Inside Indirect Tax


Welcome to Inside Indirect Tax—a publication from KPMG’s U.S. Indirect Tax practice focusing on global indirect tax changes and trends from a U.S. 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 International Publishes 2016 Asia Pacific Indirect Tax Country Guide

KPMG International recently published the 2016 Asia Pacific Indirect Tax Country Guide, which summarizes the indirect tax regimes of 20 countries within the Asia Pacific region. The guide covers various topics including: the type of indirect tax in each country; standard rates, reduced rates, zero-rates, and exemptions; voluntary registration for overseas companies; frequency of returns; unregistered overseas companies; time to obtain a refund; content requirements for invoices; and self-assessment obligation vs. indirect tax withholding mechanisms. Furthermore, the guide highlights China’s value added tax (VAT) introduction on May 1, 2016. China is now among the more than 160 countries in the world that have implemented a VAT or goods and services (GST) tax. However, China is unique in that VAT applies to virtually all financial services (including interest income) and to real estate in business-to-business (B2B), business-to-consumer (B2C), and even consumer-to-consumer (C2C) transactions.


Global Rate Changes

Belarus:i On May 19, 2016, the Ministry of Taxes and Duties of Belarus published Letter No. 2-1-10/683-2, which further explains the application of the increased 25 percent VAT rate to the sale of telecommunications services. (For KPMG’s previous discussion on the VAT rate increase, please click here.) The increased 25 percent VAT rate applies to services provided to subscribers via an end-user device under the agreements concluded with the decree of the Council of Ministers No. 1055 of August 17, 2006. However, the standard VAT rate (currently 20 percent) applies to services that are not considered services provided to subscribers, such as linking and traffic transit, provision of channels under SIP protocol, and other inter-operatory services under the inter-communication agreements. Services that are not considered telecommunications services, such as the provision of content to telecommunications operators, placement of hardware and software resources in the National Center of Data Processing, provision of online access to software (including GLONASS/GPS services), and provision of hosting services, are also subject to the standard VAT rate.

Belgium:ii Effective July 1, 2016, remote and land-based electronically supplied betting and gaming services to Belgian customers are subject to Belgian VAT at 21 percent (previously VAT exempt). However, online and offline lotteries, as well as land-based non-electronically supplied betting and gaming services continue to be VAT exempt.

Hungary:iii On June 17, 2016, the Hungarian Parliament voted to reduce the VAT rate on milk, eggs, and poultry from 27 percent to 18 percent, effective January 1, 2017. In addition, the VAT rate on restaurant services will be reduced from 27 percent to 18 percent effective January 1, 2017, and to 5 percent effective January 1, 2018. Finally, Hungary will reduce the VAT rate on Internet services from 27 percent to 18 percent if it receives the required approval from the European Union.

Japan: On June 9, 2016, the Prime Minister of Japan announced a further delay of the April 1, 2017 planned consumption tax rate increase from 8 percent to 10 percent. (For KPMG’s previous discussion on the rate increase, please click here.) The consumption tax is now scheduled to increase effective October 1, 2019. To read a report prepared by the KPMG International member firm in Japan, click here.

Jordan:iv On May 6, 2016, Jordan published in official gazette Decision No. 2384, which reduces the general sales tax (GST) rate applicable to sales of phosphoric acid from 16 percent to 4 percent. In addition, effective June 21, 2016, Jordan reduced the GST rate applicable to tourism services to 7 percent and zero-rated input goods for the tourism industry, the Jordan National Employment Strategy (JNES), and the Jordan Uranium Mining Company (JUMCO). Furthermore, the following IT services are subject to zero rate general sales tax: software development, mobile apps, web site portals, digital content and electronic games, data processing, IT learning and e-trainings, and imports of IT equipment (also exempt from customs duties).

Portugal:v On June 1, 2016, the government of Portugal proposed a draft bill that would, if adopted, zero-rate the provision of services connected with alternative medicine from the standard rate (currently 23 percent).

Uruguay:vi On May 23, 2016, the government of Uruguay proposed a draft bill that would, if adopted, reduce the VAT rate by two percent on purchases made through debit or credit cards, effective January 1, 2017.


The Americas

The Americas

United States: Use Tax Notification May Soon be Required in Louisiana

House Bill 1121, signed into law by Governor John Bel Edwards on June 17, 2016, adopts use tax reporting requirements for non-collecting remote sellers making sales to Louisiana purchasers. Only retailers that are not required by law to collect and that (with their affiliates) make over $50,000 worth of taxable sales of property or services annually to Louisiana customers are subject to the reporting requirements. The Louisiana requirements track closely those adopted in Colorado in 2010 that have yet to be enforced due to ongoing litigation. House Bill 1121 mandates that, at the time of sale, a non-collecting remote retailer must notify a Louisiana purchaser that the purchase is subject to Louisiana use tax unless it is specifically exempt and explain that the purchase is not exempt simply because it is made via the Internet, catalogue or other remote means. The notice must include a statement that use tax liability must be paid annually on the individual income tax return or through other means.

The second notification requirement is that by January 31 of each year, a remote retailer must send each Louisiana purchaser a notice containing the total amount paid by the purchaser for goods and services from the seller in the preceding calendar year, as well as any other information required under rules to be promulgated by the Secretary of Revenue. If the information is available, the annual notice shall include a listing of the dates and amounts of purchases, and if known by the retailer, whether the property or service is exempt from sales and use taxes. The annual notice must clearly disclose the name of the retailer and must remind purchasers that Louisiana use tax may be due on the purchases and that the liability is to be paid on the individual income tax return or through other means. The annual notification may be sent (at the purchaser’s choice) by first class mail, certified mail, or electronically, but cannot be included with any other shipment or mailing from the retailer. Further, if mailed, the exterior of the envelope in which the notice is sent must state “IMPORTANT TAX DOCUMENT ENCLOSED.”

Finally, by March 1 of each year, a remote retailer must file with the Secretary of Revenue an annual statement for each purchaser that includes the total amount paid by the purchaser to that retailer in the immediately preceding calendar year. Under no circumstances should the statement identify the specific property or services purchased, but must include the total amount paid. The statement will be submitted on forms to be developed and provided by the Secretary. A remote retailer that had sales in Louisiana in excess of $100,000 in the immediately preceding calendar year may be required to file the form electronically. House Bill 1121 does not include penalties for non-compliance with the reporting requirements, but does provides means for the Secretary to enforce the requirements, including issuing subpoenas and seeking letters rogatory.

Canada: Prince Edward Island Publishes Transitional Rules for HST Increase

Prince Edward Island (PEI) has released transitional rules for its upcoming October 1, 2016 increase of the Harmonized Sales Tax (HST) to 15 percent. (For KPMG’s previous discussion on PEI’s HST rate increase, please click here.) The transitional rules generally require vendors to collect 15 percent HST on the consideration that becomes due without having been paid, or is paid without having become due, on or after October 1, 2016. The consideration for a sale generally becomes due for GST/HST purposes on the earliest of: (1) the day the vendor issues an invoice for the sale, (2) the date on the invoice, (3) the day the vendor would have, but for an undue delay, issued an invoice for the sale, or (4) the day the purchaser is required to pay that consideration pursuant to a written agreement. The province also notes other specific transitional rules that apply for certain transactions, including real property transactions, may be effective June 16, 2016. To read a report prepared by the KPMG International member firm in Canada, click here.


