC First the transfer must be a transfer of an entire or an independent part a business the transferred business must be operational before and at the time of the transfer Depending on the facts the transfer may include among other things goodwill licenses premises machinery and equipment employees ongoing contracts and liabilities Second the recipient must be a taxpayer at the time of the transfer the recipient must be registered or obliged to register for VAT purposes Last the recipient intends to continue the business which is transferred this requirement is met once the recipient intends to continue carrying on the same kind of business it acquires Whether the buyer operates this business separately or as part of an ongoing business is irrelevant The clarification provides that the vendor must satisfy itself that the recipient intends to continue to carry on the same business It states that if the transfer was incorrectly treated as a TOGC VAT may be due on the sale with retrospective effect

Source Orbitax United Arab Emirates ndash UAE Issues Guidance on the VAT Treatment of Disbursements and Reimbursements and of Options and Option Premiums (August 8 2019) United Arab Emirates ndash Clarification on transfer of business ndash published (August 23 2019)

Asia Pacific (ASPAC)

Australia Overview of Recent Indirect Tax Developments

On September 4 2019 the Australian Taxation Office (ATO) issued for discussion a Draft Goods and Services Tax (GST) Ruling GSTR 2019D2 (the Draft Ruling) regarding the GST treatment of anything other than goods or real property (ie services and intangibles) connected with Australia Under Australian GST rules for a vendor to be liable for GST the sale must be connected with the indirect tax zone (ie Australia) The Draft Ruling explains that a sale of an intangible is connected with Australia if the vendor carries on an enterprise in Australia within the meaning of the GST Act and makes the sale through that enterprise The Draft Ruling further highlights that there must be a connection between the Australian GST presence and the sale A sale may be connected with an entitys enterprise carried on in more than one jurisdiction meaning that a sale can be connected with the entityrsquos Australian entity as well as the entityrsquos presence in another jurisdiction According to the Draft Ruling if an entity has an Australian GST presence and no place of business in another country all intangible sales are made through the Australian GST presence Among other criteria that may mean that an intangible is connected with Australia is if the thing being provided is done in Australia The Draft Ruling explains that the term done is not defined in the GST Act and takes its ordinary meaning Where a thing is done depends on the nature of the thing being provided Moreover the Draft Ruling explains the rules that apply for sales of services rules for subcontracted services the rules concerning the provision of advice and information intellectual property transfers digital sales and exceptions to the rules with numerous examples for each

On September 16 2019 the ATO issued guidance on GST changes for offshore providers of Australian accommodation Australia recently passed legislation requiring offshore sellers of Australian commercial accommodation to register for GST effective July 1 2019 if their sales are above the registration threshold of AUD 75000 over 12-months The new law allows such service providers to request a concessional arrangement for the first 12 months for sales made after July 1 2019 The guidance further clarifies that offshore businesses who act as an agent to facilitate sales on behalf of Australian accommodation providers are not affected by this change but may already have other GST obligations for their imported services Finally the guidance includes clarifications on the GST registration and record-keeping requirements the GST exemption for sales of specified Australian accommodations the business activity statement reporting requirements eligibility requirements for concessional treatment and the penalties for non-compliance The guidance also includes that GST-registered businesses purchasing accommodations for business purposes are eligible to claim GST credits after July 1 2019

Source Australia ndash Draft GST ruling on non-goods supplies connected with Australia ndash issued (September 4 2019) Orbitax ATO Issues Release on GST Changes for Offshore Suppliers of Australian Accommodation (September 26 2019) CCH Global VAT News amp Features Australia Explains GST Rules On Supplies Of Intangibles (September 9 2019)

India Scheme to Accelerate Dispute Resolutions under Old Indirect Tax System Introduced

On August 21 2019 the Indian Central Board of Indirect Taxes and Customs (CBIC) issued Notification No 042019 Central Excise-NT and Notification No 052019 Central Excise-NT which provide for the implementation of the Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019 which is effective September 1 2019 The scheme was included as part of the Finance (No 2) Act 2019 and is meant to expedite the liquidation of past disputes regarding Central Excise and Service Tax and to provide relief for voluntary disclosure The scheme provides for a total waiver of interest penalties and fines as well as immunity from prosecution in addition to relief from a portion of the actual liability under the following conditions For all cases pending in adjudication or appeal in any forum the scheme offers relief of 70 percent from the duty demand if it is INR 5 million ($70500) or less and 50 percent if it is more than INR 5 million For cases under investigation and audit where the duty involved is quantified and communicated to the party or admitted by him in a statement on or before June 30 2019 the scheme offers relief of 70 percent from the duty demand if it is INR 5 million or less and 50 percent if it is more than INR 5 million For cases of confirmed duty demand where there is no appeal pending the relief offered is 60 percent of the confirmed duty amount if it is INR 5 million or less and 40 percent if it is more than INR 5 million For cases of voluntary disclosure the person availing of the scheme will be required to pay the full amount of disclosed duty Taxpayers wanting to benefit of the scheme are required to make a declaration electronically at cbic-gstgovin using Form SVLDRS-1 on or before December 31 2019 The CBIC has also published an FAQ document providing additional information on the Sabka Vishwas scheme

Source India ndash Sabka Vishwas (Legacy Dispute Resolution) Scheme ndash entry into force date announced (August 26 2019) News IBFD Orbitax India ndash Implementation of Indias Sabka Vishwas (Legacy Dispute Resolution) Scheme for Central Excise and Service Tax (August 28 2019)

