International Indirect Tax Update - March 2016

© 2016 Grant Thornton UK LLP. All rights reserved.

International Indirect Tax Update 9 March 2016


Agenda

1. EU case law and policy update

Henry Cairns-Terry

Senior Manager

[email protected]

2. Union Customs Code update

Ben Price

Manager [email protected]

3. New regimes, rates and rules

Alex Baulf

Associate Director [email protected]

mailto:[email protected]






EU case law and policy


European Court

Opinion of AG Bot in Senatex (Case C-518/14)

• Case concerned question of whether correction of an invoice

could have retrospective effect, or deduction had to be delayed

until the date of the correction

• German courts had followed Terra Baubedarf-Handel (C-

152/02), where taxpayer was not allowed to exercise its right of

deduction until it was in possession of an invoice

• AG said the company had a VAT invoice, albeit incorrect, and so

recommends the court to say the correction can be retrospective

• Underlying principle:

• Right of deduction arises when the supply is made

• Right can be exercised when you have the right document


European Court

Opinion of AG Kokott in Barlis 06 (Case 516/14)

• Case concerned description of services on an invoice

• 'Legal services' would be sufficient description

• Unless the services were taxable at different rates

• For a one-off supply of services, the invoice should specify the

date of delivery/performance

• For continuous supplies, the invoice should specify both the start

and the finish date of the supply

• So that tax authorities can audit effectively

• Otherwise, deduction by recipient may be denied


EU policy

VAT Cross Border Rulings

• Facility to obtain advance rulings on the VAT treatment of

complex cross-border transactions

• Pilot project set up by the EU VAT Forum in 2013

• Now scheduled to continue until 30 September 2018

• Member states participating:

Belgium, Denmark, Cyprus, Estonia, Finland, France, Hungary, Italy,

Ireland, Latvia, Lithuania, Malta, Netherlands, Portugal, Slovenia,

Spain, Sweden, United Kingdom

• Not participating

Bulgaria, Croatia, Czech Republic, Germany, Greece, Luxembourg,

Poland, Romania, Slovakia, Slovenia


EU policy

VAT Cross Border Rulings – procedure

• Taxpayers planning complex cross border transactions with

participating states may apply for a ruling

• Submit request via member state where registered, with translation into

a language acceptable the other state, but all accept English!

• Request must state facts, taxpayer's own view – and doubts – about the

correct treatment, but no guarantee the states concerned will reach

agreement

• Two or more companies involved: one represents the rest

• Rulings are published here:

https://circabc.europa.eu/sd/a/47f6f34e-2812-4542-9ead-

9608d1b681fd/Cross%20Border%20Rulings%20(January%202016).pdf

https://circabc.europa.eu/sd/a/47f6f34e-2812-4542-9ead-9608d1b681fd/Cross Border Rulings (January 2016).pdf










EU policy

2013 / 1 Place of supply of goods and services and

correct accounting process following business

restructure

2014 / 2 Providing "in house" training

2014 / 3 Organizing a symposium to present new

products to clients

2014 / 4 Renovation of buildings in another Member

State

2014 / 5 Supply of SIM cards for mobile phones

2014 / 6 Separate sales of machinery and tyres

assembled to the machinery

2014 / 7 Trading in precious metals spots and

deliverable forwards using unallocated accounts

2014 / 8 Assigning pitch space to various race tracks,

supply of VIP passes and personalization services at

international events

2014 / 9 Goods sold and transported from one Member

State to another and installed or assembled by the

supplier

2014 / 10 Supply chain, intra-Community sales,

possibility to divide an intra-Community supply into a

transfer followed by a local supply

2014 / 11 Transformation of crude oil

2015 / 12 Organisation of in-service teacher training

courses in other Member States

2015 / 13 Exemption for supply of services by

independent groups of persons – cross-border

application

2015 / 14 Place of supply of an intra-Community sale

followed by a local supply carried out by a non-

established taxable person

2015 / 15 Place of supply of an intra-Community sale

followed by a local supply of goods carried out by a

taxable person non-established within the Member

State of dispatch, but it has a fixed establishment in the

Member State of delivery of goods

2015 / 16 Rental mooring services to intra-Community

customers

2015 / 17 Granting of credit guarantees

List of VAT cross border rulings as at 1 January 2016


Other news

• On 14 December 2015, the EU commission adopted a proposal

to extend the 15% minimum standard rate of VAT until 31

December 2017

• On 24 February 2016, the College of Commissioners held

adebate on the way forward for VAT in the EU. The Commission

plans to put forward an Action Plan in March

• The Commission published a green paper on the future of

VAT back in 2010


The Union Customs Code (UCC)


What are the key changes?

Eight key areas affected by the UCC:

• Mandatory financial guarantees for special (customs) procedures and temporary

storage.