 

Europe, Middle East, Africa (EMA)

Europe, Middle East, Africa (EMA)

European Union: Blood Plasma May Be VAT Exempt According to Advocate General

On June 2, 2016, the Court of Justice of the European Union (ECJ) published the opinion of its Advocate General (AG) in the case TMD Gesellschaft für transfusionsmedizinische Dienste mbH, Case C-412/15, regarding whether the sale of blood plasma may fall under the VAT exemption for sales of blood. In the case at hand, TMD operates a blood donor center that sold plasma for the purpose of manufacturing medicinal products to a company established in Switzerland. The blood plasma was shipped by TMD to another EU Member State. TMD deducted the VAT incurred in relation with these sales. However, the German tax authority denied the deduction, arguing that the sale of blood plasma to another EU Member State was VAT exempt, both as an intra-EU transaction and as the sale of blood. According to the AG, the sale of blood is exempt under the EU VAT Directive to avoid an increase in the costs of health-related treatments that involve the sale of parts, or products deriving from, the human body. Consequently, “blood” cannot but encompass its components, such as plasma. In addition, the AG is of the opinion that not including components of “blood” within the exemption would lead to consequences that contradict the objective pursued by the legislation. Furthermore, the fact that whole blood and blood plasma are now both exempt from customs duties lends support to the view that both should be VAT exempt. Therefore, the AG concluded that the term “blood” in the EU VAT Directive exemption provision should encompass the sale of blood plasma obtained from human blood, including when it is intended to be used for manufacturing medicinal purposes. The ECJ must now decide whether to adopt the nonbinding recommendations of the AG.

Source: IBFD, European Union; Germany – ECJ Advocate General’s Opinion (VAT): TMD (Case C-412/15) – Exemptions; supply of human blood – details (June 17, 2016).

European Union: No Import VAT Liability In Case of Breach of Customs Obligations

On June 2, 2016, the ECJ published its judgment in the joined cases Eurogate Distribution and DHL Hub Leipzig GmbH, Cases C-226/14 and C-228/14, regarding whether VAT becomes due as a result of non-fulfilment of customs obligations. In the first case, Eurogate took into its private customs warehouse non-EU goods from its customers with the intention to forward them outside the EU. When the goods were removed, the customs authority established that removal of the goods at issue was entered in the stock records late. On this ground, the customs authority sought payment of the customs duty and import VAT arguing that import VAT became due at the time duty became due. In the second case, DHL opened an external customs transit procedure (T1) in respect of non-community goods. However, DHL failed to present goods at the airport customs office before they were transported outside the EU. The customs authority issued DHL an import VAT assessment notice, to which no objection was made. DHL later applied for repayment of the import VAT paid, which was rejected.

The ECJ considered that in the first case, the goods were placed under the customs warehousing procedure in a Member State before being re-exported outside of the EU customs territory and were thus falling under one of the special VAT exemptions linked to international goods in traffic pursuant to the EU VAT Directive. In addition to the customs debt, there may also be a liability to pay VAT where, based on the particular unlawful conduct which gave rise to the customs debt, it can be presumed that the goods entered the economic network of the EU. However, it is not disputed that not fulfilling the obligation to enter the removal of the goods from the customs warehouse in the appropriate stock record was noticed after the relevant goods had been re-exported. As a result, those goods were covered by the customs warehouse procedure until they were re-exported and it is not disputed that there was no risk of them entering the EU’s economic network. Consequently, the ECJ noted that since the goods at issue in the main proceedings had not left those arrangements at the date they were re-exported, they cannot have been the subject matter of an “importation” and should thus not be subject to VAT.

The ECJ pointed out in the second case that not fulfilling the obligation to complete the external transit procedure by presenting the goods at issue in the main proceedings to the relevant customs office before transferring them to a third country led to the incurrence of a customs debt, which is not disputed by the parties. However, those goods were re-exported without entering the economic network of the EU and thus remained under the external transit procedure until the date at which they were re-exported. Consequently, they cannot be considered to have been the subject matter of an “importation” and should thus not be subject to VAT. The judgment clarifies that even though customs duties may be assessed in cases of breach of customs obligations, import VAT may not be automatically due if the goods did not enter the EU’s economic network. To read a report prepared by the KPMG International member firm in Germany, click here.

Source: IBFD, European Union; Germany – ECJ decision (VAT): Eurogate Distribution and DHL Hub Leipzig (Joined Cases C-226/14 and C-228/14) – Import; customs warehouse; liability to pay (June 2, 2016).

European Union: Nonprofits with Ancillary Activities May Perform Economic Activity for VAT Purposes

On June 2, 2016, the ECJ published its judgment in the Lajvér Meliorációs Nonprofit Kft. and Lajvér Csapadékvízrendezési Nonprofit Kft. case, Case C-263/15, regarding whether ancillary engineering works performed by a nonprofit company qualifies as taxable services for VAT purposes. In the case at hand, the applicants are nonprofit companies established with the aim of constructing, and later operating, agricultural engineering works such as a water disposal system on land belonging to members of the companies. The companies may only engage in a commercial activity on an ancillary basis. Works necessary for the project were financed through state and EU resources. Members agreed that the companies are to charge land owners an operating fee in relation to the agricultural engineering works for a period of eight years. The companies outsourced the preparation and execution of the works to a third company that issued invoices including VAT. The Hungarian tax authorities denied the companies’ claim to deduct VAT incurred on the grounds that the planned activity was not an “economic activity.”

The ECJ noted that the activity of operating an agricultural engineering works is to be regarded as falling within the concept of “economic activity” if it is engaged in for the purposes of obtaining income on a continuing basis. In the case at hand, the ECJ considered that the operation of those works is engaged in for the purposes of obtaining income. In addition, the finding that the fee constitutes income on a continuing basis cannot be doubted simply because the companies could engage in commercial activities only on an ancillary basis. The fact that the investments were largely financed by public funding should not be taken into consideration in determining whether the activity pursued or planned is to be regarded as economic activity. According to the ECJ, the operation of agricultural engineering works can be regarded as a taxable provision of services effected for consideration only if (1) there is a direct link between the service provided and the operating fee received or to be received and (2) the fee constitutes the value actually given in return for the service provided to the recipient. Consequently, the referring court must determine whether the amount of the fee received, or to be received, means that there is a direct link between the services and the consideration. The referring court must further ascertain that the fee which the companies are planning to charge does not only partly remunerate the services provided or to be provided and that its amount has not been determined as a result of other possible factors that could, depending on the circumstances, call into question the direct link between the services provided and the consideration.

Source: IBFD, Hungary – Summary, C-263/15 Lajvér (June 2, 2016).

European Union: Choice on Applicable VAT Recovery Apportionment Method Clarified

On June 9, 2016, the ECJ published its judgment in the Wolfgang und Dr Wilfried Rey Grundstücksgemeinschaft GbR case, Case C-332/14, regarding the applicable VAT deduction apportionment method to be used for a mixed-use building. In the case at hand, the taxpayer demolished an old building on a plot of land owned by it and constructed a building containing six residential and commercial units and ten underground parking spaces in 2004. During the tax periods from 1999 to 2003, the taxpayer calculated its entitlement to deduct VAT paid for the demolition and construction works by applying an allocation key based on the ratio between the gross receipts generated by the activity of letting the commercial units and associated car parking spaces which is subject to VAT and the gross receipts arising from the other VAT exempt transactions (‘the gross receipts-based allocation key”). Using this key, the deductible portion of the VAT was 78.15 percent. In 2004, some parts of the building at issue were ultimately leased exempt from VAT. The taxpayer declared in its return for the 2004 tax year an amount by way of adjustment which it determined by applying the gross receipts-based allocation key. In that return, the taxpayer also declared some deductible amounts of VAT which has been paid on goods and services purchased for the use, conservation, and maintenance of the building. However, the German tax authority argued that based on new rules that were effective January 1, 2004, the gross receipts-based allocation key may be applied only if it is not possible to have recourse to another method for the economic allocation of mixed-use goods and services. The tax authority set the VAT deduction at 38.74 percent, which corresponds to the part of the total floor area of the building subject to a taxable lease, and reduced the VAT amount to be refunded to the taxpayer.