India Proposed Amendments to GST Law

On September 20 2019 the Indian GST Council announced recommended changes to GST tax return filing rules to increase compliance The GST Council which is composed of the finance ministers of the federal government and each of the states makes a recommendation on amendments to the GST laws imposed by the federal and state governments to ensure a harmonized implementation of the GST in India The recommended changes include a relaxation of annual filing requirements for small and medium enterprises (SMEs) for the financial years 2017-18 and 2018-19 and allowing taxpayers to claim a refund for certain periods and NIL applications Moreover the GST Council agreed to extend the deadline for filing appeals against orders of

the Appellate Authority before the GST Appellate Tribunal as the Appellate Tribunals are not yet functional The GST Council further recommends imposing restrictions on GST credits if vendors fail to disclose sufficient details and imposing reasonable restrictions on the credit issuance to risky taxpayers It further announced that an integrated refund system by a single authority was established from September 24 2019 Finally the GST Council recommends introducing a new return filing system effective April 2020 Finally the Council agreed on numerous changes to GST rates effective October 1 2019 including for precious stones public transportation vehicles and caffeinated drinks among numerous other things

Source Bloomberg Law News September 25 2019 India GST Council Announces Recommended Changes to GST Filing Requirements CCH Global VAT News amp Features Indian GST Council Approves Changes To Filing Rules Rates (September 25 2019)

Malaysia Amendments to Services Tax

On August 30 2019 Malaysia published the Service Tax (Amendment) Regulations 2019 (the regulations) providing certain amendments to the Service Tax Regulations 2018 (the principal regulations) effective September 1 2019 The amendments define courier service and a formula to determine the value of taxable services where the payment for taxable services is made through a machine or a device operated by coins The amendments further require the addition of the following information on invoices issued by a registered person for the provision of any taxable service to a customer exempted from payment of service tax name and address of the customer the customers service tax registration number and the customers total amount of service tax that is exempt Moreover the amendments clarify that if a company in Malaysia purchases certain professional services (eg legal accounting valuation architecture consulting information technology and management services) from a related company outside of Malaysia such services are not be considered imported taxable services The amendments further modify the list of taxable services provided in the First Schedule of the principal regulations and introduce new compliance forms to replace the previous Form SST-01 Form SST-02 and Form SST-02A of the principal regulations

The Royal Malaysian Customs Department recently published the Service Tax (Digital Services) Regulations 2019 which set out the procedures regarding registration serving notices submitting returns for digital services providers effective October 1 2019 The Regulations further clarify the general penalty for offences which includes a fine up to MYR 30000 andor up to two years imprisonment Additionally the Regulations prescribe the invoice payments and refunds rules that are effective October 1 2020

In general any foreign service provider that provides digital services to Malaysian consumers in excess of MYR 500000 annually is required to register and furnish a return for each taxable period as required under the Service Tax Act This includes that a return is due no later than the last day of the month following the end of the taxable period to which the return relates For this purpose the taxable period for a foreign registered person is a period

of three months ending on the last day of any month of any calendar year although another taxable period may be applied for

On September 1 2019 the Royal Malaysian Customs Department (RMCD) issued Service Tax Policy No 12019 to provide clarification on certain types of services The policy clarifies that effective September 1 2019 the following services are no longer prescribed as taxable services under the first schedule of the service tax regulations 2018 logistics management services tourism management services amusement park services and cleaning services operated via a coin-operated laundry machine The policy further clarifies that such services are exempt from service tax from January 1 2019 until August 31 2019 Service providers are required to issue the invoice without the service tax if the service has been provided but the invoice has yet to be issued If the invoice for the service has been issued but the payment has not been made by the customer the service providers must issue a credit note The policy notice further clarifies that any service tax collected from customers for such services on or after January 1 2019 must be remitted to RMCD and that no service tax refund is allowed for any person who has paid service tax for these services

Source Malaysia ndash Service Tax (Amendment) Regulations 2019 gazetted (September 5 2019) News IBFD Malaysia ndash Service tax policy No12019 ndash issued (September 10 2019) News IBFD Orbitax Malaysia Publishes Service Tax (Digital Services) Regulations 2019 (October 25 2019)

Singapore Guidance on New 2020 Imported Services Rules Updated

On August 22 2019 the Inland Revenue Authority (IRAS) published an updated e-Tax Guide on the new rules for self-assessment on imported services effective January 1 2020 (For KPMGrsquos previous discussion on the new self-assessment requirement click here) The guide covers the new self-assessment rules under the reverse charge mechanism for business-to-business (B2B) imported services including the related registration and compliance rules It also covers the amendments to the zero-rating provisions and transitional rules for transactions spanning the implementation date GST-registered businesses are subject to the reverse charge mechanism if they procure services from overseas vendors and the business is not entitled to full GST credit or the business belongs to a GST group that is not entitled to full GST credit Non-registered businesses are subject to the reverse charge mechanism if they procure services from overseas vendors the imported services exceed SGD 1 million ($728000) in 12 months and if the business was registered for GST it would not be entitled to a full GST credit Services excluded from the scope of reverse charge include services that fall within the description of exempt sales services that would qualify for zero-rating had the services been made by a taxpayer belonging in Singapore services that are directly attributable to taxable sales and services provided by the government of a jurisdiction outside Singapore Besides to the e-Tax Guide the IRAS also published Frequently Asked Questions document on reverse charge and updated its e-Tax Guide on the completion of the GST return

On August 26 2019 the IRAS published an updated e-Tax Guide on the new GST registration requirements for nonresident vendors selling digital services to final consumers in Singapore effective January 1 2020 (For KPMGrsquos previous discussion on the registration requirement click here) The guide covers the overseas vendor registration (OVR) regime for digital services in the context of business-to-consumer (B2C) transactions Overseas vendors and electronic marketplace operators making significant sales of digital services to local consumers to collect GST on their B2C sales of digital services and remit to IRAS Under the OVR regime any vendor outside Singapore that has global gross receipts exceeding SGD 1 million and makes B2C sales of digital services to customers in Singapore exceeding SGD 100000 ($73000) is required to register charge and account for GST Under certain conditions a local or overseas operator of electronic marketplaces may also be regarded as the vendor of the services made by the underlying vendor using these marketplaces In such cases the operators are required to register charge and account for GST on these sales instead of the vendors To determine if their customers belong in Singapore the overseas vendors and marketplace operators may use certain proxies such as the customers IP address and credit card information Unless otherwise approved by the IRAS registered overseas vendors must duly apply GST to their sales of digital services only if their customer is not GST-registered As such unless the customer provides his GST registration number the Overseas Vendor must charge and account for GST on the sales made

