VAT News - empcom.gov.in

Argentina 

Rates and exemptions – Buenos Aires city 

Laws No. 2,997 and No. 2,998, which were published in 

the Official Gazette of the city of Buenos Aires, amended 

the city’s tax on gross receipts with effect from 1 January 

2009. The amendments can be summarized as follows: 

− the exemptions that previously applied to certain 

activities were abolished; 

− specific local manufacturers whose annual turnover 

does not exceed ARS 20 million are exempt from the 

tax on gross receipts and, where their turnover is 

higher than ARS 20 million, the tax rate is 1%; 

− a one-year exemption applies to entities or natural 

persons starting a new activity in the city of Buenos 

Aires, under the condition that such an entity or person 

provides employment to at least three persons 

and the estimated annual turnover derived from the 

activity does not exceed ARS 0,000; 

− financial activities are subject to the tax rate of %; 

− construction activities are subject to the tax rate of 

%; 

− the first sale of imported goods is subject to the tax 

rate of 4. %; 

− call and contact centres are subject to the tax rate of 

1%; and 

− exported services, which were previously subject to 

the rate of 1. %, are exempt from the tax on gross 

receipts. 

By adopting the above measures, the local congress has 

followed the proposal that was presented to it, 1 with the 

exception of the tax rate on telecommunications services, 

which remained unchanged at %. 

Price reductions – Buenos Aires Province 

Provincial Law No. 1 ,9 0 amended Chapter 1 (a) of 

the Tax Code of the province of Buenos Aires. Under the 

amendment, which applies from 1 January 2009, reductions 

of the initially charged prices cannot have the effect 

that, for the purposes of the tax on gross receipts, the 

related taxable turnover is reduced by more than %, i.e. 

where the price is reduced by more than %, the taxpayer 

must still account for the tax on 9 % of the initial 

turnover. In this respect, it makes no difference whether 

the initial price was reduced on the ground of a discount 

or bonus granted by the supplier to his customer, or on 

the ground that the transaction was cancelled. The new 

rule has the effect that the effective tax rate will be higher 

than the statutory rate. 

In response to a complaint from the business society that 

the new rule has a negative impact on generally accepted 

commercial practices, the provincial Economy Ministry 

and Revenue Service have declared that the new rule will 

only be applied to “high-risk taxpayers” and that the limited 

scope of the new rule will be laid down by a decree 

and resolution that will be issued soon (but had not yet 

been issued at the end of February 2009). In the event of 

VAT News 

price reductions in excess of %, legitimate businesses 

will be authorized to automatically adapt the taxable 

turnover correspondingly. 

From our correspondent Daniel Calzetta 

Buenos Aires 

Australia 

Avoidance schemes – Immovable property 

The Australian Taxation Office (ATO) has uncovered a 

number of related schemes that have been used to avoid 

GST on sales of immovable property and has issued two 

“Taxpayer Alerts” warning taxpayers of the risk of engaging 

in the schemes. Taxpayer Alerts are used by the ATO 

to dissuade taxpayers from entering into, and tax advisers 

from recommending, schemes that have been uncovered 

before they proliferate too widely. The “stick” they 

wield is an explicit caution that the ATO may apply the 

general anti-avoidance rule in the GST Act and all associated 

penalties to persons who enter into the identified 

schemes. 

The schemes under attack involve arrangements by sellers 

of immovable property to maximize the entitlement 

to deduct input tax. In Australia, all sales of commercial 

immovable property are subject to GST in the same 

manner as other taxable supplies and the initial sale of 

residential immovable property is also subject to GST. 

Subsequent sales of residential property and rentals of 

residential property are exempt supplies (or, as they are 

called in Australia,“input-taxed” supplies). 

The schemes are related to Australia’s transitional rules 

for residential properties entering the GST system. These 

rules, known as the “margin scheme”, are intended to 

ensure that no tax is imposed on the value of residential 

immovable property prior to its entry into the GST system. 

The rules apply to enterprises that held residential 

properties at the time the GST was introduced in mid- 

2000. The scheme allows property owners to value residential 

property when it enters the GST system and subtract 

that value from the eventual sale price to find the 

amount on which GST is levied. Property is taken to 

enter the GST system when the entity that owned the 

land on 1 July 2000 first registers for the GST. 

The first scheme described in a Taxpayer Alert is used by 

unregistered landowners who have acquired immovable 

property prior to 1 July 2000, when the GST commenced. 

The landowner could register for GST purposes 

at any time if it wished to construct residential premises 

on the land and claim input tax. However, early registration 

to claim the input tax would significantly raise the 

value of the margin on which GST is levied because the 

starting price of raw land would be well below the mar- 

1. See International VAT Monitor (2008), p. 4 0. 

© IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 

1 1


ket value of the property after the premises has been 

constructed. 

The schemes seek to provide a means of recovering input 

tax while minimizing the value of the margin. This is 

done by having the landowner contract with a GST-registered 

associate to construct and market the residential 

premises. The associate is providing taxable services to 

the landowner and can therefore deduct all input tax it 

pays to the builders. The associate does not require any 

progress payments from the landowner as the premises 

are constructed. 

After the premises are built and immediately prior to the 

sale of the premises, the landowner registers and receives 

an invoice from the associate for all building and selling 

expenses. The landowner claims the GST included in the 

invoice. It uses the margin scheme to calculate the GST 

payable on the sale of the property and uses a valuation 

of the immovable property at the date of its GST registration 

(that is, after the premises were constructed). As a 

result, it is able to claim all input tax and the output tax 

on the sale is very low (based on the small margin). 

The ATO has indicated a number of avenues that might 

be used to attack the arrangements. For example, it suggests 

that in many cases it will be possible to show that 

the property owner was under an obligation to register at 

a much earlier time, when it first decided to have premises 

constructed (which would shift the starting value to 

a much lower amount). It also indicated that the general 

anti-avoidance provision in the GST Act could apply to 

the schemes as they have the purpose or the effect of 

generating a tax benefit. 

A second scheme involves residential properties that are 

constructed, leased, and then sold. As the properties are 

first leased (an exempt or input-taxed supply), the owner 

is not entitled to recover GST on the costs of construction. 

Once again, the owner will contract with a GSTregistered 

associate to have the residential premises constructed 

and the associate will pay a builder to erect the 

premises, claiming all input tax incurred. The associate 

does not seek any progress payments and neither does it 

issue an invoice to the owner before the construction is 

completed or when the property is leased. If the owner 

subsequently sells the property to an investor (the property 

title being subject to the existing lease), the associate 

will invoice the owner just prior to the sale. 

The ATO questions a number of aspects of the transaction 

and concludes that the anti-avoidance provisions in 

the GST Act are likely to apply, as the arrangement 

appears artificial and contrived in its design and execution. 

From our correspondent Richard Krever 

Monash University, Melbourne 

Austria 

In December 2008, the Ministry of Finance released 

amendments to the VAT Guidelines. The most important 

changes are as follows. 

Managing directors 

An independently acting managing director of a private 

limited company, who is also the sole or main shareholder 

of the company, can, as a simplification measure, 

be treated as a non-taxable person, in particular if the 

company is not entitled to deduct the VAT on the director’s 

management fee. 

Members of the supervisory board of private foundations 

are in general regarded as taxable persons. However, 

they are not considered to be taxable persons, if 

they do not act independently and actually form part of 

the foundations’ organization. 

Conference rooms 

The letting of seminar rooms in hotels, together with 

technical equipment necessary for meetings, conferences, 

seminars, etc. and the provision of foods and beverages 

during the coffee and tea breaks, is not ancillary to 

the provision of hotel accommodation (to the participants 

of the meeting, conference or seminar) and, therefore, 

not subject to the reduced rate. 

Faxed invoices 

Until the end of 2009, taxable persons are entitled to 

deduct VAT mentioned on invoices that they have 

received by fax. 

Documentary evidence 

Where, in the course of a VAT audit, the tax authorities 

find that a supplier of goods holds insufficient documentary 

evidence to show that his supplies were zero 

rated as intra-Community supplies of goods, the supplier 

cannot repair that deficiency retrospectively for the 

purposes of the zero rate. 

Annual VAT congress 

In December 2008, the tax authorities published the 

results of the annual congress on various VAT issues. The 

most important conclusions were: 

Letting of residential property 

Real estate companies do not have the right to deduct 

input VAT in respect of the letting of residential property 

(houses, apartments, etc.) to their shareholders for the 

latter’s private purposes, if such a lease is not on conditions 

that would have applied at arm’s length or the property 

was especially constructed according to the wishes 

of the shareholder. 

Portfolio management 

Management by banks of their clients’ portfolio of shares 

and other securities is treated as a single service that is 

subject to VAT if the bank exercises its management 

mandate without further instructions from the client. 

However, if the client decides on the asset management 

activities of the bank, the latter is considered as supplying 

different services, which, for VAT purposes, must be 

treated according to their nature (i.e. tax exempt or subject 

to VAT). 

1 2 INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 © IBFD

Correcting invoices 

Where VAT is not legally due and only payable to the 

authorities under Sec. 11(14) of the VAT Act, i.e. on the 

ground that the VAT was mentioned on an invoice, and 

the supplier subsequently corrects the invoice, the customer 

does not have to explicitly accept the invoice 

(unless he issues the correcting invoice himself under 

the arrangements for self-invoicing). Furthermore, the 

initial invoices can only be corrected under those circumstances 

if the customer has not deducted the VAT 

mentioned on the invoice or has actually repaid any 

deducted input VAT to the tax authorities. 

Good faith 

The provision laid down by Sec. 12(1)(1) of the VAT Act 

that taxable persons are not entitled to deduct input VAT 

if they knew or should have known that the related supply 

was connected with VAT fraud has a clarifying effect 

only. Those circumstances must be established under 

national law. In the case of carousel fraud, VAT shown on 

an invoice must be remitted to the authorities on the 

ground that the VAT has been mentioned on an invoice 

(see Art. 20 of the VAT Directive) and the recipient of 

the supply is not entitled to deduct that VAT as input 

VAT, unless he was acting in good faith. The recipient of 

the supply can be considered as having acted in good 

faith, if he acted with due commercial diligence in order 

to ensure that he was not part of VAT fraud. 

Pharmaceuticals 

Under the amendment of the VAT Act that was published 

in Bundesgesetzblatt (Official Gazette) I 1 2/2008 

and entered into force on 1 January 2009, the reduced 

VAT rate of 10% for pharmaceuticals exclusively applies 

to pharmaceuticals covered by the Arzneimittelgesetz 

(Act on pharmaceuticals), not to medical products 

falling under the Medizinproduktegesetz (Act on medical 

products). The latter products continue to be subject to 

the standard rate of 20%. 

In its public notice of 17 December 2008, No. 

010219/0498-VI/4/2008, the Ministry of Finance noted 

in this respect that Chapter 0 of the Combined Nomenclature 

(“pharmaceutical products”) refers to both pharmaceuticals 

within the meaning of the Arzneimittelgesetz 

and medical products within the meaning of the Medizinproduktegesetz. 

Consequently, the importation of pharmaceutical 

products within the meaning of Chapter 0 

CN is not under all circumstances subject to the reduced 

rate of VAT. 