The ECJ ruled that in cases of mixed-use of a building, EU Member States are not required to prescribe that the goods and services used for the construction, acquisition, use, conservation, or maintenance of that building must be assigned to those various transactions when such assignation is difficult to carry out. If no direct allocation is possible, the deduction entitlement due in respect of those of the goods and services which are for mixed-use is determined by applying a gross receipts-based allocation key or, provided that this method guarantees a more precise determination of the deductible portion, on the basis of the floor area. The ECJ further noted that initial deductions must be adjusted where, after the return giving rise to the deduction is made, some change occurs in the factors used to determine the amount to be deducted, in particular where purchases are cancelled or price reductions are obtained. In the case at hand, using another more precise allocation key constitutes such a factor used to determine the amount to be deducted. Therefore, VAT deductions made in respect of goods or services falling within the apportionment rules may be adjusted following the adoption of a new VAT allocation key. Finally, the ECJ held that when EU Member States apply the provisions of their domestic law transposing an EU directive, they are required to interpret them, as far as possible, in accordance with that directive. It is in principle compatible with EU law for a new rule of law to apply from the entry into force of the act introducing it. Nevertheless, a jurisdiction may be required to introduce transitional arrangements when it suddenly and unexpectedly adopts a new law which withdraws a right that taxable persons enjoyed until then, without allowing them the time necessary to adjust, when the objective to be attained did not so require. However, in the case at hand, the ECJ found that the conditions for introducing such transitional arrangements were not met and thus the new allocation key could apply as from the date of entry into force of the new law. To read a report by the KPMG International member firm in Germany, please click here.

Source: IBFD, Germany – Summary, C-332/14 Wolfgang und Wilfried Rey Grundstücksgemeinschaft (June 9, 2016).

European Union: Rounding-Up Rule Mandatory for Proportional Deductions

On June 16, 2016, the ECJ published its judgment in the Kreissparkasse Wiedenbrück case, Case C-186/15, regarding the rounding rule applicable to the apportioned VAT deduction computed by a taxpayer performing taxable and exempt activities. In the case at hand, the taxpayer is a financial institution that established the deductible proportion of the VAT incurred on expenditures at 13.55 percent for 2009 and 13.18 percent for 2010. The taxpayer round both percentages up to 14 percent. In addition, the taxpayer made adjustments to its initial deductions of VAT, which it again rounded up. The German tax authority considered that the VAT recovery rate was excessive.

The ECJ noted that the general allocation rule provides for a mandatory rounding rule, but the derogating measures allow Member States to achieve greater accuracy in determining deductible VAT by taking into account the specific characteristics of the taxpayer’s activities. It would therefore be contrary to the purpose of the EU VAT Directive to require mandatory rounding, although a Member State is free to do so. The ECJ further held that in case of adjustments where the initial deduction is higher or lower than that to which the taxable person was entitled, Member States are only required to apply the mandatory rounding rule where the rule was used in calculating the initial deduction. The decision is essentially a confirmation of the Royal Bank of Scotland case, Case C-488/07 (December 18, 2008), which discussed the rounding rule under the previous version of the VAT Directive.

European Union: VAT Adjustment on Capital Goods Required When Ceasing Activity

On June 16, 2016, the ECJ published its judgment in the Jan Mateusiak case, Case C-229/15, regarding the requirement to adjust VAT deducted on capital goods following the cessation of the economic activity. Recall, according to the EU VAT Directive, the VAT deducted on the acquisition of capital goods (including buildings) must be adjusted over a certain time period if there is a change in use (e.g., from taxable activity to exempt activity). In addition, EU Member States may treat the private use of goods as a taxable transaction. In the case at hand, the taxpayer built a residential and commercial building that was used by him in part for private purposes and in part for his activity as a notary. The taxpayer claimed a right to deduct input VAT only with respect to the construction services related to the commercial use of the building. The taxpayer applied for an individual ruling from the Polish tax authority asking whether VAT should be charged on the part of the building used for commercial purposes after he ceased his economic activity. The tax authority did not agree with the taxpayer’s position that VAT should not be applicable once the adjustment period for the correction of the deduction of input VAT with respect to the building had expired. The ECJ largely followed its Advocate General’s opinion, holding that when a taxpayer ceases to carry out a taxable economic activity, the retention of goods by that taxpayer, where VAT on such goods became deductible upon their acquisition, can be treated as a deemed taxable sale of goods for consideration if the adjustment period laid down in the VAT Directive has passed.

Source: IBFD, Poland – ECJ decision (VAT): Mateusiak (Case C-229/15) – Cease of economic activity; adjustment of capital goods (June 16, 2016); Tax Analysts, No Limitations Period for VAT Assessments on Goods Remaining After Business Closes (June 17, 2016).

France: Sale of Unused and Non-Refundable Tickets Subject to VAT

On April 15, 2016, the highest French administrative court, the Council of State (Conseil d’Etat), ruled that non-refundable and unused multiple-entry theater cards and books of tickets are subject to VAT. In the case at hand, the taxpayer, a movie theater operator, offered customers multiple-entry cards and books of tickets for which they paid full price at the time of purchase. The taxpayer argued that the amount corresponding to the portion of the price of any tickets and entries not used were not to be characterized as consideration for a service, but rather as compensation for the loss suffered by the taxpayer due to the customer’s default and thus not subject to VAT in according with the ECJ judgment in Societe Thermale d’Eugenie-les-Bains, Case C-277/05 (July 18, 2007). The Council of State disagreed, judging that the movie theater operator placed customers in a position to attend movies, and that the sums paid when the tickets and entries were purchased were subject to VAT, regardless of whether or not the tickets or entries were used during their validity period. Like the ECJ in the Air France KLM case, Cases C-250/14 and C-289/14 (December 23, 2015), the Council of State has thus adopted a broad interpretation of the concept of “sale of services,” under which the service is deemed to have been provided, even if the customer did not actually benefit from the service rendered because the customer was placed in a position to benefit from the service. (For KPMG’s previous discussion on the Air France case, click here.) This Council of State decision is the first example in France of the Air France case law being applied to other activity. Such reasoning could potentially be extended to gift card vendors, car rental companies, or businesses that receive indemnities in connection with commercial disputes. For more information, click here.

Germany: VAT Rates for Transport of Persons Clarified

On June 2, 2016, the German federal ministry of finance (BMF) updated its guidance regarding the VAT rate applicable to the transport of persons by taxi and rental cars following the federal tax court cases XI R 22/10 and XI R 39/10 (July 2, 2014) and V R 4/15 (September 23, 2015). BMF Schreiben III C 2 – S 7244/07/10002. According to the BMF, contrary to the previous administrative opinion, the reduced rate applied to transport of persons does not require the license holder to carry out the service with his own taxi. Therefore, the reduced VAT rate may also apply if the service provider does not have his own license and the transport of the persons is carried out by a contractor who has an appropriate license to do so. Additionally, if a car hire company carries out ambulance transports with vehicles that are not specially equipped for these purposes and if these services subject to VAT are sold on the basis of special agreements with health care insurers, which also apply to taxi operators, the VAT reduction may apply by way of exception if the other requirements are fulfilled. The changes must be applied in all pending cases. Finally, the BMF will not object if service providers apply the standard VAT rate for services performed before October 1, 2016. To read a report prepared by the KPMG International member firm in Germany, click here.