Overseas vendors should not charge GST on sales of digital services made to GST-registered customers that have provided their GST registration numbers Instead where applicable the GST-registered customers will self-assess GST under the reverse charge mechanism as explained above If GST is wrongly charged b to GST-registered customers the customers should contact the vendors to obtain a refund instead of making a GST credit claim on the purchase Overseas vendors and marketplace operators will be registered under a pay-only regime with simplified registration and reporting requirements Under this regime the rules relating to tax-invoicing and GST-inclusive price display requirements will also not be imposed The current penalty regime that applies to local taxpayers will similarly apply to overseas vendors and marketplace operators For sales of digital services that span January 1 2020 there are transitional rules that ascertain whether and to what extent the digital services are subject to tax and when the tax has to be accounted

Source Orbitax Singapore Publishes Guidance and FAQs on GST Reverse Charge for Imported Services (August 27 2019) Orbitax Singapore Publishes Guidance on Overseas Vendor Registration Regime for GST on Imported Services (August 29 2019)

Trade amp Customs (TampC)

Saudi Arabia New Bonded Zones and Bonded Warehouses Regulations Published

The Saudi Arabian General Authority of Customs (Saudi Customs) recently published a new regulation for the establishment and operation of bonded zones and bonded warehouses in the Kingdom According to the regulation goods placed in bonded zones or bonded warehouses are suspended from duties and restrictions until re-exportation or release into the local market The regulation permits light manufacturing activities in the bonded zones or bonded warehouses on condition that the harmonized system of nomenclature (HSN) codes of the materials that are processed remain the same as initially declared when the goods entered the bonded zone Light manufacturing activities are defined as disassembling assembling washing embossing testing design turnery mixing and any other minor manufacturing activities The regulation further clarifies that the owner of the goods or its representative may carry out mixing a combination of products adding or manufacturing activities for the liquid deposited goods Moreover foreign companies are allowed to deposit goods in bonded zones and re-export them after registration in the customs system under the supervision and responsibility of the operating company of the bonded zone The regulation permits depositing restricted goods such as chemicals and hazardous materials into the bonded zones or bonded warehouses without pre-import requirements such as certificates from government entities or laboratory procedures that are normally required for such goods

Goods may be transferred without charging duties at the point of departure when transferred between (1) customs bonded zonesbonded warehouses in the Gulf Cooperation Council (GCC) states (ie Bahrain Kuwait Oman Qatar Saudi Arabia and the United Arab Emirates) and other countries (2) a bonded zonebonded warehouse and another bonded zonebonded warehouse inside the Kingdom and (3) customers within the same bonded zone The regulation further provides that the owner of the goods or its representative may import export or re-export the goods placed in the bonded zone It may also take samples of the goods for marketing purposes Ownership of goods placed in the bonded zonebonded warehouse may be transferred by the original owner of the goods to others by obtaining approval of the customs department and registering the goods in the name of the new owner The local companies may ship their national goods to the bonded zonesbonded warehouses without specifying a final destination outside the Kingdom or generating an export manifest required in inbound procedures National goods upon re-importation to the Kingdom can be exempt from customs duties subject to the conditions stipulated in the GCC Common Customs Law Goods can be stored in the bonded zones and bonded warehouses for three years subject to renewal upon approval of the Saudi Customs

Source Saudi Arabia ndash Bonded zones and bonded warehouses ndash new customs regulation issued (September 3 2019)

In Brief

mdash Angolavi Effective October 1 2019 Angola implemented a new VAT system replacing the countryrsquos existing consumption tax The VAT will be phased in starting with businesses registered with the tax authoritys large taxpayers office VAT will be mandatory for large taxpayers only from the start date of the regime until 2021 with other taxpayers permitted to register for the tax voluntarily during this transition period From 2021 VAT will be mandatory for all taxpayers The standard VAT rate is 14 percent small businesses with annual gross receipts up to $250000 will charge a reduced rate of three percent during a transition period Certain sales of goods and services are exempt from VAT including some basic foodstuffs petroleum products financial transactions hospital equipment the transport of patients and sales of goods used in response to natural disasters (For KPMGrsquos previous discussion on Angolarsquos new VAT regime click here)

mdash Anguillavii According to news reports the government of Anguilla is planning to introduce a goods and services tax in multiple phases On September 19 2019 Anguilla published the Interim Goods Tax Act in the official gazette The Act imposes a four percent Interim Goods Tax (IGT) on all goods imported into Anguilla Moreover Anguilla reduced customs duty rates and increased customs service charges In the second phase an interim tax on services would be levied on hotel accommodation electricity communications and wholesalers effective January 1 2021 Under the third phase the IGT and the services tax would be amalgamated into the new GST which would be levied from January 1 2023 and apply to a wider range of services

mdash Australiaviii On July 4 2019 the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 was introduced before the Australian parliament The Bill aims at combating illegal phoenixing which occurs when the controllers of a company strip the companys assets and transfer them to another company to avoid paying its debts including taxes creditors and employee entitlements Illegal phoenixing activity costs the Australian economy between AUD 285 billion ($19 billion) and AUD 513 billion ($35 billion) a year The Bill would introduce new phoenix offenses and civil penalty provisions carrying the highest penalties available under the law The Bill would further allow the ATO to collect estimates of anticipated GST liabilities and make company directors personally liable for their companys GST liabilities in certain circumstances

mdash Australiaix On August 20 2019 the ATO opened consultation on a draft determination to waive the tax invoice requirement for corporate cardholders to claim GST credits during a specific tax period The draft determination includes the requirements to qualify for and claim the benefit the calculation of GST payable or estimated GST amounts using the signed statement method and the reimbursement of expenses to employees