From our correspondent Hannes Gurtner 

Leitner+Leitner, Linz 

Belgium 

Housing as part of a social policy 

On 1 February 2009, the Royal Decree of 10 February 

2009, which amended Royal Decree No. 20 by introducing 

several measures to stimulate the construction of 

houses as part of an economic stimulus package, was 



published in the Official Gazette. The measures apply 

until the end of 2009. 

Under the amendments, the reduced rate of 

to: 

% applies 

– demolition and reconstruction of houses in the 

framework of the social policy; 

– construction and supplies of private dwellings 

intended as the sole or main residence of the owner. 

In that case, the reduced rate applies to a ceiling of 

EUR 0,000 and any surplus is subject to the stan- 

– 

dard rate; 

housing as part of a social policy, i.e. supplies of private 

dwellings, intended for letting or sale in the 

framework of the social policy, made to provinces, 

intercommunal companies, local authorities, intercommunal 

public centres for social assistance and 

other social assistance centres. 

Work on immovable property used as shelter for psychiatric 

patients and the homeless is also subject to the 

reduced VAT rate. 

Monthly VAT refunds 

On 1 February 2009, the Royal Decree of 10 February 

2009, which amended Royal Decree No. 4 to the effect of 

extending the categories of taxable persons entitled to 

monthly refunds of excess input VAT, was published in 

the Official Gazette. Monthly refunds of excess input tax 

are made to taxable persons who file their periodic VAT 

returns on a monthly basis and structurally have excess 

input tax due to the nature of their activities. The following 

categories qualify for the refund: 

– taxable persons making supplies of goods and services 

that are subject to the reverse charge mechanism, 

for example taxable persons operating in the 

construction sector or supplying investment gold; 

– taxable persons carrying out work on immovable 

property, supplying buildings, or assigning or transferring 

rights in rem relating to buildings, on the 

condition that those transactions are subject to VAT 

at the rate of %; 

– in certain cases, taxable persons supplying goods 

and services that are deemed to be supplied abroad. 

Penalties relating to the reverse charge mechanism 

Under Art. 1(2) and (4) of the BTW Wetboek (VAT 

Code), the reverse charge mechanism applies in an 

increasing number of cases. Under the reverse charge 

mechanism, suppliers of goods and services are not 

allowed to charge the VAT due on supplies to their customers 

but, instead, the customers must account for VAT 

through their periodic VAT returns on the value of the 

received supplies and, since the reverse charge mechanism 

is limited to B2B situations, are entitled to deduct 

that VAT through the same returns. 

Violations of the reverse charge mechanism rules are 

subject to administrative penalties which – depending 

on whether the penalty is imposed on the supplier or 

customer, the reverse charge mechanism was incorrectly 

applied or incorrectly not applied and the annual 

1


amount of VAT involved in the violation – are %, 10% 

or 20% of the VAT involved. 2 In addition, the accompanying 

violation of the invoicing rules is subject to a 

penalty of EUR 0 per invoice, which is reduced in 

accordance with the table of reductions of administrative 

penalties as published in the Official Gazette of 

8 August 2002. 

Similar situations may arise in respect of intra-Community 

acquisitions of goods or the importation of goods 

under postponed accounting. 4 In those cases, the penalties 

are, depending on the amount of VAT involved in a 

period of one year, 10% or 20% of the amount of VAT or, 

provided that the importer is entitled to full input tax 

deduction, EUR 0 per audit period, respectively. 

The failure to include the VAT incurred on intra-Community 

acquisitions in the periodic VAT return is penalized 

with an administrative fine of 10 % or 20 % of the 

VAT owed. 7 Various administrative fines exist in cases of 

violations connected to the reverse charge mechanism 

on imports, including 0 EUR per control period for the 

failure to include VAT incurred on import, where such 

VAT is fully deductible, in the periodic VAT return. 8 

The Minister of Finance takes the view that the current 

penalty system is not consistent and that the penalties 

are not under all circumstances proportionate to the 

seriousness of the violation and the interests of the 

Treasury. He has therefore charged the tax authorities 

with the task of making proposals to improve the penalty 

system. 

Q&A, Chamber, Q. No. 9 from Mr Van Biesen on 0 

September 2008, QRVA, 24 November 2008, No. 042, 

112 . 

Refunds of VAT – VAT groups 

The Minister of Finance has pointed out that the 

arrangements on VAT grouping within the meaning of 

Art. 11 of the VAT Directive only apply at national level 

and that the members of VAT groups can only rely on the 

advantages of the grouping arrangements in their relationship 

with the tax authorities of the Member State 

where they are established. 

It follows that only the members of a group which are 

legally independent can be regarded as taxable persons 

for the purposes of refunds of VAT under the Eighth 

Directive. In other words, refund applications made on 

behalf of several members of a foreign VAT group do not 

meet the criteria of the Eighth Directive. In order to be 

valid, refund applications must be made in the name of a 

single legal person and the particulars of that person 

only must be included in the refund application, with the 

exception of the VAT identification number, which may 

have been assigned to the VAT group to which the nonresident 

applicant belongs. However, if the group’s VAT 

identification number has been cancelled, for example 

on the ground that the VAT group has been dissolved, 

refund applications made by former members of the 

group will in principle be refused. 

Members of a foreign VAT group wishing to exercise 

their right to a refund under the Eighth Directive must 

present a certificate confirming that they are subject to 

VAT in the Member State where they are established. The 

circumstance that that certificate mentions the VAT 

identification number of the VAT group to which the 

applicant belongs does not affect his status as a taxable 

person. 

Q&A, Chamber, Q. No. 288 from Mr Brotcorne on 24 

July 2008, QRVA, 27 October 2008, No. 0 8, 9802. 

Refunds of VAT – Partial refunds 

Under Art. of the Eighth Directive, refund applications 

made by taxable persons established in another EU 

Member State must be accompanied by a certificate 

issued by the tax authorities of the EU Member State 

where the applicant is established, confirming that the 

applicant is subject to VAT in that Member State. The 

models for that certificate and the refund application 

form are annexed to the Eighth Directive. 

Where, on the basis of the certificate and the information 

contained in the refund application, the tax authorities 

decide that they do not have all the elements 

required to determine with certainty the amount of VAT 

that can be refunded to the non-resident taxable person, 

the authorities are authorized to ask the applicant for the 

additional information they consider necessary to establish 

the applicant’s right to a refund. If the applicant carries 

out transactions that are both within and outside the 

scope of the VAT Code, or that are both taxed and 

exempt, the certificate will simply state that the applicant 

is subject to VAT. The extent to which the applicant is 

entitled to obtain a refund is determined on the basis of 

the rules applicable in the Member State of refund. 

Q&A, Chamber, Q. No. 291 from Mr Brotcorne on 24 

July 2008, QRVA, 27 October 2008, No. 0 8, 980 . 

CKBB and CLO – Change of address 

On 19 February 2009, the Central Office for non-resident 

taxable persons (CKBB), the service competent for 

both VAT identification and VAT refund, and the Central 

VAT Liaison Unit (CLO) moved from Jozef 

Stevensstraat 7 to Paleizenstraat/Rue des Palais 48, 10 0 

Brussels. 

On 22 February 2009, the VAT collection office competent 

for the CKBB (Central Office for non-resident tax- 

2. See Art. 70(1) of the VAT Code and Table G, categories IV or V of the 

annex to Royal Decree No. 41. 

. See Art. 70(4) of the VAT Code and category II of the first section of the 

Annex to Royal Decree No. 44. 

4. See Art. 1(1)(2°) of the VAT Code and Art. ( ) of Royal Decree No. 7. 

. See Art. 70(1) of the VAT Code and Table G, category V, of the annex to 

Royal Decree No. 41. 

. See category VIII, point , of Table G, category V, of the Annex to Royal 

Decree No. 41. 

7. See Art. 70 (1) of the VAT Code and Table G, category V, of the Annex to 

Royal Decree No. 41. 

8. See category VIII, point , of Table G of the annex to Royal Decree 

No. 41. 


able persons) moved from Kantersteen 47 to the Finance 

Tower, Administratief Centrum Kruidtuin/Centre Administratif 

Botanique, Kruidtuinlaan/Boulevard du Jardin 

Botanique 0, 1000 Brussels. 

From our correspondent Patrick Wille 

The VAT House, Brussels 

Benin 

Exemptions 

The Budget for 2009 has been enacted as Law No. 2008- 

09 of 2 January 2009. Under Law 2008-09, new equipment 

and materials used for petrol stations, computer 

equipment, including software and printers, and vehicles 

used for collective transport are exempt from VAT and 

customs duties, from 1 January until 1 December 2009. 

Brazil 

Law No. 11774/2008 of 17 September 2008, which 

resulted from the passing into law of Provisional Measure 

No. 428, has introduced several changes into the federal 

tax legislation. The three most important changes 

are summarized as follows. 

Flat-rate deductions 

Under Law No. 11774, taxpayers continue to be allowed 

to deduct, within 12 months, from their PIS, import PIS, 

COFINS and import COFINS liabilities an amount 

based on depreciation of machines and new items of 

equipment which are earmarked for the production of 

goods and services. That flat-rate deduction had existed 

since May 2008. 

Work on vessels 

Under Law No. 11774/2008, the zero rate of PIS, import 

PIS, COFINS, and import COFINS applies to materials 

and items of equipment, including parts, pieces and 

components, used for the construction, preservation, 

modernization, retrofit or repair of vessels registered or 

preregistered with the Brazilian Special System. 

Transport services 

Under Law No. 11774/2008, the suspension of PIS and 

COFINS has been extended to predominantly exporting 

legal entities and multimodal 9 transport companies in 

respect of transport of goods. 

FIFA World Cup 

Under ICMS Convention No. 108 of 2 September 2008, 

which was issued by the National Finance Policy Council 

(CONFAZ), the states and the federal district are 

authorized, until 1 July 2014, to grant exemption from 

ICMS for transactions in goods and assets used for the 

construction, expansion, renovation or modernization 

of stadiums that will house the 2014 FIFA World Cup. 



Olympics and Paralympics 

Under ICMS Convention No. 1 of December 2008, 

which was issued by the CONFAZ, the states and the federal 

district are authorized to grant exemption from 

ICMS for transactions involving domestic and imported 

goods intended for the Olympic and Paralympic Games 

in 201 . The concession only applies to transactions that 

are both exempt from import duty or exempt or zero 

rated for IPI and not subject to assessment of 

PIS/COFINS. 

From our correspondent Marcelo Marquez Roncaglia 

Pinheiro Neto Advogados, São Paulo, Rio de Janeiro and 

Brasilía 

Transfer of ICMS credits 

Under Provisional Measure No. 4 1, which was published 

in the Official Gazette of 1 December 2008, the 

transfer of ICMS credits by exporting companies to 

other companies subject to ICMS is, with effect from 1 

January 2009, no longer subject to PIS and COFINS. 10 

Exporting companies accumulate those credits because 

export transactions are neither subject to PIS and 

COFINS, nor to ICMS. 

Bruno Carramaschi, Lefosse Advogados 

in cooperation with Linklaters LLP, Sao Paulo 

Burkina Faso 

Railway transport 

It has been reported that, under the budget for 2009, 

transport by railway has become subject to VAT. 