• Focus on Authorised Economic Operator (AEO) certification.

• The removal of the earlier sales provisions relating to customs valuation.

• Reduction and restructuring of available customs procedures/authorisations

• Customs simplifications (new concepts such as entry into records, self assessment and

centralised clearance).

• Changes to non-preferential rules of origin and the application and validity of Binding

Tariff Information (BTIs).

• Implications of users of Simplified Import VAT Accounting (SIVA).

• IT systems: all communications between customs authorities and economic operators

must be electronic.


Mandatory financial guarantees

• All customs duties which are potentially due through the operation of a customs duty relief

scheme or suspension regime, must be secured by a guarantee

• AEO status (which we will discuss shortly) reduces or eliminates the requirement for a

financial guarantee

• As banks in the UK are increasingly reluctant to lend money, it is likely that it will become

more difficult and more costly for UK businesses to obtain the necessary guarantees


AEO

Certification

Required

0% 0% 30%

Actual Duty

Guarantee Potential Duty

Guarantee SIVA Guarantee

No AEO Criteria

The following criteria:

• Is a regular user of custom procedures;

• Holds accounting systems which allows records to be audited, and holds

historical records;

• Maintains good administrative practices which are suitable to the size of

business, and goods under control;

• Not subject to bankruptcy proceedings;

• Has a good record of paying customs debts in the last three years;

• Can demonstrate sufficient financial solvency to pay its customs debts;

• Has sufficient financial resource to cover the percentage not covered by a

guarantee

All of the above criteria, plus:

• Employees are instructed to inform the customs authority when anomalies

occur.

All of the above criteria, plus:

• Gives the customs authority physical access to its accounting; systems,

and commercial and transport records;

• Has a logical system to identify union and non-union goods;

• Has a suitable system for handling licences;

• Has a suitable archiving system;

• Has appropriate security in place to protect its computer systems;

• Has sufficient financial standing to cover all its debts, not just customs

debts.

Full AEO(C) Certification

100% 100% 100%

100% 50% 100%

100% 100% 30%

100% 0% 0%

Method of calculation Calculated on 2X the

monthly duty

deferment limit

Value of imported

goods held under

duty regime X the

highest duty rate

Calculated on 2X the

monthly VAT

deferment limit


How will this affect companies?

Actual Duty Guarantee

• Companies who currently make use of duty deferment accounts

Potential Duty Guarantee

• Companies operating one or more of the following customs procedures:

Processing (inward processing and outward processing)

Specific use (temporary admission and end use)

Transit (external and internal)

Storage (customs warehousing

SIVA Guarantee

• Companies currently making use of SIVA


Practical Example

Facts

• Company A operates a duty deferment account, SIVA and is currently authorised for

customs warehousing.

• The company only meets limited AEO (c) criteria in line with current requirements

• The company defers £100,000 of duty per month

• The company defers £500,000 of import VAT per month

• The company stores £1,000,000 of goods with varying duty rates in the customs

warehouse, the highest duty rate is 12%

Current Guarantee Requirement

• £200,000

Potential UCC Guarantee Requirement

• £1,320,000


Simplified Import VAT Accounting

• When the UCC enters into force on 1 May 2016, all companies currently authorised for

SIVA will be re-assessed under the additional requirements introduced by the UCC. The

re-assessment period will run until 30 April 2019

• Companies applying for SIVA for the first time will be subject to the additional

requirements introduced by the UCC on application

• The additional requirements include proven financial solvency and a high level of records

management

• In order to benefit from a guarantee waiver for import VAT, companies will also be

required to meet the criteria of AEOC


Timeline

1 January 2016

Valuation, CFSP, SASP and AEO

18 January 2016 Deadline for concluding

contracts in order to benefit from earlier sale for customs

valuation

1 February 2016

Authorised Consignor for

Community Status, Regular Shipping

Service, Temporary Storage and Transit

1 March 2016

Warehousing

1 April 2016

Deferment Accounts,

Simplified Import VAT Accounting,

Inward Processing, Outward

Processing, Temporary

Admission and End Use

30 April 2016

Inward Processing Drawback and Low

Value Bulking Import

authorisations no longer valid

1 May 2016

Mandatory guarantees for most special

procedures and temporary storage.