mdash Bangladesh The KPMG International member firm in Bangladesh has prepared a report on the new VAT regime that became effective July 1 2019

mdash Bulgariax On September 2 2019 the Ministry of Finance of Bulgaria presented a draft bill proposing different amendments to the VAT Act effective January 1 2020 The proposal would implement the EU VAT Quick Fixes which (1) provide for a simplified and uniform treatment for call-off stock arrangements (2) require the identification number of the customer as well as the proper fulfilment of a VAT recapitulative statement to become an additional condition for the zero-rating of intra-EU sales of goods (3) establish uniform criteria in determining the VAT treatment of chain transactions and (4) introduce a common framework for the documentary evidence required to claim a VAT exemption for intra-EU sales of goods Moreover the proposal would regard as taxable sales of tangible property the transfer of shares or interests equivalent to shares giving the holder de jure or de facto rights of ownership or possession over immovable property or parts thereof The proposal would extend the definition of new buildings to cases where a permit is granted for existing buildings or parts thereof for a significant reconstruction improvement or enlargement The proposal would further clarify the sourcing rules for the sale of goods intended for the continental shelf or exclusive economic zone of Bulgaria and exclude from the scope of VAT activities performed under agreements similar to employment agreements in terms of agreed working conditions remuneration and responsibilities of the employer

mdash Chinaxi On September 13 2019 the Chinese State Administration of Taxation (SAT) published Frequently Asked Questions on the additional VAT deductions regime which allows an additional 10 percent deduction for certain industries between April 1 2019 and December 31 2021 (For KPMGrsquos previous discussion on the additional VAT deduction for certain industries click here) In the document the SAT addresses the implementation period scope and calculation formula for the VAT plus deduction policy the calculation methods for accumulated sales the application of accrued deductions the carry-forward rules for 2019 deductions in 2020 and 2021 and compliance issues

mdash Colombiaxii On August 6 2019 the Ministry of Finance of Colombia issued Decree 1422 of 2019 regulating article 855(5) of the Tax Code (TC) regarding automatic income tax and VAT refunds Decree 1422 outlines the general requirements with which taxpayers must comply to request the automatic income tax or VAT refund as well as the deadline that the National Tax Authority (Direccioacuten de Impuestos y Aduanas Nacionales DIAN) must observe for issuing the official act that authorizes the refunds

mdash Croatiaxiii On July 26 2019 the Croatian government proposed amendments to the countryrsquos tax laws including a one percent reduction in the standard rate of value-added tax to 24 percent and an extension of the scope of the 13 percent reduced VAT rate to include the preparation and serving of food in the hospitality industry

mdash Cyprus On July 17 2019 the tax authority of Cyprus released Circular 237 by the Tax Authorities concerning the VAT treatment of services that are usually provided by retirement homes To read a report prepared by the KPMG International member firm in Cyprus please click here

mdash Czech Republicxiv On August 26 2019 the Czech Ministry of Finance announced that it intends to digitalize many tax procedures According to the Ministry an amendment will be made to the tax code to enshrine in the countrys tax law the administration of the tax system via the MY TAX portal The amendment would also improve taxpayersrsquo ability to reclaim excess VAT credits as well as simplify tax compliance procedures reduce tax penalties and interest and promote electronic communication with the tax office

mdash Denmarkxv On August 8 2019 the Danish Ministry of Taxation presented a draft bill proposing amendments to the Danish VAT Act effective January 1 2020 The proposal would implement the EU VAT Quick Fixes which (1) provide for a simplified and uniform treatment for call-off stock arrangements (2) require the identification number of the customer to become an additional condition for the zero-rating of intra-EU sales of goods (3) establish uniform criteria in determining the VAT treatment of chain transactions and (4) introduce a common framework for the documentary evidence required to claim a VAT exemption for intra-EU sales of goods Moreover the bill would introduce a measure to prevent the abuse of the special regime for travel agencies by amending the Danish VAT Act such that the VAT base corresponds more to the actual value of the costs of passenger transport

mdash Denmarkxvi On August 15 2019 the Danish Customs and Tax Administration published a ruling by the National Danish Tax Tribunal Decision No SKM2019400LSR upholding a National Danish Tax Board decision disallowing the deduction of import VAT for certain taxpayers In the case at hand the taxpayer imported raw metal goods from a customer for the purpose of processing after which the goods were re-exported The National Danish Tax Tribunal found that the company did not meet the conditions for deducting VAT according to the Danish VAT Act as the company could not be regarded as the owner of the goods The National Danish Tax Tribunal held that the taxpayer was not the owner of the goods because the company was obligated to return the goods to the same customer after processing The taxpayer was thus unable to dispose of the goods as the owner for example by selling the goods or keeping them

mdash Ecuadorxvii On August 12 2019 the Internal Revenue Service (SRI) published Administrative Resolution No NAC-DGERCGC19-00000036 in the official gazette The Resolution regulates the 50 percent VAT refund granted under the Law to Promote the Production Attraction of Investment Generation of Employment and Stability and Fiscal Balance to companies engaged in cinematographic and audio-visual production activities According to the resolution companies are entitled to a VAT refund in connection with purchases and imports of goods and services necessary for the development and production of audio-visual material musical videos movies soap operas TV series and Internet-based videos performed in Ecuador To obtain a VAT refund companies must obtain a pre-validation certificate issued by the SRI and submit a request once the goods and services are effectively paid The VAT refund request must (1) be submitted to the SRI offices using the official forms and (2) be submitted at the end of

the project if the duration of such a project is up to 9 months If longer the request must be submitted at the end of each stage of the project and (3) must contain supportive documentation

mdash European Unionxviii On October 1 2019 the European Commission launched the EU Customs Trader Portal providing a single point of access to a variety of EU customs systems The system is used for the electronic submission of applications for Binding Tariff Information (BTI) and applications for Authorized Economic Operator status (AEO) Concerning the AEO application the portal currently enables the submission of the application and the decision-making process Effective December 15 2019 all other subsequent processes will be added