Cameroon 

Law No. 2008/012 of 29 December 2008 enacted the 

Finance Law for 2009. The provisions of that law apply 

from 1 January 2009. 

Health and life insurance 

Intermediary services rendered by brokers and agents 

and relating to health and life insurance are exempt from 

VAT. The insurance itself was already exempt. The 

related commissions include all payments made by 

insurance companies to brokers, general agents and all 

other intermediaries as remuneration for their activities 

in the framework of the sale or management of health 

and life insurance contracts. 

9. The terrestrial transport national agency defines “multimodal transport” 

as the transport in which, in a single contract, more than one type of transport 

(air, maritime, etc.) is used. 

10. COFINS (Contribuicão para o financiamento da seguridade social) is a 

federal social contribution levied at the rate of 7. % on the total turnover of 

legal entities, with the exception of turnover derived from practically all financial 

services, and the value of imported goods. Under the non-cumulative system, 

entities subject to that contribution are entitled to deduct an amount 

corresponding to the COFINS levied at the preceding stage on certain goods 

and services used for the purposes of their business. 

1


Alcoholic beverages 

On the importation of certain alcoholic beverages, in 

particular wine, brandy, fermented drinks and vermouth, 

VAT and excise duties will be imposed on the “transactional 

value” of the imported goods. 

Canada 

Direct selling industry 

On 27 January 2009, the Finance Minister tabled the federal 

Budget. Most of the attention on the Budget has 

gone to the extensive spending proposals (both direct 

spending and tax credits) designed to kick-start the 

economy. The Liberals have announced that they will 

support the Conservative Budget, and thus the Budget 

proposals will definitely be enacted. 

The Budget included one detailed GST proposal, introducing 

a new Sec. 178 to deal with network sellers. The 

Supplementary Information in the Budget provides this 

explanation: 

Simplification of the GST/HST for the direct selling 

industry 

The direct selling industry distributes goods to final consumers 

through a large number of contractors and sales 

representatives rather than through retail establishments. 

The direct selling industry generally employs two business 

models: 

– the buy-and-resell model, where contractors purchase 

goods from a direct seller and resell the goods 

to consumers with a markup; and 

– the commission-based model, where a network of 

sales representatives of a direct selling organization 

(a “network seller”) is established for arranging for 

the sales of the network seller’s goods to consumers, 

for which the representatives receive a commission. 

To simplify the operation of the goods and services 

tax/harmonized sales tax (GST/HST) for direct sellers and 

their contractors, the Excise Tax Act currently offers an 

alternative collection method (ACM) for direct sellers 

employing the buy-and-resell model [Secs. 178.1-178. 

ed.]. The method is not available to those in the direct selling 

industry employing the commission-based model. 

Where a direct seller elects to use the ACM, the contractor 

pays, to the direct seller, an amount equal to the 

GST/HST on the suggested retail price of the direct 

seller’s goods, and the direct seller is required to remit the 

equivalent tax to the government. The contractor is not 

obliged to remit GST/HST on the contractor’s sales of 

the direct seller’s goods to consumers, since the amount 

of tax has already been remitted by the direct seller. In 

addition, under the ACM, sales of direct-seller goods by 

a contractor are ignored in determining whether the 

contractor qualifies as a small supplier for GST/HST 

purposes. Also, supplies by a direct seller of sales aids to a 

contractor, as well as supplies of host gifts made directly 

or indirectly through a contractor, are not subject to 

GST/HST. 

The Budget 2009 proposes to allow network sellers who 

meet the conditions listed below to use a special 

GST/HST accounting method to simplify GST/HST 

compliance. With the approval of the Minister of 

National Revenue, where those conditions are met and a 

network seller jointly elects with all of the network 

seller’s sales representatives to use the proposed method: 

– the commissions and bonuses received by these sales 

representatives from the network seller for arranging 

the sale of the network seller’s goods would not be 

subject to GST/HST; 

– the commissions and bonuses received by sales representatives 

from the network seller for arranging 

the sale of the network seller’s goods would be 

– 

ignored for determining whether sales representatives 

qualify as small suppliers who are not required 

to register for GST/HST purposes; 

certain supplies by network sellers of sales aids to 

these sales representatives, and supplies of host gifts 

to the sales representatives and hosts, would not be 

subject to GST/HST; and 

– the sale of the goods by the network seller to the final 

consumer would continue to be subject to the 

GST/HST under the normal rules. 

A GST/HST-registered network seller will generally be 

eligible to elect to use this special method for a fiscal year 

if the following conditions are met: 

– all or substantially all of the sales of the network 

seller in the fiscal year are expected to be made 

through sales representatives or, if the network seller 

employs both business models referred to above, 

through a combination of sales representatives and 

buy-and-resell contractors; 

– all or substantially all of the sales of the network 

seller in the fiscal year arranged by sales representatives 

are expected to be made to final consumers; 

– all or substantially all of the sales representatives of 

the network seller are expected to receive commissions 

and bonuses from the network seller of no 

more than CAD 0,000 in the fiscal year; and 

– joint elections are made with each new sales representative 

to continue to qualify for the election. 

Where a network seller has elected to use the special 

GST/HST accounting method, and it is subsequently 

determined that one or more of the conditions of the 

election were not met in a fiscal year, the network seller 

will be required to make an adjustment to the network 

seller’s GST/HST net tax. An adjustment to the 

GST/HST net tax of a network seller will also apply 

where the network seller fails to notify its sales representatives 

that the election has ceased to have effect. 

The Budget 2009 has also proposed that this special 

GST/HST accounting method will be available in 

respect of fiscal years of a network seller that begin after 

2009. 

From our correspondent David M. Sherman 

Toronto, Ontario 

1 INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 © IBFD

Central African Republic 

Petroleum products 

Law No. 08-024 of 7 December 2008 enacted the 

Finance Law for 2009. Under Law No. 08-024, retail sales 

of petroleum products were added to the list of taxable 

transactions with effect from 1 January 2009. 

VAT on petroleum products is not deductible, unless the 

products are: 

– purchased by importers or wholesalers for resale, or 

used for the purposes of generating electricity for 

resale; or 

– used by manufacturers in industrial enterprises as 

fuel for fixed machinery. 

Rates 

Law No. 08-024 of 7 December 2008 provides that, from 

1 January 2009, the VAT rates are as follows: 

– the standard rate is 19%; 

– the reduced rate of % (previously 10%) applies to 

wheat, milk, frozen fish, and refined oil; and 

– the zero rate applies to exports and related international 

transport services, on the condition that the 

exports have been declared to, and verified by, the 

customs authorities. 

China (People’s Rep.) 

The amendments to the VAT system that entered into 

effect on 1 January 2009 did not address certain issues 

and, consequently, it was not clear whether the special 

reduced VAT rates and the simplified VAT collection 

system continued to apply from that date. Under the 

simplified VAT collection system, small businesses are 

subject to a reduced rate of VAT and, at the same time, 

not entitled to deduct input tax. 

On 19 January 2009, the Ministry of Finance and the 

State Administration of Taxation (SAT) jointly clarified 

the situation by means of a notice, Cai Shui [2009] No. 9, 

which applies with retrospective effect from 1 January 

2009. The notice contains the following information. 

Reduced rates 

The following goods continue to be taxed at the reduced 

rate of 1 %: 

– agriculture products, including all primary products 

of vegetable or animal nature produced on farms, by 

cultivation or in the forestry industry and animal 

husbandry; 

– audio and visual products, including recorded audio 

and video tapes, records, CDs, laser discs, etc.; 

– electronic information carriers, such as CD-ROMs, 

rewritable CD-ROMs, floppy and hard disks, integrated 

circuit cards, various memory chips, etc.; and 

– dimethyl ether. 

Ordinary taxpayers may opt for application of the rate of 

% in respect of the supply of the following self-produced 

goods: 



– electricity produced by small hydropower stations 

(having a capacity of not more than 0,000 kilowatts) 

operating at, at least, county level; 

– sand, earth and stone materials used for construction 

or for production of construction materials; 

– bricks, tiles and lime from sand, earth and stone 

materials or other mineral goods excavated by the 

taxpayer; 

– biological products made from microbe, microbe 

metabolite, animal toxin, and human and animal 

blood or tissue; 

– running water; and 

– commercial concrete made of cement. 

Ordinary taxpayers are subject to VAT at the rate of 4% 

in respect of: 

– sales of goods that the retailer has on consignment; 

– sales by pawnshops of uncollected goods; and 

– sales of goods in duty-free shops approved by the 

State Council or another authorized government 

department. 

Disposal of self-used fixed assets by ordinary taxpayers 

must be taxed in accordance with Art. 4 of notice Cai 

Shui [2008] No. 170, which states that self-produced or 

purchased fixed assets are generally taxed at the rate of 

2%, if the assets were purchased prior to 1 December 

2008. The sale of self-used goods other than fixed assets 

is subject to VAT at the normally applicable rate. 

It should be noted that, where an ordinary taxpayer has 

opted for taxation as a small business, i.e. under the simplified 

collection system, the option is irrevocable for a 

period of three years. 

Simplified collection system 

Under the condition that they have not deducted input 

tax, small businesses continue to be subject to the following 

concessions under the simplified VAT collection system: 

– disposals of self-used fixed assets referred to in Art. 

10 of the VAT Implementing Rules are taxed at the 

rate of 2% (i.e. half of 4%) and disposal of other selfused 

goods is subject to the rate of %. 

– sales of second-hand goods are subject to VAT at the 

rate of 2% (i.e. half of 4%). “Second-hand goods” are 

used goods that still represent some value, such as 

second-hand cars, motorcycles and yachts, not selfused 

personal goods. 

Export of textiles and garments 

On February 2009, the Ministry of Finance and the 

SAT issued a notice, Cai Shui [2009] No. 14, which provides 

that, with retrospective effect from 1 February 

2009, the VAT refund rate for exported textile and garments 

is increased from 14% to 1 %. A detailed list of eligible 

textiles and garments is attached to the notice. 

1 7


Croatia 

Free inventory goods 

The tax authorities generally took the view that, where 

they provide free inventory goods that are necessary for 

the distribution of their products to retail outlets, for 

example refrigerators to be used in retail shops and bars 

to store products that must be chilled, racks for display of 

their products, etc., the supplier must account for VAT at 

the standard rate of 22% on the value of the goods. However, 

the tax authorities have recently taken the position 

that the suppliers are not liable to account for VAT on the 

free-of-charge provision of those inventory goods to 

retailers, provided that the supplier retains ownership 

and remains responsible for maintenance of the goods, 

and that the customer cannot dispose of, change or 

remove them without the supplier’s prior approval. 

From our correspondent Sanja Stojic 

Ernst & Young d.o.o., Zagreb 

Czech Republic 

Council Decision – Border bridges – Germany 

See under European Union. 

Denmark 

On 2 February 2009, the Tax Commission, which has 

been established by the government to come up with 

proposals for substantial amendments of the tax system, 

published its proposals. As regards VAT, the Commission’s 

proposals include various measures which are 

aimed at aligning the VAT system with that laid down by 

the European VAT Directive. 

Management of real estate 

Under Sec. 1 (1)(8) of the VAT Act, management of 

immovable property is currently exempt from VAT, presumably 

on the basis of the transitional provisions laid 

down by Art. 71 of the VAT Directive and item B 2 of 

Annex X to that Directive (services of liberal professionals). 