Italy: VAT Recovery Rules on Bad Debts Amended

On January 1, 2016, the Italian Stability Law came into effect. Among other matters, the measure amended the requirements a seller must meet prior to issuing credit notes for bad debts. Previously, the Italian VAT law imposed strict rules regarding the issuance of credit notes in case of bad debts. These have now been relaxed for sales to customers who become subject to bankruptcy and insolvency proceeding on or after January 1, 2017. According to the amendments provided by the Stability Law, credit notes may now be issued, and VAT recovered, as soon as the debtor is officially admitted to the bankruptcy or insolvency procedure, rather than only at the end of the procedure as under prior law. The law identifies the following points at which a vendor may issue credit notes to customers subject to various proceedings: for bankruptcy procedures, from the date of the tribunal decision declaring the bankruptcy; for compulsory administrative liquidation procedures, from the date the measure was issued; for composition agreements, from the date of the decree or admission to the procedure; and for receivership procedures, from the date of the decree ordering the procedure. The new rules will not apply to debt restructuring procedures and reorganization plans. In addition, the Stability Law clarifies the circumstances in which individual enforcement proceedings may be deemed unproductive. Under the new rules, vendors may issue credit notes when the customer is not available to receive the enforcement decree, thus allowing VAT to be recoverable earlier. The Stability Law further clarifies that vendors of continuous sales are entitled to recover VAT for all sales for which customers have not paid consideration. The last two measures are effective immediately since they clarify existing law.

Source: Tax Analysts, Italy Relaxes Rules on Issuing VAT Credits for Bad Debts (June 6, 2016).

Nigeria: Reimbursable Expenses Not Subject to VAT

On June 2, 2016, the Tax Appeal Tribunal of Lagos published its judgment in the Brasoil Oil Services Company Nigeria Ltd. case regarding whether a local entity is required to charge VAT on costs it incurred on behalf of a non-resident affiliate (the reimbursable expenses). In the case at hand, the taxpayer billed the non-resident affiliate for the reimbursable expenses at a mark-up of 12 percent, and applied VAT to the mark-up portion only. The taxpayer considered that Nigeria’s VAT Act only imposes tax on the sale of goods and services and thus not on reimbursable expenses since they do not constitute a sale of goods and services. However, Nigeria’s Federal Inland Revenue Service (FIRS) argued that the entire invoice amount was liable to VAT. The Tax Appeal Tribunal upheld the taxpayer’s position and required FIRS to withdraw the additional VAT assessment. To read a report prepared by the KPMG International member firm in Nigeria, click here.

Poland: Retail Sales Tax Introduced

Effective September 1, 2016, Poland will levy a new Retail Sales Tax (RST). According to the law that was passed by the Polish parliament on July 6, 2016, sellers of goods will be subject to RST, which would apply to the revenue from retail sales to individuals, but not sales to businesses. The new regulations do not cover Internet sales. VAT charged on the sales will not be part of the RST base. In addition, certain sales of goods will be exempt from RST including drugs sales, special purpose nutrition, reimbursed or part-refunded medical devices on the basis of specific provisions, electricity, natural gas, water provided to consumers via water and sewage companies, bituminous coal, gaseous hydrocarbons, and diesel fuel for heating purposes. The RST will be progressive as follows: 0 percent for monthly taxable revenues up to PLN 17 million ($4.24 million); 0.8 percent for monthly taxable revenues ranging between PLN 17 and 170 million ($42.47 million); and 1.4 percent for monthly taxable revenues above PLN 170 million. To read a report prepared by the KPMG International member firm in Poland, please click here.

Romania: New Requirements for Domestic Sales and Purchases Listings Effective July 1, 2016

On March 29, 2016, the National Agency for Fiscal Administration issued Order No. 1105 that amends form 394 used for domestic sales and purchase listings. According to the Order, only transactions performed after July 2016 must be reported in the new form 394. Transactions performed between January 2016 and July 2016 will no longer need to be reported in the new form 394. In addition, invoices received in a VAT period other than the one in which the invoice was issued will no longer need to be reported in rectifying returns. However, transactions subject to special schemes such as travel agents, second-hand goods, works of art, collectors’ items, and antiques must be reported in the new form. For sales of goods and services to individuals during the period July 1, 2016 through December 31, 2016, only invoices whose individual value exceeds RON 10,000 ($ 2,500) must be included in the form. The Order further establishes that transactions subject to the standard VAT rate (currently 24 percent) must also be reported on form 394. Finally, the order clarifies the identification of vendors and customers qualifying as individuals; reporting the number of invoices covering transactions subject to multiple VAT rates and/or multiple types of goods/services; the sequential numbering of invoices; the definition of “canceled invoices” and “credit notes.” To read a report prepared by the KPMG International member firm in Romania, click here.

Russia: VAT Guidance Published

On April 15, 2016, the Ministry of Finance of Russia published Guidance Letter 03-01-23/30779 which clarifies the VAT treatment of specific real estate evaluation services that a nonresident’s representative office in Russia provides to another nonresident. The guidance notes that transactions involving the sale in Russia of goods, works, services, or property rights are subject to Russian VAT. Consulting services are considered to have been provided in Russia if the recipient of those services operates in Russia based on its state registration as a legal entity, private entity, or based on a place indicated in the recipient’s constituent documents. Therefore, consulting services that a nonresident’s Russian office provides to another nonresident will not be considered to have been provided in Russia and therefore are not subject to Russian VAT.

On April 6, 2016, the Ministry of Finance of Russia published Guidance Letter 03-07-08/19500, which clarifies the VAT implications involved when a Russian resident, acting as a tax agent, pays VAT due toward future sales of goods by a nonresident. According to the Letter, a taxpayer may deduct VAT incurred on purchased goods, works, services, or property rights that are intended for use in sales subject to VAT or that are for resale. The deduction is available if: (1) the taxpayer has registered the relevant goods, works, services, or property rights for tax purposes; (2) the taxpayer has the required primary documents; and (3) the VAT paid in a tax period exceeds the VAT calculated on taxable sales. Therefore, a Russian resident who, as a tax agent, paid VAT due on advance payments to a nonresident toward future sales that are considered to be sold in Russia may deduct that VAT in the tax period in which the relevant goods were registered in the taxpayer’s accounting for tax purposes.

Source: Tax Analysts, Russia Issues Guidance on Cross-Border Tax Concerns (June 18, 2016); Tax Analysts, Russia Issues VAT Guidance (June 24, 2016).

United Kingdom: Referendum in Favor of Leaving the European Union

On June 23, 2016, the people of the United Kingdom (UK) voted in favor of leaving the European Union. The referendum does not automatically trigger departure from the EU; an official notification from the British government to the EU is required to begin the exit process. Once the notification is received by the EU, the UK will have two years to negotiate its future relationship with the EU. Currently, membership of the EU gives UK companies access to the EU Single Market and free movement of goods, services, capital, and workers within the EU. This results from a VAT perspective in certain simplifications applicable to UK-EU transactions, which will no longer be available. In addition, with the loss of the access to the free market, customs duty may apply to sales between the UK and the EU Member States, and potentially, imports and exports would move slower compared to current intra EU transactions. The additional import VAT may further prove a significant cash flow cost to businesses. One advantage of Brexit is the future greater freedom over the UK’s own VAT rules on the basis that the UK should no longer be bound by EU law. The KPMG International member firms in the UK, Netherlands, Switzerland, France, Ireland, and Spain have prepared special reports on the consequences of Brexit.