Removal of earlier sales provisions

relating to valuation


Customs and International Trade

seminars

Location Date Time

Glasgow 22 March 2016 8:00 am – 9:30 am

London 13 April 2016 8:30 am – 10:30 am

Rotterdam 14 April 2016 10:00 am – 15:00 pm

Manchester 19 April 2016 8:00 am – 10:00 am

Birmingham 20 April 2016 8:00 am – 10:00 am


Global update

New regimes, rates and rules


Regime changes

Puerto Rico

• VAT to be implemented on 1 April 2016 1 June 2016

( postponed for 60 days announced yesterday)

• Rate will be 10.5%

• Services previously subject to SUT at 4% will be subject to VAT

at 10.5%

• Returns to be submitted monthly

• Refunds for overpaid VAT will start on 1 June 2016

• Transitional provision for certificates issued under the Sales &

Use Tax regime


Regime change

India

• No concrete announcements in Union Budget around GST

preparedness

• lack of political consensus continues to create ambiguity on a

realistic implementation date

• no change in the current status-quo on passing the GST

Constitution Amendment Bill.

• the Bill is currently pending with the RajyaSabha (Upper House

of Parliament)


Regime changes

UAE

• Confirmed last month that the UAE will implement VAT with

effect 1 January 2018

• Rate will be 5%

• Exemptions for 100 food items, healthcare and education

• GCC states have from 1 January 2018 to 1 January 2019 to

implement VAT

• Legislative framework to be published in June 2016

'Even with a low tax rate of 5%, with the introduction of VAT, it will not be

difficult for GCC states to generate tax revenues up to two per cent to gross

domestic product'

Christine Lagarde speaking last month at the Arab Fiscal Forum


Rule changes

Czech Republic

• Control statements introduced as of the January 2016 VAT

period

• To provide detailed information on taxable supplies made or

received where Czech Republic is the place of supply

• Monthly submission

• Electronic submission

• For all CZ VAT players (including foreign entities)

• Heavy penalties and short deadlines

• Another example of SAF-T requirements….


Rule changes

Poland

• SAF-T requirement with effect 1 July 2016 (large businesses),

voluntarily basis for small and medium businesses until 30 June

2018.

Lithuania

• "Smart Tax Administration" (i.MAS) including electronic invoice

submission

• i.SAF – submission of issued and received invoices (starting

October 2016);

- i.VAZ – electronic transport document (starting October 2016).


Rule changes

France

• Distance-selling threshold (B2C distance sales into France)

reduced from EUR 100,000 to EUR 35,000

• With effect from 1 January 2016


Rule changes

Hungary

• Change to the VAT Act with effect from 2016

• Statute of limitations for recovery of input tax reduced from five years to two

• Self-assessed VAT relating to imports can be recovered in the same period

• The 'waiting period' for VAT refunds for trusted taxpayers to be reduced

from 75 to 45 days in 2016, and to 30 days in 2018

• Extension of activities exempt from the invoicing regulations to international

air passenger services

• Also broadcasting, telecommunications and electronically-supplied services

where the taxpayer is not established in Hungary, and the customer is a

non-taxable person.

• Changes to tax point rules for continuous supplies of services


Rule changes

Latvia

• Domestic reverse charge for mobile phones, computers and

electrical components wef 1 April 2016

• 21% VAT on ticket sales for commercial culture events starting

from 2017 (previously 0%)

• 21% VAT on maintenance fee of real estate from 1 July 2016

(previously exempt)

• Deductible VAT on car expenses reduced from 80% to 50%


Rule changes

Lithuania

• Smart Tax Administration (i.MAS) is coming into effect in 2016.

The following systems will be implemented:

• i.SAF – submission of invoices issued and received wef

October 2016

• i.VAZ – electronic transport documents wef October 2016

• To follow later: other systems (cash registers, accounting data

custody and management of process control)


Rule changes

Slovakia

• Implementation of the domestic reverse charge for non-

established persons

• Only applies to sales to other taxable persons

• Local VAT claims now to go through the directive refund scheme

• May still need to register if acquiring goods from other EU states

• Effective 1 January 2016

• From the same date, B2B supplies of construction services are

also subject to the domestic reverse charge


Rule changes

Switzerland

• Under Swiss rules, the supply of goods constructed, installed or

worked on in Switzerland is taxable in Switzerland.

• 2015 rule which allowed non-established companies to use a

reverse charge simplification has been revoked.

• As a result more non-established businesses will have to register

for Swiss VAT.

• Non-established businesses must appoint a fiscal representative

and provide financial guarantees.

• Five-year statute of limitations applies, with interest at 4% pa on

unpaid taxes, fines and penalties.


Digital Economy

USA

• President Obama signed legislation making Internet Tax

Freedom Act permanent

• makes permanent the moratorium on Internet access taxes and

multiple or discriminatory taxes on electronic commerce

• but there will be a vote on the Marketplace Fairness Act (MFA), a

bill intended to regulate the sales and use tax collection and

remittance responsibilities of remote sellers later this year


Digital Economy

Russia

• Draft Bill to tax non-resident supplies of digital services to

Russian consumers

• if Bill passes through remaining legislative process, anticipated to

come into effect on January 1, 2017


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International Indirect Tax Update - March 2016