The Tax Commission has proposed to abolish this 

specific VAT exemption, which will have the effect that, 

if the government adopts the proposal, management of 

immovable property will be subject to VAT at the standard 

rate of 2 %. 

New buildings and building land 

Under Sec. 1 (1)(9) of the VAT Act, the supply of 

immovable property is currently generally exempt from 

VAT on the basis of the transitional provisions laid down 

by Art. 71 of the VAT Directive and item B 9 of Annex X 

to that Directive. Under the general system laid down by 

Art. 1 (1)(j) and (k) of the VAT Directive, supplies of 

buildings and land are exempt from VAT; however, the 

supply of buildings before first occupation and of building 

land, as referred to in Art. 12(1)(a) and (b) of the Directive 

are excluded from the Community exemption. 

The Tax Commission has proposed to align the scope of 

the national exemption with that of the VAT Directive, 

which will have the effect that, if the government adopts 

the Commission’s proposal, the supply of buildings 

before first occupation and building land will be subject 

to VAT at the standard rate. 

Travel agents 

Under Sec. 1 (1)(1 ) of the VAT Act, services of travel 

agents are currently exempt from VAT on the basis of the 

transitional provisions laid down by Art. 71 of the VAT 

Directive and item B 1 of Annex X to that Directive. 

The Tax Commission has proposed to amend the legislation 

to the effect that services of travel agents are taxed. 

In this context, the Commission has not indicated that 

the services of travel agents will be subject to the margin 

scheme laid down by Arts. 0 to 10 of the VAT Directive. 

It is expected that the final proposal of the government 

will be more specific as regards the details of 

the system of taxation, i.e. application of a special margin 

scheme, which, under the current version of the VAT 

Directive, is compulsory. 

Passenger transport 

Under Sec. 1 (1)(1 ) of the VAT Act, passenger transport 

is currently exempt from VAT on the basis of the transitional 

provisions laid down by Art. 71 of the VAT Directive 

and item B 10 of Annex X to that Directive. The 

Tax Commission has proposed to abolish that specific 

exemption in order to align the VAT regime applicable to 

passenger transport with the general VAT system laid 

down by the Directive. 

Newspapers 

Under Sec. 4(1)(14) of the VAT Act, the supply of newspapers 

is currently zero rated. The Tax Commission has 

proposed to abolish this zero rate. If the government follows 

the Commission’s proposal, newspapers will be subject 

to the standard rate of VAT. 

Currently the government supports the first three proposals 

mentioned above, but not the last two. The government 

is expected to respond to the Commission’s 

proposals with formal draft legislation no later than 

April 2009. 

From our correspondent Claus B. Jespersen 

PricewaterhouseCoopers, Copenhagen 

Djibouti 

Introduction of VAT 

VAT was introduced on 1 January 2009. The tax is levied 

on supplies of goods and services. The standard rate is 

7% and the zero rate applies to certain transactions, such 

as exports and international passenger transport. 

The following transactions are exempt from VAT: 

– banking transactions; 

– unprocessed agricultural products directly supplied 

to final consumers; 

– basic food products, etc. 


Consumption tax rates 

The budget for 2009 has been enacted as Law No. 

41/AN/08/ eme L. Under that Law, which applies from 1 

January 2009, the rates of various consumption taxes 

(taxes intérieures de consummation, TICs) applicable to 

products that are also subject to VAT have been 

decreased by 7 percentage points. 

Free-trade zone 

Under Law No. 41/AN/08, the scope of application of 

VAT has been extended, with effect from 1 January 2009, 

to companies operating in the free-trade zone. 

European Union 

Proposed Directive and Communication – VAT 

invoicing rules 

On 28 January 2009, the European Commission presented 

a proposal to amend VAT Directive 200 /112 

with respect to the VAT invoicing rules (COM(2009) 21 

final). The proposal is based on a Communication on the 

technological developments in the field of electronic 

invoicing (COM(2009) 20 final) and supplements the 

arrangements on the shifting of the time frame for filing 

recapitulative statements laid down by Directive 

2008/117. 

The proposal is aimed at increasing the use of electronic 

invoicing, reducing the administrative burdens on businesses, 

supporting small and medium-sized enterprises 

(SMEs) and combating VAT fraud. The most important 

features of the proposal are summarized below and further 

details can be found in the (marginally edited) FAQs 

below. 

Time of chargeability 

VAT will become chargeable on the date of the chargeable 

event as determined by the time of supply. Invoices 

must be issued at the latest by the 1 th day of the month 

following the chargeable event. 

Right to deduct 

As regards the right to deduct, the proposal contains the 

following measures: 

– customers will be obliged to hold a valid invoice in 

order to be entitled to claim a VAT deduction in all 

cases, including transactions subject to the reverse 

charge mechanism. Member States may still accept 

other evidence when a valid invoice is not available; 

– the optional cash accounting method, which currently 

allows Member States to provide that certain 

categories of taxable persons account for VAT on 

their output transactions when they receive payment 

from their customers, and deduct input tax when 

they pay their suppliers, will be extended to all Member 

States. The scheme should be available for all 

micro enterprises with an annual turnover that does 

not exceed EUR 2 million; 



– even if the supplier accounts for output VAT on the 

basis of cash receipts, the customer should nevertheless 

be entitled to deduct that VAT immediately; and 

– the date of chargeability of the tax, which also determines 

the time the tax can be deducted, must be 

stated on the invoice. 

Issue of invoices 

It is proposed to create a set of harmonized rules for 

business-to-business (B2B) invoices as a result of which 

a taxable person issuing an invoice in the country where 

he is identified for VAT has legal certainty that the 

invoice is valid throughout the European Union. Consequently, 

businesses can meet their obligations from the 

state where they are established. 

Furthermore, the proposal is also aimed at harmonizing 

the invoicing rules for exempt supplies, the time limits 

for issuing invoices, the use of summary invoices and 

self-billing, and the outsourcing of the invoicing process 

to third parties. 

For VAT control purposes and in order to reduce administrative 

burdens, the proposal also grants Member 

States the option to require simplified invoices for B2C 

supplies made by both resident and non-resident businesses. 

Contents of invoices 

Full VAT invoices would be required in respect of B2B 

supplies if 

– the customer will be exercising the right to deduct 

VAT; 

– the supplier has the right to deduct related input 

VAT; and 

– the transaction concerns a cross-border supply. 

With respect to the particulars which must be mentioned 

on the invoice, the following three changes are 

proposed: 

– the customer’s VAT identification number must be 

mentioned; 

– the requirement that the invoice must indicate the 

date on which the goods or services are supplied will 

be replaced by indication of the date on which the 

tax becomes chargeable; and 

– where VAT is due in a Member State where the supplier 

is not established and the customer must 

account for that VAT under the reverse charge mechanism, 

the supplier will no longer be required to 

mention the VAT rate and the amount of VAT due on 

the invoice. 

In respect of B2C supplies, businesses would be allowed 

to issue simplified invoices because, in these cases, the 

VAT can normally not be deducted. Businesses would 

also be allowed to issue to other businesses simplified 

credit notes and simplified invoices relating to exempt 

supplies. Finally, simplified invoices may be issued where 

the amount of the invoice is less than EUR 200. 

1 9


E-invoicing 

In order to eliminate the current barriers to e-invoicing, 

it is proposed to treat paper and electronic invoices 

equally, and abolish the obligation that e-invoices must 

be accompanied by an advanced e-signature or must be 

issued by means of EDI. 

Storage of invoices 

Invoices would have to be stored for a period of six years 

in all EU Member States and paper invoices may be converted 

into electronic invoices for storage purposes. 

If the proposal is adopted, Member States must comply 

with the new invoicing rules from 1 January 201 . 

IP/09/1 2 of 28 January 2009 and COM(2009) 20 and 21 

final. 

Invoicing rules – Frequently asked questions 

On 28 January 2009, the following frequently asked 

questions as regards the review of the VAT invoicing 

rules were published on the European Commission’s 

website. 

Why is there a need to change the VAT invoicing rules? 

The current national VAT invoicing rules are excessively 

complicated and disparate, which has not only facilitated 

VAT carousel fraud but has also led to unnecessary 

administrative burdens on businesses operating cross 

border. In particular, the current rules have hampered 

the uptake of electronic invoicing. The proposal puts forward 

much simpler and more modern comprehensive 

rules that also provide effective means of control to tax 

administrations. 

The view that the current invoicing rules have shortcomings 

is shared by businesses, as evidenced by the replies 

to the public consultation and by the opinion of the High 

Level Group of Independent Stakeholders (HLG). There 

is thus clearly a need to further simplify, modernize and 

harmonize the existing invoicing rules. 

What are the main changes to the rules on invoicing? 

The proposal on invoicing contains numerous changes. 

They are aimed at reducing burdens on businesses, promoting 

SMEs, increasing the uptake of electronic invoicing 

and helping Member States tackle fraud. 

The changes affect mainly the conditions for issuing 

invoices, the content of VAT invoices, electronic invoicing 

and the storage of invoices. 

Does this proposal help to tackle fraud? 

Yes. The proposal helps to tackle VAT carousel fraud that 

involves cross-border transactions (see IP/08/4 4) in 

several ways. 

Firstly, the proposal ensures that the date of supply of an 

intra-Community transaction coincides with the date of 

chargeability of the tax on the subsequent intra-Community 

acquisition. Currently, those dates do not coincide. 

The date of chargeability of the tax on the intra- 

Community acquisition is set, at the latest, on the 1 th 

day of the month following the date of supply. Fraudsters 

abuse this rule by systematically reporting the transaction 

to the national tax authorities the month after it has 

taken place so as to avoid timely controls. The proposed 

measure supplements the change from the quarterly to 

the monthly business reporting to tax administrations 

agreed in December 2008 (see MEX/08/121 , 10th 

item). 

Secondly, where the supplier is required to issue an 

invoice, the customer will be required to hold that 

invoice in order to claim input tax. Member States will 

have the possibility to require a valid invoice, even if taxable 

persons claim VAT that they have accounted for 

under the reverse charge mechanism. 

Thirdly, any business claiming deduction of VAT must 

hold an invoice that contains the supplier’s VAT identification 

number. 

How will this proposal make electronic invoicing 

easier? 

The Commission believes by treating paper and electronic 

invoices equally, the VAT obstacles that hamper 

the use of electronic invoicing will be removed. The current 

rules for e-invoicing requiring either use of an 

advanced electronic signature or transmission of the 

invoice through EDI (electronic data interchange), 

which, together with the various optional arrangements 

that the Member States are allowed to make and their 

non-harmonized interpretation of the formal rules, 

make electronic invoicing difficult to implement, especially 

in cross-border situations. These optional conditions 

will be removed. 

What are the benefits for small and medium-sized 

enterprises (SMEs) from this proposal? 

This proposal forms part of the Small Business Act 

adopted on 2 June 2008. 11 There are a number of measures 

contained in the proposal that are specifically aimed 

at SMEs. 

These measures include the option for Member States to 

introduce an accounting scheme based on cash receipts 

and the use of simplified invoices, especially in respect of 

transactions with a low value. 