United Kingdom: Tax Authority Clarifies Transfer of a Going Concern

On June 24, 2014, the UK tax authority, HM Revenue and Customs (HMRC), published Revenue and Customs Brief 11(2016) detailing HMRC’s position following the Upper Tribunal’s (UT) decision in Intelligent Managed Services Limited regarding VAT groups and transfer of going concern (TOGCs). Generally the sale of the assets of a business is taxable at the standard VAT rate. However, subject to certain conditions, the sale of the assets of a business is treated as neither a sale of goods nor a sale of services when these are transferred together with all, or part, of that business as a going concern. HMRC’s policy has been that where a member of a VAT group acquires a business, and thereafter the only sales made are to other members of that VAT group, the acquisition may not be treated as TOGC because there was no business capable of transfer, or the business would not continue post-transfer, given that a VAT group is a single person for VAT purposes. The UT disagreed, stating that HMRC was taking the statutory fiction of VAT grouping too far. HMRC’s revised policy now appears slightly different for transfers of a business to a company in a VAT group, and transfers of a business by a company in a VAT group. In the case of the former, the other VAT group members must use the services provided to them by the transferee to make sales outside the VAT group for the transfer to be a TOGC. An additional section was added to address situations where the acquirer of the business is not UK established. Non-residents are only liable to register once they make UK taxable sales or intend do so in the next 30 days. However, one of the TOGC conditions is that if the transferor is UK VAT registered, the transferee must already be, or must immediately become, registered or liable to be UK VAT registered. Consequently, if the acquired business had a break of over 30 days, the non-established acquirer would not be liable to be UK registered at the transfer date and the TOGC conditions would not be met. The Brief suggests that in such circumstances the acquirer should register for UK VAT voluntarily so that a registration is in place at the time of the transfer.

Source: Tax Analysts, Revenue and Customs Brief (2016): VAT and the transfer of a going concern (June 24, 2016).


 

Asia Pacific (ASPAC)

Asia Pacific (ASPAC)

China: VAT Treatment of Reinsurance Arrangements Clarified

On June 21, 2016, China’s Ministry of Finance and State Administration of Taxation jointly issued Circular Caishui [2016] 68 (Circular 68) clarifying the VAT treatment of reinsurance arrangements. Recall, China finalized its transition to VAT by applying VAT instead of business tax to real property and construction services, financial services, and lifestyle services effective May 1, 2016. At that time it was unclear whether reinsurance services should be treated the same for VAT purposes as the underlying insurance policy or be subject to VAT. The Circular provides that effective, retroactive to May 1, 2016, reinsurance services take on the same VAT treatment as the underlying insurance policy which is being reinsured. This means, for example, that reinsurance of taxable general insurance policies will be subject to VAT at a rate of six percent, and the reinsurance of exempt life insurance policies for a term of greater than one year will similarly be exempt from VAT. The categories of insurance policies that are currently VAT exempt, and therefore the reinsurance of which is now potentially also exempt from VAT, include: life insurance for a term greater than one year, health insurance for a term greater than one year, pension annuity insurance for a term greater than one year, insurance relating to the export of goods, export credit insurance, and agricultural and animal husbandry insurance. Circular 68 further provides that reinsurance services provided by a Chinese reinsurer to an offshore insurer which are wholly consumed outside of China are VAT exempt. Finally, while Circular 68 does not specifically state the VAT treatment of import of reinsurance services, based on the general VAT rules, reinsurance services relating to taxable general insurance policies to a domestic Chinese insurer should be subject to VAT on a withholding basis. To read a report prepared by the KPMG International member firm in China, please click here.

India: Draft Model GST Law Released

On June 14, 2016, the government of India published a revised draft of the Model Goods and Services Tax (GST) Law, which is intended to be implemented April 1, 2017. (For KPMG’s previous discussion on India’s GST reform, please click here.) India is considering implementing a Central GST (CGST) at the federal level, a state GST (SGST) at the state level, and an integrated GST (IGST) (consolidated central and state GST) on interstate transactions. The proposed GST would replace most of the existing federal and state taxes, including central excise duty, service tax, VAT, and central sales tax. The Model GST Law includes the Central/State Goods and Services Tax Act, 2016 (CGST Act/SGST Act) and the Integrated Goods and Services Tax Act, 2016 (IGST Act 2016). The Model GST Law has 162 Sections and 4 Schedules for CGST/ SGST Act and 33 Sections for IGST Act and includes separate Valuation Rules for sales of goods and services.

The Model GST Law provides details on the scope of sale of goods or services subject to the GST, the applicable sourcing rules, valuation rules, and registration requirements. The Model GST Law would restrict the credit of GST incurred on services used primarily for the personal consumption of employees and goods and services used in construction of immovable property. Moreover, taxpayers would be allowed to request a refund of GST paid on expenditures in case of expenditures and inverted duty structures, but would be required to carry forward excess GST paid in other situations.

The Model GST Law includes transitional provisions for carrying forward accumulated Credits under the current regime to the new GST regime, migrating existing taxpayers to the GST, and clarifying the treatment of pending refund claims under the current regime. The GST would further include specific provisions for e-commerce businesses according to which e-commerce operators would be required to collect an appropriate amount of tax at source at the time of crediting any amount to the vendor of the goods or services. The amount would then need to be paid to the government within ten days from the end of the month in which the collection is made.

The government of India is expected to table the Constitutional Amendment Bill during the parliament’s monsoon session this summer. This bill must be adopted to allow India to implement the new GST. To read a report prepared by the KPMG International member firm in India, click here.

Pakistan: Proposed Amendments to Sales Tax

On June 3, 2016, the government of Pakistan presented the Budget 2016/2017 which, if adopted, would amend the country’s sales tax effective July 1, 2016. The Budget proposes to exclude from the scope of deductible “input tax” the provincial sales tax levied on services. The Budget would further restrict the adjustment of sales tax incurred on purchases in the hands of the buyer where the vendor has not declared such sales in his return or has not paid the amount of tax as indicated in the return. Moreover, the Budget would create a specific zero-rated transaction for the sale or transfer of ownership of a taxable activity or part thereof by a registered person to another registered person as an ongoing concern. The Budget would further amend the sales tax rate applicable to various products. For instance, the Budget would reduce the sales tax rate to 5 percent on sales of Urea, whether or not in aqueous solution, but would increase the rate from 5 percent to 10 percent for certain ingredients of poultry feed and cattle feed and further increase the sales tax on medium-priced and smart cellular mobile phones to PKR 1,000 ($9.55) and PKR 1,500 ($14.33) respectively. However, dump trucks; pesticides and various active ingredients; laptops, notebooks and personal computers; and imports by or sales of materials and equipment to China Overseas Port Holding Company Limited and its operating companies, their contractors and sub-contractors, subject to fulfillment of certain conditions and procedures, would be exempt from sales tax. Finally, the Budget includes incentives for certain industries such as the cottage industry, and would amend administrative and compliance provisions of the sales tax law. To read a report prepared by the KPMG International member firm in Pakistan, click here.

Singapore: Guidance on Determining Whether a Vendor Belongs to Singapore Published

On May 25, 2016, the Inland Revenue Authority of Singapore (IRAS) published a new GST e-Tax Guide on Determining the Belonging Status of Supplier and Customer. In Singapore, the “belonging” concept is used to determine whether a service is made in Singapore as well as to identify whether a service qualifies as a zero-rated international service. According to the guide, a vendor or a customer will be treated as belonging in Singapore if (1) he has a business establishment (BE) or fixed establishment (FE) in Singapore; (2) he does not have a BE/FE in any country, but his usual place of residence is in Singapore; or (3) he has a BE/FE both inside and outside Singapore and the establishment that is most directly concerned with selling or using the services is in Singapore. Additionally, a person who acts through an agent in another country may have in that other country a BE/FE through the agency. In this case, it is important to determine if the agent is a dependent agent depending on the degree of control exercised over the agent and the agent’s entrepreneurial risk. The guidance further clarifies that a person will be treated as having a BE in a country if any of the following conditions are met: (1) the main seat of economic activity is in that country; (2) the person carries on business through a branch in that country; or (3) the person carries on business through a dependent agent in that country. According to the guide, a FE exists in a country when there are human and technical resources present in that country to provide (or receive) services and these are present with a degree of permanency. To read a report prepared by the KPMG International member firm in Singapore, click here.