mdash Francexix On August 8 2019 the FTA published a ruling clarifying the treatment for VAT purposes of public offerings of cryptocurrencies such as initial coin offerings (ICOs) and initial token sales (ITSs) According to the FTA if the tokens are used by their beneficiaries to obtain an individualized good or service from the issuing company the sale falls under the scope of VAT If the tokens only allow the purchaser the right to potentially benefit from the sale of services or the sale of goods the initial offering is not subject to VAT because there is no direct link with any sale of goods or services Finally if the tokens allow the purchaser the right to participate in the decisions of the issuing company and dividend distributions the transaction is not subject to VAT as the purchaser is subject to the tax treatment applicable to income from shares

mdash Francexx On October 16 2019 the French tax authority published draft guidelines regarding the digital services tax (DST) (For KPMGrsquos previous discussion on the French DST click here) With regard to taxpayers subject to the DST the guidelines clarify the reporting and accounting obligations recovery control and litigation and the tax consolidation system within a group of companies However the guidance on the scope and liquidation of the tax is still being drafted Interested parties may submit comments on the draft guidelines until November 29 2019 by e-mail to bureaud2-dlfdgfipfinancesgouvfr Only signed comments will be considered

mdash Georgiaxxi Georgias Ministry of Finance recently proposed amendments that are intended to align Georgias VAT law with EU VAT law provisions According to the Ministry the Government hopes that by adopting European best practices it will reduce the compliance burden on Georgian entrepreneurs doing business in the EU and vice versa The Government is also seeking to simplify the process for EU businesses to obtain a VAT refund as an encouragement for investment Georgia has also said that it will adopt the judgments of the ECJ in VAT matters and its sourcing rules

mdash Germanyxxii On October 10 2019 the European Commission sent a letter of formal notice to Germany because it had imposed an obligation on digital marketplaces to produce a paper certificate provided by the German tax authorities to businesses selling goods via platforms of online marketplaces Recall Germany recently subjected online marketplaces to joint and several liability for the VAT payable on goods sold via their online platforms by third

parties provided that the shipping of the goods begins or ends in Germany The German tax authority provided an option to marketplaces to avoid such liability provided they were in possession of the paper certificate issued by the German authority The Commission believes that such a measure violates EU law is inefficient disproportionate impedes the free access of EU businesses to the market and is not in line with the digital strategy agreed between Member States Germany has two months to take action if not the Commission may send a reasoned opinion to the German authorities

mdash Greecexxiii On August 2 2019 the Greek tax authority published Circular E2152 providing clarifications on the VAT treatment of the transfer of immovable property by general partners in a partnership According to the circular the mere participation of general partners (individuals) in the partnership does not as such qualify them as taxpayers for VAT purposes However if a tax audit determines that the transfer of the immovable property by general partners constitutes independent economic activity carried out on a regular (systematic) basis the partners become taxpayers for VAT purposes

mdash Indonesiaxxiv On September 3 2019 the government announced the proposed tax reform plan which includes changes to the VAT law The proposal would reduce certain compliance penalties such as those for late payment and late issuance of a tax invoice It would also simplify claiming the VAT credit Moreover nonresident digital companies would be required to collect and remit VAT on sales made in Indonesia The proposal would further amend the definition of a permanent establishment so that digital companies may be deemed to have a permanent establishment in Indonesia without any physical presence

mdash Ireland The KPMG International member firm in Ireland has prepared a report on the potential impacts Brexit would have on businesses

mdash Italyxxv On October 10 2019 the Italian Finance Minister announced that Italyrsquos digital services tax (DST) will take effect January 1 2020 The three percent DST applies to companies with annual global revenues of at least EUR 750 million ($831 million) and Italian revenues of at least EUR 55 million (61 million) that offer online advertising provide intermediary platforms and transmit user data from digital interface activities Although the tax was approved by the Italian Parliament in December 2018 it did not come into effect because the government did not issue the required implementing regulations (For KPMGrsquos previous discussion on the Italian DST click here)

mdashKazakhstanxxvi Kazakhstans State Revenue Committee recently proposed the introduction of a new article in the Tax Code that would require foreign digital service providers to collect and remit VAT on sales made to final consumers in Kazakhstan effective January 1 2020 A consumer would be deemed to be in Kazakhstan if the individual resides in Kazakhstan the bank through which payment is made is in Kazakhstan the IP address of the individual is registered in Kazakhstan or the country code of the phone number of the phone used to purchase the service is in Kazakhstan Moreover the government is planning to implement a new e-invoicing pilot project

mdash Kenyaxxvii According to local media reports the Kenya Revenue Authority (KRA) will focus compliance activities on developers of mobile applications who fail to pay VAT on sales and income tax on profits According to the KRA both resident and non-resident app providers who satisfy VAT registration thresholds should remit VAT at 16 percent on their sales to Kenyan consumers and appoint a VAT representative where necessary

mdash Kenyaxxviii On August 23 2019 the KRA opened a consultation on a draft regulation to implement VAT invoicing with electronic tax registers The draft regulations require taxpayers who are registered for VAT to use electronic tax registers to record sales and transmit sales data to the KRA The draft regulations set out the information that registers must record on tax invoices as well as other vendor obligations such as ensuring that registers run approved software are properly maintained and are protected from tampering and manipulation In the draft regulations an electronic tax register is defined as any invoicing or receipting system that allows secure data validation encryption signatures storage and transmission

mdash Koreaxxix South Koreas Government has announced that it will provide tax relief to small and medium-size businesses (ie those whose gross receipts are less than KRW 150 billion ($126 million)) that have been affected by Japans decision to remove 159 South Korea products from its export white listrdquo Affected companies can apply for an extension to filing and payment deadlines and the NTS has indicated that it will adopt a light-touch approach to penalizing those companies that fail to pay on time VAT refunds will be accelerated for companies and it will seek to respond quickly to appeals against tax assessments by affected companies within a month rather than two as currently Further the Government has said it may stall ongoing investigations into affected companies and not open new investigations

