VAT Club: International Indirect Tax update - September 2015

© 2015 Grant Thornton UK LLP. All rights reserved.

International Indirect Tax update 16 September 2015


Your presenters today…

Alex Baulf

International Indirect Tax Associate Director

[email protected]

+44 (0)207 728 2863

Henry Cairns-Terry

International Indirect Tax Associate Director

[email protected]

+44 (0)121 232 5173

Michael Alexander

Customs Associate

[email protected]

+44 (0)207 728 2532


EU case law and policy


Italy VAT change

• Goods sent for processing Italy were treated as temporary

movements whether the goods went back to the EU member

state they came from or somewhere else

• Similarly, goods sent from Italy were treated as temporary

movements even if they were not returned to Italy.

• Following the joined cases C-606/12 and C-607/12 Dresser-

Rand, Italy now accepts this is not correct.

• From 18 August 2015, goods will need to return to the same

country for it to qualify as a temporary movement. So:

• Non-resident taxpayers may need to register for VAT in Italy

• NB Penalties for non compliance

• Italian businesses sending goods for processing elsewhere can now count

the exports for Plafond purposes.


What was the case about?

• Warranty contracts supplied to buyers of second-hand cars

• Mapfre said the mechanical breakdown contract was not

insurance

Mapfre Warranty (Case C-584/13)

Customer Dealer

Assistencia Warranty

Payment

Payment

Insurance block contract


Mapfre (continued)

What the court said

• The Court said the customer had a contract of insurance which

was exempt from VAT, but subject to French insurance tax

Why is the case important?

• Because it shows that the ECJ will look at the nature of what is

provided rather than:

• The status of the provider

• The regulatory position

Who should take notice?

• Any one who sells extended warranty products


NEC (Case C-130/15)

• The Upper Tribunal has referred this case about payment

handling services to the European Court

What the case is about

• Two issues:

• Was it a payment handling service? Yes

• Exempt from VAT? ECJ to decide


• More and more case coming forward about payment and similar

services.


NEC - continued

• In Way Ahead Group, the Tribunal drew a distinction:

• Debt collection service (AXA Denplan – Case C-175/09) – standard rated

• Payment processing (Sparkassernes Datacenter – Case C-2/95) – exempt

as long as the service changed 'the legal and financial situation of the

parties'

• You could say it like this:

• Push – initiated by the payer – payment processing

• Pull – initiated by the creditor – debt collection

• However, HMRC policy leans towards the position that:

• If you are a telco – standard rated

• Even if the service changes the legal and financial situation of the parties


What was the case about?

• Fuel supplied to ships on the high seas, whether exempt when

supplied via an intermediary

• An earlier case, Velker (Case C185/89), confirmed that

exemption was only available at the final stage, ie the sale to the

ultimate user

Fast Bunkering Klaipeda (Case C-

526/13)

Fuel supplier Intermediary

Ship

Sale

Sale


Klaipeda (continued)

What the court said

• In circumstances where the sale to the intermediary took place

no earlier than transfer to the user of the right to dispose of

goods as owner (here, delivery of fuel to the ship), it was

possible for the supply to be exempt.


• Because it confirms the transfer of the right to dispose of goods

as owner is not the same as transfer of legal title.

• See also cases such as Lease Plan Luxebourg (Case C-390/96)

• This affects the analysis of what is the supply at the final stage.

Who should take notice?

• Any distribution situation (eg LRD) where exemption is claimed.


Customs & International Trade

Update on the UCC


Union Customs Code

• Legislation enters into force on 1st May 2016

• Delegated and Implementing acts in 7th draft, it is expected that

this is the draft that will be voted on by the European Council and

Parliament – therefore it is likely that the 7th draft will become law

• Therefore, it's time to understand what impact the UCC will have

on your business


UCC – timeline

• 1st January 2016 – HMRC likely to stop accepting applications

under old "community customs code" rules

• 30th April 2016 – Many customs authorisations expire – traders

need to check expiry date of time limited authorisations

• 1st May 2016 – UCC becomes law in the EU – HMRC to

transitionally renew authorisations under 'old' rules

• After 1st May – HMRC to begin re-authorising existing customs

authorisations under UCC rules. These will be post-dated until

2019 if the trader wishes not to use UCC facilitations


UCC – What you need to do

• Check the expiry dates of all authorisations and understand if

you need to take any immediate action

• Understand the UCC guarantee requirements and

wavers/reductions available to 'trusted traders'

• Understand changes to customs warehousing valuation rules

• Understand what actions will trigger a customs procedure to be

reauthorised under UCC rules


Global update

New regimes, rates and rules


Rate changes

Greece

• Super reduced rate decreased from 6.5% to 6%

• Super reduced rate in Greek Islands decreased from 5% to 4%

• Several items subject to the 13% rate increased to 23% including:

• hotel accommodation services

• restaurant meals

• selected basic foodstuffs

• selected educational services

… with effect 20 July 2015

But effective 1 October – 30% discount for "developed tourist islands" will

be abolished


Rate changes

Kosovo

• Standard rate increased from 16% to 18%

• Introduction of a Reduced rate of 8%

… with effect 1 September 2015


Regime changes

India

• Update on GST implementation (to replace CENVAT/Service Tax)

• momentum appears to have been stalled by politics – main Opposition

party using the proposal GST Constitution Amendment Bill as

opportunity to stonewall reforms in India unless political demand met

• Monsoon session of Parliament has been wasted

• 15th September – State Finance Ministers (who constitute the

Empowered Committee for steering GST reform in India) were in full-

day meeting with the Union Finance Ministry and senior policymakers to

agree on the draft Model GST Bills for Central-GST, Integrated-GST

and State-GST

• Expecting PR/conference to share decisions. Rumor that Empowered

Committee may even release draft GST Bills for public discussion.