Singapore: Revised Guidance on GST Treatment of Fringe Benefits Published

On May 16, 2016, IRAS published an updated GST e-Tax Guide on Fringe Benefits. The Singapore GST legislation provides that a taxpayer is entitled to claim GST on fringe benefits if they are incurred for the purpose of business. The revised guide states that the provision of a fringe benefit will be considered as incurred for business purposes if the benefit has a close nexus to the business activities. Close nexus can be attained by any of the following indicators: (1) the benefit is necessary for the proper operation of the business (e.g., housing provided to foreign workers in the construction industry); (2) the benefit directly maintains or promotes the efficiency of the business operations (e.g., the provision of meals during meetings); (3) the benefit is incurred for corporate activities (e.g., company outings); (4) the benefit encourages the upgrading of employees’ skills and knowledge relevant to the business (e.g., membership fees); (5) the benefit is given in recognition of the contribution of the employees toward the business (e.g., long services awards); or (6) the benefit promotes corporate identity (e.g., pens with company’s logo). Where the goods or services are provided to only specific persons who are owners of the business, IRAS would likely treat these benefits as incurred for their personal consumption. Finally, businesses which are partially exempt and apportion GST incurred on expenditures should also apportion the GST incurred on fringe benefits. To read a report prepared by the KPMG International member firm in Singapore, click here.


 

Trade & Customs (T&C)

European Union: Value for Customs Purposes May Be Adjusted Based on Comparables

On June 16, 2016, the ECJ published its judgment in the EURO 2004. Hungary Kft. case, Case C-291/15, regarding the determination for customs purposes of the transaction value where the declared price is lower than the price paid in respect of other transactions relating to similar goods. In the case at hand, the taxpayer obtained the release for free circulation of various goods coming from the China after a partial inspection of the customs authority. However, following a post-clearance examination, the customs authority re-assessed the customs declared value and ordered the taxpayer to pay additional customs duties and VAT. The customs authority accepted that the customs values of the imported goods by net kilo corresponded to the price charged, but deemed that it was exceptionally low in relation to the statistical average values for comparable goods. The taxpayer did not provide further evidence on the accuracy of the value of the goods upon request from the customs authority. According to the ECJ, customs authorities are not required to determine the customs valuation of imported goods on the basis of the transaction value method if they are not satisfied, on the basis of reasonable doubts, that the declared value represents the total amount paid or payable. They may, therefore, refuse to accept the declared price if those doubts continue after they have asked for additional information or documents and have provided the person concerned with a reasonable opportunity to respond to the grounds for those doubts. When determining the new customs value, customs authorities are required, where possible, to use a sale of identical or similar goods, as appropriate, at the same commercial level and in substantially the same quantity as the goods being valued. Consequently, the ECJ held that a customs authority may determine the value of imported goods on the basis of the transaction value of similar goods where the declared transaction value is considered to be unreasonably low in comparison with the statistical average of the purchase prices verified in the context of the importation of similar goods if the importer has not submitted additional evidence to demonstrate the accuracy of the declared value upon the customs authority request.


 

In Brief

Bulgaria:vii On June 10, 2016, the government of Bulgaria submitted to the parliament VAT Bill No. 602-01-30 on security for liquid fuel sales. If adopted, the Bill would require taxpayers to provide the tax authorities with collateral in cash, government securities, or an unconditional bank guarantee for a period of one year when the value of liquid fuel sales, taxed at 20 percent, exceeds BGN 25,000 (USD 14,000). The Bill would further create an electronic public register for entering the credentials of the taxpayer providing the collateral and authorize the tax authority to cancel VAT registration when a taxpayer fails to provide the required collateral.

Bulgaria:viii On June 23, 2016, the National Revenue Agency clarified that, pursuant to the ECJ decision in Lebara, Case C-520/10 (May 3, 2012), the sale of prepaid phone cards should be treated as a sale of telecommunication services rather than a sale of goods. The ECJ held that the definition of telecommunication services should not only cover the transmission of signals and sounds as such, but also all services relating to the transmission and transfer of the corresponding right to use capacity for such transmission.

Canada: On May 31, 2016, the Finance Minister of the province of Manitoba presented the Budget 2016. If adopted, the budget would require out-of-province businesses to register for and collect sales tax if they hold an inventory of taxable goods in Manitoba that are for sale to Manitoba customers, effective June 1, 2016. To read a report prepared by the KPMG International member firm in Canada, click here.

Canada: Effective July 1, 2016, Ontario’s recaptured input tax credit (RITC) rate is reduced from 75 percent to 50 percent for expenses incurred as of July 1, 2016 in Ontario. Recall, as a temporary measure beginning July 1, 2010 in Ontario and April 1, 2013 in Prince Edward Island, large businesses and certain financial institutions have to recapture (repay) their input tax credits (ITCs) for the provincial part of the harmonized sales tax (HST) paid or payable on specified property and services. The RITC is expected to be completely phased out by July 1, 2018. To read a report prepared by the KPMG International member firm in Canada, click here.

Colombia:ix Colombia recently published in the official gazette Decree 660 of 2016, which details the VAT refund rules for tourists acquiring goods in special border development zones. According to the Decree, nonresident foreign national tourists are eligible to request a VAT refund for goods acquired in special border development zones. To request the VAT refund when the payment for the acquisition of goods is made in cash, the local seller must have in place the technical system for monitoring fiscal cards. In addition to goods, tourists may request a refund of VAT incurred on the following services: maintenance and repair of motor vehicles and motorcycles; accommodations, except when they are part of a travel package offered by agencies or hotels registered in the National Tourism Registry; services provided by travel agencies; leasing of vehicles up to 1,600 c.c. from providers registered with the National Tourism Registry; restaurants operating under a concession modality or as a franchise; hairdressings and other beauty services; parking; public and tourism transportation; and tourist guides. Tourists may request a VAT refund on purchases higher than 10 tax value units (TVUs), with a maximum amount to be refunded set at 100 TVUs.

European Union:x On June 22, 2016, the ECJ held in the Cesky Rozhlas case, Case C-11/15, that public broadcasting funded by mandatory fees charged to radio owners does not constitute a sale of services for consideration. The ECJ observed that there is no legal relationship or direct link between the radio and those liable for the radio fee, and the obligation to pay the radio fee does not stem from the provision of a service that would constitute direct consideration.

European Union:xi On June 14, 2016, the Advocate General of the ECJ concluded in the Pavlína Baštová case, Case C-432/15, that insofar as the running of a horse in a race is a component of the economic activity of a person who operates in the field of breeding and training racehorses, the expenses related to that component give rise to deduction of VAT incurred on expenditures. In addition, the award of prizes to the horses producing the best performances gives rise to taxable transactions. Finally, the AG is of the opinion that, subject to verification by the national court, the operation of racing stables should not be subject to a reduced VAT rate. The ECJ must now decide whether to adopt the nonbinding recommendations of the AG.

European Union:xii On June 22, 2016, the ECJ held in the Gemeente Woerden case, Case C-267/15, that a municipality is entitled to deduct the full amount of VAT paid during construction on the grounds that where a taxpayer has had a building constructed and has sold that building for a price less than the cost of constructing it, the taxpayer is entitled to deduct all of the VAT paid in respect of the construction of that building, and not only a part that is in proportion to the parts of the building which its purchaser uses for economic activities. The fact that that purchaser allows the building at issue to be used without charge is of no importance.