The more technical questions are the following: 

What are the changes that affect the conditions for 

issuing an invoice? 

The conditions for issuing an invoice can be summarized 

as follows: 

(a) Self-billing. Customers continue to be allowed to 

issue VAT invoices. However, the requirement of 

having a prior agreement with the supplier and the 

required acceptance by the supplier of each invoice 

11. IP/08/100 . 


under conditions determined by each Member State 

are withdrawn. These conditions are replaced by the 

requirement that the clause “self-billed invoice” is 

mentioned on the invoice. 

(b) Summary invoices. The option for Member States to 

set the conditions for summary invoices is removed. 

Instead, all businesses may issue summary invoices, 

provided that all the details required for an individual 

invoice are included, and that the period to 

which the summary invoice relates is not longer than 

one calendar month. 

(c) Exempt supplies. The option for Member States to 

allow that an invoice must not be issued for exempt 

supplies is removed. Instead, full VAT invoices are 

required in respect of zero-rated supplies, and simplified 

invoices in respect of exempt supplies. This 

distinction is based on the fact that the risk of fraud 

is higher when the supplier can claim input VAT in 

relation to the supplies he has made. Also, zero-rated 

supplies are typically exports, in respect of which the 

supplier would normally, for commercial reasons, 

issue a full invoice, and in respect of which most 

Member States require a full invoice. The proposed 

measure harmonizes the rules across the European 

Union. 

(d) When an invoice must be issued. If required, all businesses 

must issue an invoice by the 1 th day of the 

month following the date of the supply. 

(e) Outsourcing of invoicing to third parties outside the 

European Union. The option for Member States to 

impose conditions on businesses that outsource 

invoicing to third parties outside the European 

Union is deleted. 

(f ) Simplified invoices. Member States have the option to 

require a simplified invoice in respect of B2C (business-to-consumer) 

supplies. In respect of B2B transactions, 

businesses can issue simplified credit notes 

and simplified invoices for low-value (less than EUR 

200) and exempt transactions, with the exception of 

cross-border transactions. 

(g) Full VAT invoices. Full VAT invoices are required in 

respect of all B2B supplies, unless the issue of a simplified 

invoice is allowed. 

(h) Distance sales. The requirement to issue an invoice 

for distance sales in all cases is removed. A simplified 

invoice may be required in a Member State if an 

established business is required in that Member 

State to issue an invoice for a similar supply. 

(i) Payment on account preceding a supply. The current 

rules require that in respect of payments on account 

for a future intra-Community supply of goods an 

invoice is issued. The invoice then creates a chargeability 

to tax. The proposal only requires an invoice 

to be issued after the supply is made removing any 

ambiguities in invoicing for an intra-Community 

supply that has not yet been made. 



What are the changes that affect the contents of an 

invoice? 

These can be summarized as follows: 

(a) Amendment to an invoice (credit and debit notes). The 

contents of credit or debit notes are harmonized and 

the details required are those of a simplified invoice, 

provided that the credit or debit note makes reference 

to the original invoice. 

(b) The currency of the VAT amount. The amount of VAT 

will continue to be required to be expressed in the 

currency of the Member State where the tax is due. 

Amounts of VAT expressed in any other currency 

will have to be converted on the basis of the 

exchange rates published by the European Central 

Bank. 

(c) Simplified invoices. Simplified invoices must contain 

all the following details, which are largely those contained 

in the proposed Art. 2 8(2) of the VAT Directive: 

– date of issue; 

– VAT identification number of the supplier; 

– description of the goods or services supplied, 

and their value; 

– the amount of VAT to be paid or credited, or the 

information needed to calculate that amount. 

(d) Full VAT invoices. Full VAT invoices contain the 

details listed in the proposed Art. 22 of the VAT 

Directive. Such invoices must contain the following 

details: 

(1) date of issue; 

(2) sequential number that uniquely identifies the 

invoice; 

( ) supplier’s VAT identification number; 

(4) customer’s VAT identification number; 

( ) supplier’s full name and address; 

( ) customer’s full name and address; 

(7) description of the quantity and nature of the 

goods supplied or services rendered; 

(8) date on which the tax becomes chargeable (due 

to the Treasury); 

(9) applicable VAT rate; 

(10) amount of VAT payable; 

(11) specification of the amount of VAT payable per 

VAT rate or exemption; 

(12) unit price of the goods or services, exclusive of 

tax, discounts or rebates (unless included in the 

unit price); 

There are two changes as compared to the current rules. 

Firstly, the customer’s VAT identification number 

(indent 4) must be mentioned under all circumstances. 

Currently, that obligation is limited to intra-Community 

supplies of goods, transactions in respect of which the 

customer is liable to account for the VAT and, at the discretion 

of the Member States, the obligation also applies 

in respect of domestic transactions. Secondly, the date on 

which the supply is made is replaced by the date on 

which the tax becomes chargeable (due to the Treasury) 

141


(see indent 8). The latter enables the customer to claim 

the VAT for the period in which it becomes chargeable. 

In respect of cross-border transactions for which the 

customer is liable to account for VAT under the reverse 

charge mechanism, the invoice no longer needs to indicate 

the VAT rate and the corresponding amount of VAT 

due (see indents 9 and 10) because it may be difficult for 

the non-resident supplier to determine the correct rate 

of VAT applicable in his customer’s Member State. 

Are there any other details required on a full VAT 

invoice? 

Yes, the other details that must be mentioned on a full 

VAT invoice depend on the nature of the supply, such as: 

– in respect of exempt12 supplies, the code “EX” must 

be indicated on the invoice; and 

– in respect of transactions that are subject to the 

reverse charge mechanism, the code “RC” must be 

indicated on the invoice. 

The currently applicable references to the VAT Directive 

or national legislation, or any other indications that the 

supply is exempt or subject to the reverse charge mechanism 

are removed. 

What are the changes that affect electronic invoicing? 

As regards electronic invoicing, the changes can be summarized 

as follows. 

Businesses will be able to send electronic invoices under 

the same conditions as they would send paper invoices. 

The condition that electronic invoices must be sent 

under an advanced electronic signature or through “electronic 

data interchange” (EDI) are removed. The other 

optional conditions for sending electronic invoices are 

also removed. 

The recipient of an electronic invoice will no longer be 

required to expressly accept it. The normal commercial 

practice of tacit acceptance of invoices will also apply to 

electronic invoices. 

What are the changes that affect the storage of invoices? 

As regards storage of invoices, the proposed changes can 

be summarized as follows. 

The option for Member States to require storage of 

invoices in their original format is removed, which 

enables businesses to store paper invoices in electronic 

form. 

The option for Member States to set the period of storage 

is withdrawn. The proposed common storage period 

for VAT invoices is set at six years. 

Member States will continue to be able to request that 

invoices are translated into their national language. 

However, any Member State requesting such a translation 

must state to which “particular invoices” the request 

relates, which puts an end to the different approaches of 

the Member States in this respect. 

As regards the place of storage, Member States can only 

impose the condition that the invoices must be made 

available without undue delay. The requirement that 

invoices must be made available electronically (online) 

where they are stored outside of the Member State of the 

supplier or customer is removed. 

Businesses will no longer be required to notify the tax 

authorities of the place where they store their invoices. 

Member States currently have the option to require that, 

in respect of B2C supplies, private individuals keep the 

invoices received or that non-taxable legal persons store 

the invoices. Those options will be withdrawn. 

In which Member State do the invoicing rules apply? 

The issue of invoices is subject to the rules applicable in 

the Member State where the supplier is identified for 

VAT. However, if the supply is subject to the reverse 

charge mechanism, the rules applicable in the customer’s 

Member State apply. 

Storage of invoices received by the customer is subject to 

the rules applicable in the Member State where the customer 

is indentified and storage of the duplicates of the 

invoices issued by the supplier is subject to the rules 

applicable in the Member State where the supplier is 

indentified. 

What is the change to the rule on the chargeability of 

VAT for intra-Community supplies? 

Invoices issued before the 1 th day of the month following 

the date of an intra-Community supply will no 

longer give rise to chargeability of the tax. Instead, the 

chargeability of the tax in respect of intra-Community 

supplies will be determined only by the date of the supply. 

Will the chargeability of VAT for intra-Community 

acquisitions also change? 

Yes. The chargeability of the tax on intra-Community 

acquisitions will arise only when the supply is made, i.e. 

no longer on the 1 th day of the month following the 

supply or at the time of issue of the related invoice. 

What is the change as regards holding a valid invoice to 

claim deduction? 

In general, in order to exercise their right to deduct input 

tax, taxable persons are required to hold a valid VAT 

invoice, even if the supply is subject to the reverse charge 

mechanism. Nevertheless, Member States may continue 

to base the right to deduct on other evidence. 

What is the change in respect of accounting for VAT on 

a cash basis? 

Member States will have the option, without having to 

apply for authorization to derogate from the VAT Dir- 

12. Editor’s note: It should be noted that the Community term “exemption” 

refers to both true exemptions (i.e. transactions in respect of which the supplier 

is not entitled to deduct related input tax), and zero rates. 


ective, to introduce a cash accounting scheme under 

which businesses account for output VAT when they 

receive payment from their customers and deduct input 

VAT when they pay their suppliers. Members States can 

set the ceiling for use of that scheme at an annual 

turnover EUR 2 million, which is the EU definition of a 

“micro enterprise”. Member States may allow the customer 

of a business that applies the cash accounting 

scheme to deduct the VAT immediately, rather than having 

to wait until he pays his supplier. 

The amended information on the invoice will enable the 

customer to determine when he can exercise his right to 

deduct the related VAT. 

Will businesses be able to store invoices electronically, 

instead of on paper? 

Yes. Member States that currently require that the 

invoice must be stored in their original format will have 

to allow businesses to store those invoices electronically. 

Will all the rules on invoicing be harmonized 

throughout the European Union? 

No. All the VAT rules on invoicing will be harmonized 

with one exception. Member States continue to have the 

option to provide whether an invoice is needed in 

respect of B2C transactions. However, the B2C invoice in 

that case can only be a simplified invoice. 

All the other options currently available to Member 

States are either withdrawn or harmonized. 

Is the VAT amount on an invoice still required in the 

currency of the Member State where the tax is due? 

Yes. In order to ensure that the VAT declared matches the 

VAT deducted, the amount of VAT must be stated on the 

invoice in the currency of the Member State where the 

tax is due. 

However, the rules for conversion of amounts expressed 

in another currency have been simplified to help businesses. 

The exchange rate that must be used is the 

exchange rate published by the European Central Bank 

(ECB). The various facilities that the ECB offers should 

reduce the burden of this requirement on businesses. 

Why is there still the option for Member States to 

continue to require businesses to issue an invoice for 

B2C supplies? 

That option is retained to help the tax authorities control 

fraud. However, the conditions under which the option 

can be exercised are made more business friendly. If they 

are required, B2C invoices only must contain the details 

required for simplified invoices. 

Are there any benefits for distance sellers in this 

proposal? 

Yes. Distance sellers are only required to issue simplified 

invoices if, for the same supply, businesses established in 

that Member State are also required to issue an invoice in 

respect of B2C transactions. The requirement that dis- 



tance sellers must issue an invoice under all circumstances 

is removed. 