… GST implementation delayed until April 2017?


Regime changes

India

• Our view – April 2016 target date will be missed

… GST implementation delayed until April 2017?


GST: Expected implementation dates

GST Roadmap/ to-do list Proposed

timeline

Likely

timeline

Centre-State consensus on GST structure for India (dual-GST)

State revenue loss compensation formula agreed

Constitution Amendment Bill (122nd Amended Bill) to drive agreed

structure tabled before Parliament

Recommendation by Select Committee of Rajya Sabha

Approval of Lok Sabha on recommendations of Select Committee 13 Aug 2015 ?

Approval of Rajya Sabha on amended bill by 2/3rd majority ? ?

Model GST Bill (Central GST and State GST) / GST Rules (for Place of

Supply, Administration, etc.) released for discussion

Oct 2015 ?

GST bill introduced and approved by at least 50% State assemblies By Dec 2015 ?

President assent to give effect to GST structure Jan 2016

Appointment of GST Council within 60 days of Constitution Amendment Jan – March

2016

?

GST Act and Rules notified for implementing GST in India 1 April 2016 1 April 2017


Regime changes

UAE

• Update on VAT implementation

• On 18th August 2015, UAE's Ministry of Finance published update on

latest developments

• "…confirms that the UAE has been conducting studies on the

implementation of a VAT draft law, along with the other GCC countries.

This is based on a previous agreement between the UAE and all GCC

states to impose a VAT tax law simultaneously. The draft law is still

pending and under negotiation due to the absence of a final agreement

between GCC countries on the tax rate and a list of tax exemptions."

… February 2017 earliest based on 18 month notice period?


Regime changes

Egypt

• Anticipate Bill for VAT implementation by October 2015

• VAT to replace current sales tax regime (10%)

• VAT at same rate but a broader base and credit mechanism

• limited exemptions but zero-rating for export/international services

• recently announced changes to sales tax as transitional arrangements

• "Sales Tax Lottery" with a weekly cash-prize for compliant tax invoices

• increase in registration threshold to 500k Egyptian Pounds (approx. £40k)

• rate simplification

• withholding tax requirement on certain payment to counter fraud

… monitor as anticipate short lead time from legislation being

published


Regime changes

– Digital Economy

Japanese Consumption Tax

• Following OECD guidance and global trend

• Non-resident suppliers of electronic/digital services must register and

charge Consumption Tax @8% to private consumers (B2C)

• Introduction of a reverse charge mechanism for B2B transactions

• … but requirement for supplier to "notify"

• JPY 10M threshold (approx. £55k) in "base period"

• need to appoint Tax Agent and file return through "Tax Accountant

Proxy"

… with effect 1 October 2015


Regime changes

– Digital Economy

Asia-Pac

• Australia – "Netflix Tax" with effect 1 July 2017

• New Zealand – Public consultation this month

• Korea – non-resident "app providers" with effect

EMEA

• Albania - joins Switzerland, Norway and Iceland in harmonizing rules in

line with EU VAT Directive with effect 1 January 2015

• Morocco (believe current rules catch non-residents & Apple just

registered)

• Israel – recently issued draft circular on new legislation

• Turkey – anticipate new "electronic VAT registration" for non-residents


Regime changes

– Digital Economy

North America

• Canada – Prime Minister has ruled out after public consultation but PST

could be due at provincial level?

• USA

• "Netflix tax" in Chicago municipality

• Marketplace Fairness Act?

• "click-thru nexus" provisions and taxable digital services


Skandia

- VAT Expert Group

VAT Expert Group (EU business perspective)

• met on 11 September 2015 and key conclusions are:

• VAT grouping in of high importance for EU economy and provides

significant benefits for businesses and tax authorities

• "strong need for consistency in application of Skandia judgement"

across EU member states

• need for limited interpretation

• broad application of FCE Bank principals

• harmonised anti-avoidance for protection of revenue

… monitor application of Skandia across EU member states


‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one

or more member firms, as the context requires.

Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL).GTIL and the member firms are not a worldwide partnership. GTIL and each

member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not

agents of, and do not obligate, one another and are not liable for one another’s acts or omissions.

This proposal is made by Grant Thornton UK LLP and is in all respects subject to the negotiation, agreement and signing of a specific contract/letter of engagement.

The client names quoted within this proposal are disclosed on a confidential basis. All information in this proposal is released strictly for the purpose of this process

and must not be disclosed to any other parties without express consent from Grant Thornton UK LLP.

grant-thornton.co.uk

GRT100674

Economy & Finance

VAT Club: International Indirect Tax update - September 2015