mdash Lithuaniaxxx On August 1 2019 Lithuania published Ruling No 788 which proposes to implement the EU VAT Quick Fixes The measure will (1) provide for a simplified and uniform treatment for call-off stock arrangements (2) require the identification number of the customer as well as the proper fulfilment of a VAT recapitulative statement to become an additional condition for the zero-rating of intra-EU sales of goods (3) establish uniform criteria in determining the VAT treatment of chain transactions and (4) introduce a common framework for the documentary evidence required to claim a VAT exemption for intra-EU sales of goods The amendments would be effective January 1 2020

mdash Malawixxxi On September 9 2019 the Minister of Finance presented the Budget for 2019-20 which if approved would amend the VAT law The Budget would remove VAT from solar panels solar batteries solar accumulators solar inverters solar chargers solar lamps solar bulbs and energy-efficient bulbs liquefied petroleum gas and gas cylinders wood stoves and bars of laundry soap In addition VAT would apply to some oils excluding oils which are considered basic and nutritional commodities

mdash Malaysiaxxxii On August 5 2019 the Royal Malaysian Customs Department published an updated service tax guide on employment services The new guide clarifies the definition of secondment of employees and that taxable

employment services exclude the secondment of employees The guide further includes additional examples in the list of taxable employment services provided by a person in Malaysia including situations in which individual job seekers are using an employment agency or in which an employer requires an employment agency to recruit and interview a potential employee and the provision of employment services from Malaysia to special areas or designated areas or vice versa The guide further includes additional examples in the list of non-taxable employment services provided by a person in Malaysia including the provision of employment services within special areas or designated areas and between special areas and designated areas Finally the guide clarifies that in a situation where a service provider charges a fee for its services based on the workers salary rate such fee charged will not be treated as emolument and may be subject to service tax

mdash Moldovaxxxiii On September 6 2019 Moldova published Law No 115 in the official gazette Among other things the new law amends the VAT treatment of capital investments Currently partners in public-private partnership projects that carry out capital investments in certain projects approved by the government are entitled to a VAT refund related to these capital investments In addition goods and services imported by partners within the framework of public-private partnership projects are exempt from VAT Under the amendments both VAT refunds related to these capital investments and VAT exemption are canceled The amendments are effective September 1 2019 However for projects concluded between January 1 2018 and August 31 2019 the tax incentives above will continue until the expiry of the projects

mdash Paraguayxxxiv On September 25 2019 Paraguay published Law 638019 in the official gazette The law imposes VAT on digital services operations with financial derivatives and obligations to abstain Digital services are deemed to be used or enjoyed in Paraguay when any of the following items are located in its territory the IP address or the SIM card code of the device used by the recipient of the services the customers invoice address the bank account used for paying the relevant services the customers invoice address registered by the bank or the financial institution issuing the credit card used for paying the services When the payment of digital services is made through financial entities that are resident in Paraguay such entities are required to withhold the VAT (at a general rate of 10 percent) from the price of the digital services Moreover exporters of raw agricultural goods will no longer be able to recover acquisition VAT credit associated with such raw materials All other exports will keep the benefit of VAT credit reimbursement The Law further limits VAT refunds to taxpayers that perform export freights and issue international shipping receipts Finally the rental of real estate will be subject to a reduced VAT rate of 5 percent if the real estate is allocated to housings In any other case the standard VAT rate of 10 percent will continue to apply

mdash Polandxxxv On July 31 2019 Poland published the consolidated text of the Retail Sales Tax (RST) in the official gazette Recall the ECJ recently held that Polandrsquos RST is in line with EU law and Poland therefore

will reintroduce the tax effective January 1 2020 The provisions of the consolidated text are largely unchanged from the original Retail Sales Tax Act as published in 2016 The same rates are also maintained and include 08 percent on monthly revenue exceeding PLN 17 million ($43 million) up to 170 million ($434 million) and 14 percent on monthly revenue exceeding PLN 170 million The tax base includes revenue received from retail sales exclusive of VAT but including advances installments prepayments etc less amounts paid due to the return of goods Exemptions apply for sales of certain nutritional foodstuffs medicines medical devices electricity water natural gas solid fuels and other fuels for heating

mdash Polandxxxvi According to news reports Poland has suspended plans to implement a digital services tax

mdash Portugal On August 28 2019 the Portuguese tax authority published two binding information Nos 15943 and 15948 regarding the obligation to issue invoices using certified invoicing software The tax authority clarified that the obligation to issue invoices via certified software is applicable only to nonresident entities registered for VAT purposes in Portugal effective January 1 2021 As a consequence nonresident entities merely registered for VAT purposes in Portugal and without a fiscal representative in Portugal are not required to issue invoices using a certified invoicing software

mdash Spain Effective October 1 2019 the Spanish Tax Authority introduced new stricter checks in the Immediate Information Supply (Suministro Inmediato de Informacioacuten SII) system which is the real-time reporting VAT system that applies to large companies Under the new requirements the VAT rates and the VAT amounts will be validated and the transactions will not be accepted if the reported VAT amount has a significant deviation from the calculated VAT amount based on the applied VAT rate To determine what is significant the Tax Authority will use the following formulae If the taxable base is at or below EUR 1000 ($1100) the booked VAT amount can only differ from the calculated VAT amount by +-1 percent of the taxable base (in any case a maximum +-EUR 10 difference is allowed) If the taxable base is higher than EUR 1000 the booked VAT amount can only differ from the calculated VAT amount by +- EUR 10 ($11) Moreover the import of goods transactions with invoice type F5 will be accepted only in SII if the invoice number follows the format of the DUA numbers (ie import resolution)