Gabon:xiii On February 15, 2016, Gabon published in the official gazette the Finance Law 2016, which includes various amendments to the VAT Law effective January 1, 2016. The Finance Law introduces a new zero rate applicable on the sale of oil to aircraft and vessels operating in international traffic as well as their maintenance and repair. Moreover, VAT incurred on sales of services by nonresident persons is not deductible when the same services are available in Gabon. Finally, the Finance Law clarifies that sales of immovable properties are subject to the standard VAT rate (currently 18 percent). The tax base for such sales is the sales price or market value (whichever is higher). However, for self-supplies of immovable properties, the taxable base is the cost of construction including the cost of land, notary fees, financial costs, wages and salaries, and other costs directly linked to the construction.

Greece:xiv On June 1, 2016, the Ministry of Finance of Greece clarified that the sale within the country and the importation of vessels carrying out transport of persons for reward or used for the purpose of commercial, industrial or fishing activities, or by the Greek state itself are VAT exempt, provided that such vessels have been constructed and carry out their activities on the high seas.

Gulf Cooperation Council:xv In a meeting on June 16, 2016, the Ministers of Finance of the Gulf Cooperation Council (GCC) member states (i.e., Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) approved the introduction of excise tax legislation, effective January 1, 2017, and VAT legislation, effective January 1, 2018. (For KPMG’s previous discussion on the introduction of VAT in the GCC, click here.) Following the meeting, on June 18, 2016, Qatar confirmed it will introduce a VAT with rates ranging from 3–5 percent in 2018. The United Arab Emirates announced separately that companies with annual revenues over AED 3.75 million ($1 million) will be required to register under the GCC VAT system, but registration will be optional for companies whose revenue falls between AED 1.87 million ($ 0.5 million) and AED 3.75 million during the first phase of VAT implementation. To read a report prepared by the KPMG International member firm in Qatar, please click here.

Kenya:xvi On June 8, 2016, the government of Kenya presented to the parliament the 2016/17 Budget, which proposes certain amendments to the VAT law. The Budget, if adopted, would exempt from VAT the following items: made-up garments and leather footwear procured from the Export Processing Zones; raw materials used in the manufacture of animal feeds; fees for entry into national parks; commissions earned by tour operators; liquefied petroleum gas; motor vehicles purchased or imported for direct and exclusive use of official aid funded projects; equipment and machinery imported or purchased locally for official use by the Kenya Defense Forces, the National Police Service and military provisions; direction-finding compasses, instruments and appliances for aircrafts; liquefied petroleum gas; museum and natural history exhibits and specimens and scientific equipment for public museums; chemicals, reagents, films, film strips and visual aid equipment imported or purchased by the Nation Museums of Kenya; goods or services for direct and exclusive use for the construction of recreational parks; goods or services for the direct and exclusive use for construction of specialized hospitals with accommodation facilities. In addition, goods or services sold to special economic zones would be zero rated. Finally, the Budget proposes to reintroduce the VAT withholding at the rate of six percent and exclude the service charge paid in lieu of tips from the tax base of hotel or restaurant services. To read a report prepared by the KPMG International member firm in Kenya, click here.

Latvia:xvii On June 16, 2016, the parliament of Latvia adopted amendments to the VAT Law. The amendments, effective July 1, 2016, introduce a requirement for the customer to self-assess VAT under the reverse charge mechanism on domestic sales of cereals and industrial crops. Moreover, taxpayers are allowed to claim a VAT refund if the refundable VAT exceeds EUR 1,500 ($ 1,650) and the VAT was incurred on goods and services involving transactions with timber, scrap materials, construction services, electronics, cereals and industrial crops, subject to the reverse charge mechanism.

Malawi:xviii On May 27, 2016, the government of Malawi presented to the parliament the draft Budget 2016/2017, which includes proposed amendments to the VAT law effective July 1, 2016. The Budget, if adopted, would extend the application of the standard VAT rate (currently 16.5 percent) to several products that are currently VAT exempt or zero-rated. The Budget would further allow mining companies to register for VAT during the exploration phase to recover VAT, which they are currently not allowed.

Nepal:xix On May 28, 2016, the government of Nepal presented the Budget 2016/17 which includes proposed amendments to the VAT law. The Budget, if adopted, would increase the VAT registration threshold from NPR 1 million ($9,000) to NPR 2 million ($18,000) for services and mixed transactions of goods and services. The Budget would further require vendors to display the prices of goods and services on a VAT inclusive basis. Finally, the Budget proposes to exempt from VAT certain agriculture-related products and imports of instruments by health institutions recognized by the government.

Philippines:xx On June 22, 2016, the Court of Tax Appeals of the Philippines, in Procter & Gamble Asia, CTA Case No. 7820, denied a claim for refund of VAT paid on services sold to entities located in a foreign country. The court noted that for a sale of services to be zero-rated (1) the services must not be for the processing, manufacturing, or repackaging of goods; (2) payment must be made in acceptable foreign currency; and (3) the recipient must be doing business outside the Philippines. In the case at hand, the Court of Tax Appeals stated that for the taxpayer to prove that its clients were nonresident foreign corporations doing business outside the Philippines, it should provide the following documents: SEC certification of non-registration of corporation/partnership, judicial affidavits executed by the company’s foreign affiliates’ officer, certificates of incorporation or registration, and business service agreements. Sufficient documentation was lacking for certain of the affected corporations.

Serbia:xxi On May 31, 2016, the Ministry of Finance of Serbia issued Opinion No. 011-00-1180/2015-04, which clarifies that nonresidents providing goods and services in Serbia have the option, but are not required, to register for VAT in Serbia provided all statutory requirements have been met. Nonresidents are not subject to sanctions if they fail to register for VAT.

South Africa:xxii On June 24, 2016, the South African Revenue Service (SARS) issued a public notice setting forth the following additional reasons for which SARS may reject an application for a binding private ruling or a binding class for VAT purposes: (1) the liability for tax of a vendor of goods and services that is not a party to the application; (2) the entitlement to deduct VAT in respect of goods or services acquired by a person who is not a party to the application; (3) whether a person is acting as an agent or principal in respect of a sale of goods or services; (4) whether a sale of goods or services constitutes a single sale; (5) confirmation that the issuing of a tax invoice, debit or credit note complies with the requirements imposed by any law relating to electronic communications, or that any technical requirements are met in respect of electronic invoicing; (6) confirmation that a sale of accommodation or any right to occupy a building, or part thereof, constitutes “commercial accommodation”; and (6) confirmation that a sale by a “welfare organization” to a public authority or municipality qualifies for the zero rate.

Taiwan:xxiii The Ministry of Finance of Tawain recently stated that the country plans to require foreign vendors of online services to register for and collect VAT on their sales to individuals in Taiwan.

Tanzania:xxiv On June 8, 2016, the government of Tanzania presented the Budget 2016/17, which proposes certain amendments to the VAT law. The Budget would, if adopted, exempt from VAT the following goods and services: raw soya beans; certain unprocessed vegetables and unprocessed edible animal products; vitamins and food supplements; water treatment chemicals; bitumen products under specified harmonized systems codes; and aviation insurance. Moreover, the Budget would impose VAT on specified tourism services and fee-based financial services (excluding interest paid on loans). Finally, the Budget would amend the sourcing rules to clarify that goods manufactured in mainland Tanzania and sold to Zanzibar would be subject to VAT in Zanzibar whereas goods manufactured in Zanzibar and sold to mainland Tanzania would be subject to VAT in mainland Tanzania.