How will businesses know that a simplified invoice is 

required for B2C supplies? 

Currently, the invoicing rules applicable in the Member 

States are published on the Commission’s website (see 

http://ec.europa.eu/taxation_customs/taxation/vat/ 

traders/vat_community/index_en.htm). 

The Commission will keep that information up to date 

and, in addition, Member States may be required to publish 

the information on their websites. 

Is the requirement to issue an invoice by the 15th of the 

month following the date of the supply not too short a 

period? 

It is true that, for businesses in certain Member States, 

the new condition will be stricter than that which currently 

applies. For businesses in other Member States, the 

period will be longer than they are used to. 

Any harmonized period by which invoices must be 

issued requires a balance between the interest of the 

issuer, who must be able to issue the invoice within that 

period, and that of the customer, who needs a valid 

invoice to recover the VAT. If the period is too short, the 

issuer may experience difficulties to comply with his 

obligation to issue the invoice in time and if it is too long, 

the customer may face the burden of having to finance 

the VAT. The deadline set creates a reasonable balance 

and is equal to the existing deadline relating to intra- 

Community supplies. 

Has the public been consulted on the changes to the VAT 

rules on invoicing? 

Yes, the Commission launched a public consultation to 

involve all stakeholders in the review of the VAT invoicing 

legislation. 

A detailed summary report of the results of the public 

consultation is available at: http://ec.europa.eu/ 

taxation_customs/common/consultations/tax/index_ 

en.htm. 

European Commission’s website. 

Proposed Directives – Mutual assistance in recovery 

of taxes 

On 2 February 2009, the European Commission presented 

two proposals for new Directives intended to 

improve mutual assistance between the tax authorities of 

the Member States as regards the assessment and recovery 

of taxes. The proposal on mutual assistance as 

regards the assessment of taxes does not apply to VAT 

because mutual assistance in that field of taxation is 

already covered by a fairly recent Community instrument, 

i.e. Regulation No. 1798/200 of 7 October 200 . 

The existing arrangements on mutual assistance 

between the tax authorities of the Member States as 

regards the recovery of taxes is in principle based on a 

Directive that was designed in the mid-1970s of the pre- 

14


vious century, i.e. Directive 7 / 08. Although that Directive 

has recently been codified and replaced by Directive 

2008/ of 2 May 2008, this instrument has, 

according to the Commission, proved to be insufficient 

to meet the requirements of the internal market as it has 

evolved in the last 0 years. 

The mobility of persons and capital in the mid-1970s of 

the previous century is not comparable to the mobility 

today. Today, fraudsters take advantage of the territorial 

limitations on the powers of national tax authorities, 

which enable them to hide from the authorities transactions 

carried out in another Member State or organize 

insolvencies in Member States where they have tax debts. 

It can be derived from economic literature that tax fraud 

generally amounts to 2% to 2. % of GDP, i.e. between 

EUR 200 and 2 0 billion. VAT carousel fraud is one of 

the biggest problems, but smuggling and counterfeiting 

alcohol and tobacco products (excise duty fraud) and 

fraud in the field of direct taxation are equally serious. 

The draft Directive on mutual assistance as regards the 

recovery of taxes intends to reinforce and improve the 

recovery assistance between the Member States. According 

to the Commission, it should help to increase the 

recovery ratio, which currently amounts to only % of 

the total for which recovery assistance is requested. 

IP/09/201 of 2 February 2009 and COM(2009) 28. 

Council Decision – Border bridges – Czech Republic 

and Germany 

On 10 February 2009, the Council of the European 

Union adopted a Decision authorizing the Czech 

Republic and Germany to apply measures derogating 

from Art. of Directive 200 /112 in relation to the construction 

and subsequent maintenance of one border 

bridge, and the maintenance of 22 existing border 

bridges, all of which are partly on the territory of the 

Czech Republic and partly on the territory of the Federal 

Republic of Germany. The details of the bridges in question 

are listed in the Annex to the Decision. The authorization 

will automatically be extended to the construction 

and maintenance of any additional bridges, which 

are brought within the scope of the Agreement by an 

exchange of diplomatic notes. 

Under this decision, as regards the border bridges in 

respect of which the Czech Republic is solely responsible 

for maintenance, the bridges are deemed to be part of the 

Czech territory for the purposes of supplies of goods and 

services and intra-Community acquisitions of goods 

intended for maintenance of these bridges; as regards the 

border bridge in respect of which Germany is responsible 

for construction and maintenance and the border bridges 

in respect of which Germany is solely responsible for 

maintenance, the bridges are deemed to be part of the German 

territory for the purposes of supplies of goods and 

services and intra-Community acquisitions of goods 

intended for construction or maintenance of these bridges. 

Council Decision 2009/118/EC of 10 February 2009, OJ 

L41 of 12 February 2009. 

Anti-fraud agreement with Switzerland 

On 17 February 2009, the Cooperation Agreement 

between the European Community and Switzerland 

aimed at combating fraud and any other illegal activities 

to the detriment of their financial interests (“the Agreement“), 

which was signed on 2 October 2004, and the 

Council Decision of 18 December 2008 relating thereto, 

were published in the Official Journal of the European 

Union. 

The objective of the Agreement is to extend administrative 

and mutual legal assistance in criminal matters 

between the European Union and Switzerland. The 

Agreement covers administrative and criminal procedures 

aimed at prevention, detection, investigation, prosecution 

and repression of fraud or any other illegal activity 

involving, inter alia, violation of the legislation on 

VAT, special consumption taxes and excise duties. 

Council Decision 2009/127/EC of 18 December 2008, 

OJ L 4 of 17 February 2009, p. . 

Anti-fraud agreement with Liechtenstein – Ecofin 

At the meeting of the EU Council for Economic and 

Financial Affairs (Ecofin Council) on 10 February 2009, 

the Council took note of the fact that the Commission 

has submitted, on 11 December 2008, a proposal for a 

Council Decision on the signing, on behalf of the Community, 

of the Cooperation Agreement between, on the 

one part, the European Community and its Member 

States and, on the other part, the Principality of Liechtenstein, 

to combat fraud and any other illegal activities 

to the detriment of their financial interests. 

Following the discussion held at the meeting of the 

Council on 4 November 2008, the Council strongly 

invited the Commission to continue the negotiations 

with Liechtenstein, in conformity with the mandate of 

200 , in order to obtain such changes in the text of the 

draft agreement to ensure effective administrative assistance 

and access to information with regard to all forms 

of investment, in particular foundations and trusts. 

As regards the provision of information in tax matters to 

the Member States, the Council expects Liechtenstein to 

encompass in the agreement with the European Community 

and its Member States obligations that are at least 

similar in scope as those which Liechtenstein recently 

agreed on with other countries. 

Finally, the Council called on the Commission to report 

back on any progress at one of its forthcoming meetings, 

at the latest in May 2009. 

Press release 2922nd Council meeting. 

VAT fraud – Fiscalis Seminar 

The Dutch tax and customs administration and the 

European Commission held a one-day Fiscalis seminar 

in Amsterdam on 2 January 2009 on fighting VAT 

fraud. The participants exchanged views and ideas on 

measures contained in the Commission’s Communication 

on a coordinated strategy to improve the fight 


against VAT fraud in the European Union, which was 

presented on 1 December 2008. 

The seminar brought together representatives from 

businesses, the national tax administrations and European 

institutions. It focused on both short-term and 

longer-term measures to combat VAT fraud. All presentations 

are available on TAXUD’s website. 


Reduced VAT rates – Ecofin 

At the meeting of the EU Council for Economic and 

Financial Affairs (Ecofin Council) on 10 February 2009, 

the Council discussed the issue of reduced rates of VAT 

in the context of the economic recovery plan approved 

by the European Council in December 2008. 

The presidency indicated that it will reflect on how to 

take the dossier forward in response to the European 

Council’s request to settle the issue by March 2009. A further 

discussion is expected at the Council’s meeting on 

10 March 2009, in the run-up to the next European 

Council, on 19 and 20 March 2009. 

Allowing Member States to apply reduced VAT rates in 

certain sectors is one of the actions that form part of the 

economic recovery plan. 

The current EU rules on VAT rates are set by Directive 

200 /112. They are the outcome of a variety of initiatives 

over the years, including the 1992 decision on the harmonization 

of VAT rates in the context of the EU single 

market, the 2000 decision to temporarily allow reduced 

VAT rates on labour-intensive services with a view to 

stimulating employment, and the 2004 derogations 

allowed to newly acceded Member States. In addition, 

the Commission promised to present a proposal in April 

2009 on the application of reduced rates to specific environmental 

goods and services, focusing principally on 

energy efficiency in buildings. 

In 2008, the Commission proposed a Directive aimed at 

allowing all Member States to apply reduced rates – on a 

permanent basis – to labour-intensive services, including 

restaurant services. 1 

Reduced VAT on environment-friendly products – 

Study 

On 2 January 2009, the European Commission published 

a study on the current and potential use of 

reduced VAT for environment-friendly products, and its 

application to energy consumption by households. The 

analysis is carried out in the context of EU policy 

approach to climate change and energy security, including 

interaction with other policy instruments at EU and 

national levels. The study focuses on what role – if any – 

VAT rate policy should play in underpinning these 

objectives. 



Fiji 


Zero rating 

The Budget for 2009 was presented on 21 November 

2008. Under the budget, the zero rating of goods for VAT 

purposes only applies from 1 January 2009 on the condition 

that evidence is provided to the Commissioner that 

the proceeds of the exported goods and services are 

transferred to Fiji. 

Finland 

Tax accounts 

The government has proposed a new system for reporting, 

paying and reclaiming taxes through “tax accounts”. 

If approved as proposed, the system will come into force 

at the beginning of the year 2010 and, at the initial stage, 

applies to “self-assessed” taxes, i.e. taxes that are reported 

and paid on the entrepreneurs’ initiative, including VAT, 

withholding tax, social security tax, tax at source, insurance 

premium tax and lottery tax. The proposal therefore 

also contains many amendments to, inter alia, the 

VAT Act. At the second stage, which is envisaged to commence 

in the year 2012, the tax account system will be 

extended to the other taxes. 

The main purpose of the new tax account system is to 

make the tax collection system more taxpayer friendly 

and cost efficient for both the tax authorities and entrepreneurs. 

The new system will provide every taxpayer 

with his own tax account, which they will use for filing 

tax returns and declarations and making payments. The 

account may also contain other information regarding 

the taxpayer’s tax position. 

The deadlines for reporting and paying taxes will be unified 

under the new system. The unified due date is proposed 

to be the 12th day of the month following the 

month to which the report relates. The ultimate goal is to 

enable taxpayers to file only a single monthly tax report 

containing information on all tax liabilities and, consequently, 

make only a single monthly payment covering 

all taxes due for that month. The tax authorities will allocate 

the total amount received to the taxes due, on the 

basis of a method laid down by the law. 

The tax account system will prevent unnecessary money 

transfers between the tax authorities and taxpayers. For 

example, entrepreneurs will no longer have to apply for a 

refund of VAT because their VAT claim will automatically 

be offset against their other tax liabilities or, alternatively, 

be refunded. 