mdash Taiwanxxxvii On August 22 2018 the Taiwanese Ministry of Finance clarified that online businesses must list prices inclusive of the 5 percent VAT rate and other business taxes Moreover taxpayers must issue invoices showing the price of a good or service and the VAT amount Businesses failing to comply with the requirement are subject to penalties between NT$1500 ($49) and NT$15000 ($490)

mdashUnited Arab Emirates Effective January 1 2020 the UAE will expand the scope of the excise tax to include liquids used in electronic smoking devices and tools (100 percent tax rate) electronic smoking devices and tools (100 percent tax rate) and sweetened drinks (50 percent tax rate) in addition to the products already subject to this tax (ie tobacco and tobacco products carbonated drinks and energy drinks) To read a report prepared by the KPMG International member firm in the UAE please click here

mdash United Kingdomxxxviii The UK tax authority (HMRC) recently added to its Brexit VAT guidance instructions for taxpayers on the completion of the European Community sales list (ESL) in the event the UK leaves the EU with no deal The guidance explains that businesses will not need to submit ESLs for periods starting immediately after the UK leaves the EU However businesses will need to send a completed ESL for the periods that start prior to Brexit if they are registered for VAT in the UK and they sell goods or services to EU VAT-registered customers The guidance states that businesses should include only details of sales made to EU VAT-registered customers before Brexit Businesses that complete a simplified annual ESL will be contacted separately Businesses will still be able to submit or correct ESLs for VAT periods starting before a no-deal Brexit Taxpayers can do this online or by downloading and posting forms VAT101 VAT101A and VAT101B to HMRC

mdash United Kingdomxxxix On September 6 2019 HMRC published Revenue and Customs Brief 10 (2019) in which it postponed from October 1 2019 to October 1 2020 implementation of the requirement for the purchaser to self-assess VAT under the reverse charge on sales of construction services Under the proposal a VAT-registered business that sells certain construction services to another VAT-registered business for onward sale will be not be required to account for VAT but must issue an invoice stating that the service is subject to the domestic reverse charge The recipient of the sale must account for the VAT due on the sale through its VAT return instead of paying VAT to the service provider The recipient may also recover that self-assessed VAT amount through his VAT return Unlike other types of reverse charge the value of such reverse charge for construction and building services will not count toward the VAT registration threshold

mdash Uzbekistanxl On September 2 2019 the Ministry of Finance of Uzbekistan published a consultation on Proposal No 7232 which if adopted would grant a one-time VAT offset for businesses when acquiring fixed assets including real estate Currently the VAT on fixed assets is set off in equal parts within 12 consecutive months and for real estate within 36 months In addition the Proposal would open VAT refunds to all taxpayers and not just exporters

mdash Zambiaxli On September 27 2019 the Minister of Finance of Zambia put forth the Budget for 2020 in which he announced that Zambia would not repeal the VAT and thus not introduce a sales tax The Budget proposes to zero rate the following items capital equipment and machinery for the mining sector copper cathodes and liquefied petroleum gas (LPG) Moreover the Budget would limit the VAT recovery of mining and mineral processing companies on diesel from 90 percent to 70 percent and electricity will be limited from 100 percent to 80 percent Moreover the VAT recovery on consumables such as stationery lubricants and spare parts for all entities except where these products are stock in trade

mdash Zimbabwexlii On August 21 2019 Zimbabwe published in the official Finance Bill (No 2) 2019 amending VAT law effective August 1 2019 The bill zero rates the sale of fruits vegetables and unmanufactured tobacco (currently exempt) Tobacco not sold on the auction floors is exempt from

VAT with the specific categories of qualifying tobacco to be specified by the government The bill further reduces the interest on the delayed VAT refunds accrual period from 60 to 30 days from the date the refund claim is submitted Moreover the bill extends the tax point for VAT purposes to the earlier of the invoicing date the receipt of the consideration the removal of the goods from the vendorrsquos location when the recipient takes possession of immovable property or when the service is performed Finally the bill requires businesses to pay VAT at the standard rate of 15 percent on purchases of services from nonresidents VAT paid on such services is not claimable as VAT credit To read a report prepared by the KPMG International member firm in Zimbabwe please click here

Footnotesi Argentina ndash Zero VAT rate for listed food products ndash introduced (August 19 2019) News IBFDii Japan ndash Consumption tax rate increase ndash effective (October 1 2019) News IBFDiii Thailand ndash VAT rate to be retained for another year (September 11 2019) News IBFDiv Turkey ndash VAT rate for certain legal services reduced (October 2 2019) News IBFDv Bloomberg Law News October 1 2019 Uzbekistan Gazettes Decree Amending VAT Corporate Income Tax Ratesvi CCH Global VAT News amp Features Angola Replaces Sales Tax With VAT (October 8 2019)vii CCH Global VAT News amp Features Anguilla Confirms Plans For New Goods And Services Tax (August 5 2019)viii Global VAT News amp Features Australia May Make Directors Liable For Unpaid GST In Folded Companies (August 15 2019)ix Bloomberg Law News August 29 2019 Australia Tax Agency Seeks Comments on Waiver of GST Invoices for Input Tax

Creditsx Bulgaria European Union ndash Proposal for amendment of Value Added Tax Act ndash public consultation launched (September 4 2019) News IBFD

xi Bloomberg Law News September 17 2019 China Tax Agency Posts FAQs on Additional VAT Deductions Regimexii Colombia ndash Automatic income tax and VAT refunds ndash decree issued (August 16 2019) News IBFDxiii Global VAT News amp Features Croatia Announces New Income Tax VAT Breaks (August 5 2019)xiv Global VAT News amp Features Czech Republic Sets Out Electronic Tax Administration Plans (August 28 2019)xv Bloomberg Law News August 14 2019 Denmark Tax Ministry Seeks Comments on Draft Bill to Amend VAT Lawxvi Bloomberg Law News August 29 2019 Denmark Tax Agency Explains Import VAT Deductions for Re-Export of Goodsxvii Ecuador ndash VAT refund for cinematographic and television production industries ndash resolution published (August 16 2019)