Uganda:xxv On June 8, 2016, the government of Uganda presented the Budget 2016/17, which includes proposed amendments to the VAT law. Effective July 1, 2016, the Budget would, if adopted, introduce a VAT relief for sales procured from the domestic market for aid-funded projects, and on business inputs for producers of solar, wind and geothermal energy. Moreover, the Budget would subject to VAT at the standard rate (currently 18 percent) the importation of compact fluorescent bulbs and bulbs made from Light Emitting Diodes (LED) technology as well as the sale of electricity generated by solar. However, the Budget would exempt from VAT the sale of goods and services to the contractors of solar power or geothermal power projects; lubricants; un-denatured alcohol; steel and steel products; electronics, including refrigerators, washing machines, radios, DVD players and television sets; papers and paper products; and diapers. The Budget would further introduce a VAT refund on imported services used by business process outsourcing (BPO) companies at the time of export or offset, if the services are consumed in Uganda. To read a report prepared by the KPMG International member firm in Uganda, click here.

Ukraine:xxvi On April 11, 2016, Ukraine’s State Fiscal Service (SFS) published Guidance Letter No. 7964/6/99-99-19-03-02-15, clarifying the procedure for adjustment of VAT invoices in the case of mergers. According to the Letter, VAT invoices issued by the transferring company as a result of a merger cannot be adjusted if the adjustment leads to a decrease in VAT liabilities. However, if the price of the goods/services delivered by the transferring company increases, the receiving company is required to register a new VAT invoice in the amount of the price increase.

Ukraine:xxvii On April 19, 2016, Ukraine’s SFS published Guidance Letter No. 8831/6/99-99-19-03-02-15, which clarifies that effective January 1, 2016, the taxable base for goods produced and subsequently exported by a taxpayer may not be lower than their production costs otherwise the exporter is required to register a VAT invoice for the difference that is subject to VAT at the standard rate (currently 20 percent).

Ukraine:xxviii On May 4, 2016, Ukraine’s SFS published Guidance Letter No. 10019/6/99-95-42-01-15, which clarifies that compensation for land tax included in rental payments is not subject to VAT.

United Kingdom: On May 31, 2016, the UK tax authority, HM Revenue and Customs (HMRC), updated VAT Notice 701/45 thus replacing the original notice dated August 2011. The Notice clarifies the VAT exemption applicable for sporting and physical education, provides a list of services falling under the VAT exemption, and defines which bodies are eligible for the VAT exemption.

United Kingdom:xxix On June 30, 2016, HMRC updated VAT Notice 700/1 regarding when businesses should register for VAT. Changes have been introduced following adoption of a new system for registering for VAT and the removal of the VAT registration threshold for non-established taxpayers.

United Kingdom:xxx On May 4, 2016, HMRC updated VAT Notice 733 regarding the flat rate scheme for small businesses, which enables eligible businesses to simplify their records of sales and purchases and calculate their VAT liability as a fixed flat-rate percentage of their gross receipts. According to the updated Notice, a business with taxable gross receipts of less than GBP 150,000 ($220,000) annually may elect to be taxed under the flat rate scheme provided it is not associated with another entity. Additionally, changes have also been made to instructions on how to apply, fill in the application form, fill in the tax return, and how to pay.



 

About Inside Indirect Tax

Inside Indirect Tax is a monthly publication from KPMG’s U.S. Indirect Tax practice. Geared toward tax professionals at U.S. companies with global locations, each issue will contain updates on indirect tax changes and trends that are relevant to your business.


i

IBFD, Belarus – Application of 25 percent VAT rate to supply of telecommunications services clarified (June 14, 2016).

ii

IBFD, Belgium – Bill on additional taxes and reforms presented to parliament (June 14, 2016).

iii

CCH, Global VAT News, Hungary’s 2017 Budget Approved (June 17, 2016).

iv

IBFD, Jordan – Reduced GST rate applicable to phosphoric acid (June 7, 2016).

v

IBFD, Portugal – VAT zero rate for alternative medicine – draft bill presented (June 7, 2016).

vi

IBFD, Uruguay – Draft bill with tax measures announced by government – details (June 16, 2016).

vii

IBFD, Bulgaria – VAT bill on security for liquid fuel sales – submitted to parliament (June 14, 2016).

viii

IBFD, Bulgaria – National Revenue Agency clarifies VAT treatment of sale of prepaid phone cards (June 28, 2016).

ix

IBFD, Colombia – Decree 660 of 2016 – VAT refund for foreign tourists acquiring goods in special border development zones (June 6, 2016).

x

IBFD, European Union; Czech Republic – ECJ decision (VAT): Český rozhlas (Case C-11/15) – Public radio; exempt or non-economic activity; Tax Analysts, Public Radio Fees Not Covered by VAT Directive, CJEU Holds (June 23, 2016).

xi

IBFD, European Union; Czech Republic – ECJ Advocate General’s Opinion (VAT): Baštová (Case C-432/15) – Supply of a racehorse; taxable amount; input tax deduction; reduced rate (June 14, 2016).

xii

IBFD, European Union; Netherlands – ECJ decision (VAT): Gemeente Woerden (Case C-267/15) – Input tax deduction (June 22, 2016); Tax Analysts, City May Deduct Full Input VAT on Buildings Sold, CJEU Finds (June 23, 2016).

xiii

IBFD, Gabon – Finance Law 2016 – indirect taxes (June 7, 2016); Orbitax, Gabon 2016 Budget Law Measures Include Increased Withholding Taxes, VAT changes and Others (June 13, 2016).

xiv

IBFD, Greece – VAT treatment of construction, repair, maintenance and fuelling of vessels intended for navigation on high seas clarified (June 2, 2016).

xv

CCH, Global VAT News, GCC Agrees Framework for Excise Duties, VAT (June 22, 2016); IBFD, GCC – Introduction of Gulf Cooperation Council VAT approved (June 29, 2016); IBFD, Qatar – Introduction of VAT at 5 percent confirmed (June 29, 2016); IBFD, United Arab Emirates – Introduction of VAT – registration thresholds set (June 29, 2016).

xvi

IBFD, Kenya – Budget 2016/17 – indirect taxation (June 10, 2016); IBFD, Kenya – Finance Bill 2016 – indirect taxation (June 14, 2016).

xvii

IBFD, Latvia – Introduction of reverse charge mechanism to supplies of cereals and industrial crops (June 15, 2016); IBFD, Latvia – Reverse charge mechanism for supplies of cereals and industrial crops-adopted (June 20, 2016).

xviii

CCH, Global VAT News, Malawi Plans Expanded VAT Base in Budget (June 3, 2016); Orbitax, Malawi Budget 2015/2016 Presented to the National Assembly (June 2, 2016).

xix

IBFD, Nepal – Budget for 2016/2017 – indirect taxes (June 15, 2016); Tax Analysts, Nepal’s Budget contains 15 Percent Tax Rebate for Public Companies (June 17, 2016).

xx

Tax Analysts, P&G Failed to Substantiate Zero-Rated Sales, Philippine Court Finds (June 28, 2016).

xxi

IBFD, Serbia – Ministry of Finance explains registration of foreign entities for VAT purposes (May 31, 2016).

xxii

IBFD, South Africa – Additional considerations for rejecting rulings – public notice issued (June 27, 2016).

xxiii

IBFD, Taiwan – New VAT rules on foreign online sale services expected (June 27, 2016).

xxiv

IBFD, Tanzania – Budget 2016/17 – indirect taxation (June 10, 2016).

xxv

IBFD, Uganda – Budget 2016/17 – presented to Parliament (June 9, 2016).

xxvi

IBFD, Ukraine – Adjustment of VAT invoices in case of mergers – SFS clarifications (June 8, 2016).

xxvii

IBFD, Ukraine – VAT treatment of export operations when price of goods is lower than production costs – SFS clarifications (June 10, 2016).

xxviii

IBFD, Ukraine – Compensation for land tax not subject to VAT – SFS clarifications (June 22, 2016).

xxix

CCH, Global VAT News, HMRC Updates Guidance on UK VAT Registration (June 13, 2016).

xxx

CCH, Global VAT News, HMRC Updates Flat Rate Scheme VAT Guidance (June 20, 2016).

 

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