Taxpayers will be liable for payment of late-payment 

interest and, on the other hand, receive interest for any 

credit balance in their tax account. Late payment of VAT 

will no longer give rise to imposition of a penalty. How- 

1 . Proposal for a Council Directive amending Directive 200 /112/EC as 

regards reduced rates of value added tax, COM(2008) 428. 

14


ever, a new penalty charge is proposed on late VAT 

reporting. 

The reporting period is in principle the calendar month 

but, depending on the entrepreneur’s annual turnover, 

that period is extended to the calendar quarter or calendar 

year. 

From our correspondent Jonna Kontu 

Indirect Tax Practice Leader, Tax and Legal 

Deloitte & Touche Oy 

Food 

On 19 December 2008, the parliament approved the 

Budget Bill for 2009, and the laws were confirmed by the 

president on 0 December 2008. Under the Budget, VAT 

on food is reduced from 17% to 12%, with effect from 1 

October 2009. 

Germany 

All the measures contained in the proposals for the Tax 

Act 2009 and the Tax Bureaucracy Reduction Act 2009 14 

have entered into effect on 1 January 2009 or – to the 

extent they concern the new place-of-supply rules relating 

to services – will enter into effect on 1 January 2010, 

201 and 201 , respectively. The only exception concerns 

reintroduction of a 0% reduction of the VAT that 

can be deducted by sole entrepreneurs or partnerships in 

respect of cars that are not exclusively used for business 

purposes. That proposal, which required authorization 

by the Council under Art. 9 of the VAT Directive, has 

completely been withdrawn in the light of the current 

economic climate and, in particular, the downturn in the 

automobile industry. The most important consequences 

of the two Acts are summarized as follows. 

Medical services 

The VAT exemption for medical services of doctors and 

hospitals, and the conditions under which the exemption 

applies, have been rephrased. The exemption for costsharing 

associations, which is based on Art. 1 2(1)(f ) of 

the VAT Directive and previously applied to shared practices 

of doctors and operators of medical equipment, has 

been extended to associations or partnerships of hospitals 

and of doctors with hospitals, provided that those 

groups only claim from their members exact reimbursement 

of their share of the joint expenses. 

Free ports 

The general zero rating of supplies of goods that are 

brought into a free port and, for VAT purposes, are considered 

to be exported has been limited to cases in which 

the customer will use the goods exclusively for fully taxable 

transactions. 

VAT returns 

The filing threshold for monthly VAT returns has been 

increased from EUR ,1 to 7, 00, whereas the threshold 

for filing quarterly returns has been increased from 

EUR 12 to 1,000. 

Summary invoices 

The requirement that, in respect of electronic invoices 

exchanged through EDI (Electronic Data Interchange), a 

summary invoice in paper or electronic format with a 

qualified signature must be submitted has been withdrawn. 

Postal services 

As a consequence of the liberalization of the postal services 

market, the exemption for universal postal services, 

which has always been limited to the services rendered 

by Deutsche Post, has been extended to all providers of 

universal postal services. 

From our correspondent Sonja Mühleisen 

Deloitte & Touche GmbH 

Council Decision – Border bridges – Czech Republic 


14 INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 © IBFD 

India 

Builders 

The huge controversy as to the question of whether 

builders are required to pay service tax, in respect of the 

conclusion of an agreement with a third party for the sale 

of an apartment or unit in a residential complex, is now 

set at rest by a clarification laid down by a circular 1 of 29 

January 2009, which the Central Board of Excise and 

Customs (CBEC) issued on behalf of the Ministry of 

Finance and the government of India. In the circular, the 

CBEC has answered that question in the negative. 

The tax authorities, at the field level, had taken a view 

that, when builders enter into an agreement to sell an 

apartment or unit to be constructed, the contracting 

party becomes in effect the owner of the building to be 

constructed and the builder becomes in effect a service 

provider providing a service that consists of constructing 

the property. Construction services are one of the 

categories of services that are subject to service tax. 1 

The builders, on the other hand, argued that entering 

into an agreement to sell an apartment or unit to be constructed 

does not have the effect that the contracting 

party becomes the owner of the property. The apartment 

or unit is transferred to the buyer only after its construction 

has been completed, and what is transferred or sold 

at that time is an immovable property. The amounts paid 

by the contracting party to the builder during the period 

of construction are merely advance payments relating to 

a future sale which has been agreed. It is therefore out of 

the question that the builder provides any service to the 

contracting party. The transaction is the sale of an apartment 

or unit in a residential complex, which is the sale of 

an immovable property and, under the current provisions 

of the Service Tax Law, the sale of immovable prop- 

14. See International VAT Monitor (2008). 

1 . No. 108/02/2009-ST. 

1 . Only specifically defined categories of services are subject to service tax.

erty is not a service and service tax is not payable on such 

transactions. 

The builders challenged the position adopted by the tax 

officers in appeals against assessments of service tax in 

individual cases and also through a direct challenge of 

the notices issued by the tax officers intending to recover 

service tax in respect of such transactions in court. The 

courts and appellate authorities took different positions: 

some agreed with the tax authorities and others with the 

builders. The issue was still pending at various levels of 

appellate authorities when the matter was settled by the 

Ministry, which accepted the arguments of the builders. 

The circular that was issued by the CBEC is beneficial for 

the taxpayers and binding on the tax authorities. 

Educational institutions 

The applicability of service tax to private institutions 

that give courses and issue diplomas or certificates in 

collaboration with institutions or universities established 

abroad, and to coaching or training provided by 

non-profit or charitable organizations was recently 

addressed by the CBEC. 17 

Service tax is payable by “commercial training or coaching 

centres”. That category refers to any institution providing 

commercial training or coaching in any field 

other than sports. Specifically excluded from this category 

are preschool coaching and training, and coaching 

and training by institutes that issue a degree, diploma or 

educational qualification recognized by the law, for the 

time being in force. 

Institutes providing coaching or training in collaboration 

with an institute or university established abroad 

claimed that their services led to the issue of a degree or 

diploma by a non-resident institution or university, 

which is recognized by law in the country of residence. 

The position of the tax authorities, which has now been 

confirmed by the CBEC, has always been that the term 

“recognized by the law for the time being in force” must 

be interpreted as meaning recognition of the degree or 

certificate in India. At present, such recognition is governed 

by specific regulations and, under those regulations, 

certificates or qualifications issued by non-resident 

institutes and universities are not recognized in 

India. 

Non-profit and charitable organizations took the position 

that the category of “commercial training or coaching 

centres” covers education or training provided on a 

commercial basis, i.e. with the aim to make a profit. Since 

non-profit or charitable organizations do not aim to 

make a profit, they should not be subject to service tax. 

This position was accepted by some appellate authorities. 

However, the CBEC has now clarified that the word 

“commercial” must not be interpreted by reference to the 

aim with which the coaching or training is provided, but 

by reference to the type of training or coaching. Consequently, 

provided that it relates to a commercial field, the 

coaching or training activities are subject to service tax, 

regardless of whether the activities are carried out by a 

profit-seeking, non-profit or charitable organization. 



Standard rate of service tax 

In view of the upcoming elections, the Budget for 2009 

has not been presented on 28 February 2009. The 

interim budget (vote on account) was presented on 1 

January 2009 and contained no tax policy-related 

announcements or changes in tax rates. 

However, in a notification 18 issued on 24 February 2009, 

the standard rate of service tax is reduced from 12% to 

10% with immediate effect. 

From our correspondent Bhavna Doshi 

Bharat S Raut & Co., KPMG, Mumbai 

Ireland 

Standard rate 

With effect from 1 December 2008, the standard rate of 

VAT has been increased from 21% to 21. %. 

Travel agents 

The Finance (No. 2) Act 2008 will introduce, with effect 

from 1 January 2010, into national law the margin 

scheme for the services of travel agents, as provided for 

in Arts. 0 to 10 of the VAT Directive. The travel agent 

margin scheme applies to tour operators and travel 

agents, acting as principals, whose supplies consist of 

services, such as transport and accommodation which 

they have bought in from third parties for the direct benefit 

of the traveller. The supply of such services as a travel 

package is treated as a single supply. Under the scheme, 

tour operators and travel agents will be subject to VAT at 

21. % on their margin. 

Low-emission company cars 

After 0 December 2008, subject to a number of conditions, 

registered businesses are entitled to deduct 20% of 

the VAT paid in respect of the purchase, hiring, intra- 

Community acquisition or importation of new qualifying 

low-emission vehicles used primarily for business 

purposes. 

Filing and payment 

Registered taxable persons normally account for VAT on 

a bimonthly basis. The returns must be filed not later 

than the 19th day of the month following the end of the 

tax period. 

With effect from 1 January 2009, the filing and payment 

deadline for VAT returns filed through the Revenue 

Online Service has been extended by 4 days to the 2 rd 

day of the following month. With effect from the same 

date, taxable persons whose affairs are dealt with by Revenue’s 

Large Cases Division and certain public bodies 

will be required to file their VAT returns electronically. 

17. Circular No. 107/01/2009-SC dated 28 January 2009. 

18. Notification No 8/2009-ST. 

147


Unjust enrichment 

Unjust enrichment can occur in circumstances where a 

taxable person, who initially overpaid tax because of an 

error in law, gets a windfall gain if the tax authorities 

repay that tax to him. Such a windfall gain is considered 

to be unjust where the burden of the overpaid tax was 

not borne by the taxable person but, rather, had been 

passed on to his customer. The Act sets out the method 

by which a claim for repayment of overpaid VAT must be 

made and the factors which will be taken into account in 

determining whether or not a repayment would result in 

unjust enrichment. 

Penalties 

With effect from 24 December 2008, the standard 

penalty for a VAT compliance breach has been increased 

from EUR 1, 20 to 4,000. Furthermore, the Act provides 

for additional penalties of EUR ,000 to ,000 for a variety 

of careless and deliberate acts or omissions. 

Tea and coffee 

Tea and coffee supplied in non-drinkable form are subject 

to the zero rate, whereas tea and coffee supplied in 

drinkable form are subject to the reduced rate of 1 . %. 

From our correspondent Michael O’Connor 

William Fry Tax Advisers, Dublin 

Laos 

Utilities, beer and fuel 

Following the approval of the VAT Law by the National 

Assembly in December 200 , 19 it has been reported that, 

with effect from 1 January 2009, locally produced and 

imported electricity, water, certain brands of beer and 

fuel have become subject to VAT at the rate of 10%. 

Extension of VAT 

The government has reportedly reconfirmed its intention 

to ultimately replace the business turnover tax by 

the newly introduced VAT but, since not all companies 

are ready for the VAT, it has decided to limit, for the time 

being, the field of application of VAT to companies 

whose investments exceed LAK billion (approximately 

USD 9 ,000). Companies whose investments exceed 

LAK 400 million are allowed to participate in the VAT 

system on a voluntary basis after they have proved their 

ability to comply with the new tax system. The government 

hopes that the VAT system can be fully implemented 

in the next fiscal year, i.e. in the period from 1 

October 2009 to 0 September 2010. 

Under the current system, final consumers must request 

a receipt for every transaction that is subject to VAT. In 

the absence of a receipt, the government will not be able 

to trace the transaction. It is expected that the government 

will encourage final consumers to participate in 

the VAT system by means of a broad publicity campaign. 