News IBFDxviii European Union ndash European Commission launches EU Customs Trader Portal ndash AEO applications to be made electronically

(October 2 2019) News IBFDxix France ndash VAT treatment of ICOs and ITSs ndash ruling published (August 13 2019) News IBFDxx France ndash Digital services tax ndash guidelines published (17 Oct 2019) News IBFD (accessed 26 Oct 2019)xxi CCH Global VAT News amp Features Georgia To Harmonize VAT Law With EU VAT Directive (August 8 2019)xxii European Union Germany ndash European Commission sends a letter of informal notice to Germany for imposing disproportional

obligations to online marketplaces and online sellers (October 10 2019) News IBFDxxiii Greece ndash VAT treatment of transfer of immovable property by general partners in partnership (August 29 2019)xxiv Indonesia ndash Tax reform plan ndash announced (September 10 2019) News IBFD

About Inside Indirect TaxInside Indirect Tax is a monthly publication from KPMGrsquos US Indirect Tax practice Geared toward tax professionals at US companies with global locations each issue will contain updates on indirect tax changes and trends that are relevant to your business

xxv Tax Analysts Italy Austria Push Ahead With Unilateral Digital Taxes (October 11 2019)xxvi Orbitax Kazakhstan Planning to Introduce VAT Obligations for Foreign Digital Service Providers CCH Global VAT

News amp Features Kazakhstan Confirms Plans For VAT E-Invoicing Pilot (August 27 2019)xxvii CCH Global VAT News amp Features Kenya Seeks VAT Income Tax From App Sales (August 19 2019)xxviii Bloomberg Law News August 30 2019 Kenya Tax Agency Seeks Comments on Draft Regulation to Implement

Electronic VAT Invoicingxxix CCH Global VAT News amp Features Korea To Ease Tax Rules For Exporters To Japan (August 8 2019)xxx Bloomberg Law News August 6 2019 Lithuania Gazettes Ruling Amending VAT Law Implementing EU Directive

on VAT Between Member Statesxxxi Malawi ndash Budget for 2019-2020 ndash indirect taxation (October 7 2019) News IBFDxxxii Malaysia ndash Revised service tax guide on employment services issued (August 8 2019) News IBFDxxxiii Moldova ndash New tax amendments gazetted (September 11 2019) News IBFDxxxiv Paraguay ndash Tax reform bill approved by Congress (September 13 2019) News IBFD Paraguay ndash Tax reform law

enacted ndash value added tax (October 1 2019) News IBFDxxxv Orbitax Poland Reintroduces Retail Sales Tax from January 2020 (August 8 2019) xxxvi Bloomberg Law News September 9 2019 Poland Suspends Plans For Digital Service Taxxxxvii Bloomberg Law News August 28 2019 Taiwan MOF Clarifies VAT Transparency for Online Sales of Goods

Servicesxxxviii CCH Global VAT News amp Features UK Explains How To Complete EC Sales List In Event Of Brexit (September

9 2019)xxxix CCH Global VAT News amp Features UK Delays Construction Services Reverse Charge For One Year (September

13 2019)xl Uzbekistan ndash New Tax Code ndash consultation launched (September 27 2019) News IBFDxli Zambia ndash Budget for 2020 presented to National Assembly (October 8 2019) News IBFDxlii Zimbabwe ndash Finance Bill (No 2) 2019 ndash approved by parliament (August 14 2019) News IBFD

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The following information is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 1037(a)(2) of Treasury Department Circular 230

The information contained herein is of a general nature and based on authorities that are subject to change Applicability of the information to specific situations should be determined through consultation with your tax adviser

The KPMG name and logo are registered trademarks or trademarks of KPMG International

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subject to a reduced 8 percent rate The government further introduced certain economic measures such as the point back system Under this system of cash-back rewards points when a consumer makes a cashless payment at a registered small and medium-sized shop 5 percent of the price is rebated and when cashless payment is made at a registered convenience store and foodservice chain the rebate is 2 percent of the price However there will be no rebates at large supermarkets This point back system is effective until the end of June 2020

mdashThailandiii The Finance Minister of Thailand recently announced that the government has agreed to retain the current VAT rate at 7 percent for another year until September 2020 due to the slowing down of the countrys economic growth The standard rate of VAT is 10 percent but has been reduced to 7 percent over the last couple of years

mdashTurkeyiv Effective October 1 2019 Turkey reduced the VAT rate for the following services from 18 percent to 8 percent legal services rendered dealing with legal remedies regarding disputes that are dealt with in family courts consumer courts and juvenile courts legal services rendered dealing with tutelage action mediation services for labor disputes and advocatory services regarding enforcement proceedings with judgments dealing with labor disputes

mdashUzbekistanv Effective October 1 2019 Uzbekistan reduced the standard VAT rate from 20 percent to 15 percent

The Americas

United States Marketplace Operator Responsible for Sales and Use Tax Collection in South Carolina

An Administrative Law Judge (ALJ) for the South Carolina Administrative Law Court ruled recently that an online marketplace that facilitated sales for third-party merchants was required to collect sales and use tax on sales to South Carolina customers Amazon Services LLC v South Carolina Deprsquot of Revenue The tax period at issue was January 1 2016 through March 31 2016 which pre-dated the Wayfair decision The marketplace was also a retailer in its own right and was registered as a retailer in South Carolina The marketplacersquos agreements with sellers generally required the merchants to be responsible for the collection reporting and payment of taxes However the marketplace would collect sales tax on behalf of professional sellers if the merchant agreed to pay for tax collection services In that case the marketplace would collect ldquothe value of the taxrdquo owed but would transmit that amount to the merchant who would then be required to remit to the relevant state Individual sellers did not have the option of paying for tax collection services The South Carolina Department of Revenue argued that

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Documents

Inside Indirect Tax · National Executive Power Decree 567/2019, which reduces to zero the VAT rate applied on 14 food products (including corn oil, sunflower oil, sugar, rice, cornmeal,