Latvia 

Building land 

On 24 February, the cabinet of ministers approved the 

draft amendments to the VAT Law. The draft contains a 

definition of “building land” and provides that its supply 

is subject to VAT at the standard rate. In order to come 

into effect, the amendments must be adopted by the parliament. 

Currently, the supply of immovable property (except for 

the first sale of new immovable property), including 

land, is exempt from VAT. This is contrary to the VAT 

Directive, to the extent the exemption is applied to building 

land. 

The draft defines building land as a plot of land in 

respect of which a permit has been issued for construction, 

engineering communications 20 or construction of a 

road. Where such a permit is issued after 1 December 

2010, the supply of the building land would be subject to 

VAT. 

Liechtenstein 

Anti-fraud agreement with the European Union – 

Ecofin 


Macedonia 

Deferral of payment 

A law amending the Tax Procedure Law was published in 

Official Gazette No. 1 9 of 22 December 2008 and 

entered into force on 1 January 2009. 

The amendments reintroduce the procedure for deferral 

of the payment of tax on demand of the taxpayer, if: 

– there is serious doubt about the validity of the tax 

assessment made by the tax administration; or 

– payment of the tax liability would “endanger” the 

existence of the taxpayer. 

The deferral can only be approved by the revenue office, 

if the payment is secured by mortgage, a security in the 

form of movable property a bank guarantee, or a personal 

guarantee provided by a third person. The value of 

the guarantee must be at least 2 0% of the liability (previously 

1 0%). 

Payment of the tax due can be deferred for a specified 

period of time or the tax can be paid in not more than 

monthly instalments. Interest is due for the period of 

deferral and is calculated as provided in the Law. 

Antun Belamarik, Skopje 

19. See International VAT Monitor (2007), p. 201, and International VAT 

Monitor 1 (2008), p. . 

20. Engineering communications is defined as a device, equipment or an 

aggregate of devices and equipment intended to supply a structure (building, 

construction) with raw materials, communications, energy resources and 

other resources. 


Madagascar 

Refunds of VAT 

The Budget Bill for 2009 was enacted on 18 December 

2009. Under the Budget 2009, refunds of excess input 

VAT, which were previously limited to export-oriented 

businesses and businesses established in free zones, are 

extended to all businesses, provided that the deductible 

VAT relates to investments in capital goods. 

Moldova 

Transnistria – Discriminatory VAT treatment 

On 17 February 2009, Law No. 1 -XVI of February 

2009 amending the VAT legislation was published in the 

Official Gazette. Before Law 1 -XVI entered into force, 

the reduced rate of 8% applied to bread and bakery products, 

milk and dairy products supplied within the territory 

of Moldova. However, where they were supplied 

from Transnistria, those goods were subject to 20% VAT. 

Transnistria is the area located on the west bank of the 

Dniester river, which has no tax relations with the revenue 

authorities of Moldova. 

Under Law No. 1 -XVI, the discriminatory VAT treatment 

of bread and bakery products, milk and dairy 

products was ended. 

Vasile Foltea, Soter & Partners, Chisinau 

Netherlands 

Company cars 

In respect of company passenger cars that the taxable 

person also uses for private purposes, VAT paid on the 

purchase and use of the car can initially be deducted in 

full. That initial deduction must subsequently be 

adjusted at the end of every year for private use of the car. 

The annual adjustment is 12% of the expenses that, for 

the purposes of income tax, are not considered to be 

deductible business expenses, which are, in principle, set 

at a flat rate of 22% of the catalogue price of the car. The 

percentage of 12 is a weighted average of the car 

expenses (purchase or lease of the car, fuel, maintenance, 

etc.) that are subject to the standard rate of 19% and the 

expenses that are not subject to VAT (insurance, taxes). 

With effect from 1 January 2009, the percentage of 22 

has been reduced to 20 in respect of qualifying,“environment-friendly” 

cars, i.e. cars with a relatively low emission 

and low fuel consumption. 

Under Decree No. CPP2009/109M of 9 February 2009, 

the same reduction applies, with retrospective effect to 1 

January 2009, for the purposes of calculating the annual 

adjustments of the initial input VAT deduction in 

respect of environment-friendly cars. That reduction has 

the effect that the annual adjustment for private use of 

environment-friendly cars is 12% × 20% = 2.4% of the 

listed price of the car. In respect of other cars, the annual 



adjustment remains 12% × 22% = 2. 4% of the listed 

price. 

From our correspondent Marjolein van Delft 

Shell International BV, The Hague 

New Zealand 

Small and medium-sized businesses 

On 4 February 2009, the government announced various 

tax changes to assist small and medium-size businesses 

with their cash flows and to meet their tax obligations. 

The main changes are: 

– the rate of interest for underpayments of tax will be 

reduced from 14.24% to 9.7 %, and the rate for overpayments 

of tax will decrease from . % to 4.2 %. 

– 

The changes have been made by Order in Council 

and will apply from 1 March 2009; and 

numerous thresholds will be increased, including the 

threshold for accounting for GST on the basis of 

cash receipts, which will be raised from NZD 1. 

million to NZD 2 million, and the GST registration 

threshold, which will be increased from NZD 40,000 

to NZD 0,000. These changes will also be introduced 

in the new tax bill. 

Prof. Dr. Kevin Holmes 

Victoria University of Wellington 

Russia 

Under Federal Laws No. 2 1-FZ of 4 December 2008 

and No. 282-FZ of 2 December 2008 the following two 

amendments, inter alia, were made to the VAT Chapter 

of the Tax Code. 

Trade-in sales of vehicles 

From 1 April 2009, in respect of the sale of vehicles 

which were purchased from individuals that do not 

qualify as taxpayers for VAT purposes, the taxable base 

for VAT purposes is the difference between the purchase 

and selling price for the vehicles. 

Transfers between insurers 

From 1 March 2009, amounts received by an insurer 

under an agreement concluded with the insurer of the 

party that caused the damage, for direct compensation 

for the damage in the framework of the Law on mandatory 

insurance of legal liability of vehicle owners 

(OSAGO) will no longer bear VAT. 

Transfer of creditor’s rights 

According to the clarifications of the Ministry of 

Finance, 21 the VAT exemption for the transfer of creditor’s 

rights resulting from credit or loan agreements in a 

monetary form only applies to the first transfer of the 

rights, i.e. the transfer of his rights by the person who 

granted the credit or loan. Subsequent transfers are sub- 

21. Letter of the Ministry of Finance of 12 January 2009, No. 0 -07-11/1. 

149


ject to VAT in accordance with the provisions laid down 

by Art. 1 (4) of the Tax Code, i.e. the difference 

between, on the one hand, what the creditor receives 

from the borrower or, where he transfers his rights, from 

the new creditor and, on the other hand, what he paid to 

the previous creditor for the acquisition of the rights. 

From our correspondent Oleg Berezin 

Deloitte, Russia 

Singapore 

On 22 January 2009, the Minister of Finance presented 

the Budget for 2009 to the parliament. As regards GST, 

details of the budget are summarized as follows. 

Deduction by funds 

Qualifying funds that are managed by a prescribed fund 

manager in Singapore will be allowed to claim a substantial 

portion of their input GST on specific expenses during 

the period from 22 January 2009 to 1 March 2014. 

International aircraft 

From 1 April 2009, the zero rate of GST applicable to 

qualifying aircraft will be extended to include: 

– all aircraft which are wholly used, or intended to be 

wholly used, for international transport of goods 

and passengers, including private aircraft, provided 

that they are wholly used, or intended to be wholly 

used, for travel outside Singapore; and 

– the sale, maintenance or repair of aircraft components 

or systems, provided that they form part of a 

qualifying aircraft. A new scheme will also be introduced 

to facilitate the importation of aircraft components 

or systems for qualifying aircraft without 

GST. 

Temporary removal from GST control 

With effect from 1 April 2009, GST will be suspended in 

respect of goods (including wine) temporarily removed 

from a zero-GST or licensed warehouse for the purposes 

of being auctioned or exhibited, even if the goods are 

sold during the auction or exhibition. Suspension of 

GST applies on the condition that the goods are subsequently 

returned to the warehouse. 

Exempt wine 

With effect from 1 April 2009, a specified quantity of 

wine for use at approved wine exhibitions and conference 

events will be exempt from GST. 

Slovenia 

Electronic VAT returns and EC sales listing forms 

From 1 January 2009, all registered taxable persons, 

regardless of whether they are established within or outside 

Slovenia, must file their VAT returns and EC sales 

listing forms through the Internet portal of the tax 

authorities, called “E-davki”. 

The tax authorities have issued a new DDV Pravilnik 

(Ministerial VAT Order) that changed some of the existing 

provisions. The amendments came into effect on 1 

January 2009. The most important amendments are 

summarized as follows. 

Accelerated refunds 

Taxable persons who have the status of “exporter” have 

the right to receive a refund of excess input tax within 0 

days from the date of application, whereas other applicants 

receive the excess input VAT within 0 days. In 

order to determine whether a person has the status of 

exporter, supplies of goods to be assembled or installed 

in another Member State are considered to be exported 

for the purposes of the accelerated refunds. 

At the time of writing, a proposal to shorten the refund 

period for both exporters and non-exporters to 21 days 

is under discussion in the parliament. 

Correction of output VAT 

Until the end of 2008, suppliers of goods and services 

were only allowed to correct the amount of VAT charged 

to their customers on an invoice in the reporting period 

in which they received a written statement from their 

customer confirming that he had not claimed the VAT as 

input VAT or had corrected the input VAT on his VAT 

return. Provided that the customer states that he has not 

yet claimed the VAT, the new rules allow the issuer of the 

invoice to correct the VAT in the reporting period in 

which he discovered the mistake, which means that, 

under specific circumstances, the correction can be 

made earlier. 

Pro rata 

In the case that a taxable person, that is using a pro rata 

on the basis of a provisional proportion, is no longer 

VAT registered, new rules are added regulating the obligation, 

the manner and timeframe for the calculation 

and correction with respect to the final entitlement to 

input VAT. The old rules had measures for taxable persons 

making the correction of the provisional proportion 

at the end of the calendar year and did not cover the 

situation of correcting this during the year (in which a 

taxable person also may cease to be VAT registered). 

From our correspondent Lucijan Klemenčič 

Ernst & Young, Ljubljana 

South Africa 

Compulsory registration threshold 

With effect from 1 March 2009, the threshold for compulsory 

VAT registration is ZAR 1 million. Prior to that 

date, persons with an annual taxable turnover of more 

than ZAR 00,000 (calculated on the basis of the past 12 

months and the next 12 months) were obliged to apply 

for VAT registration. 


Budget 2009: 

The 2009 Budget was delivered on 11 February 2009. 

The proposed VAT amendments which have been 

announced are outlined below. 

Voluntary registration threshold 

Currently, a person carrying on an enterprise may apply 

for voluntary registration if his turnover exceeded ZAR 

20,000 in the previous 12 months. This threshold is 

aimed at reducing the risk of fraudulent claims for VAT 

refunds. It has now been proposed that this threshold be 

increased to ZAR 0,000 from 1 March 2010. 

VAT fraud 

False statements made on VAT returns constitute an 

offence for VAT purposes. It has been proposed that the 

list of offences be extended to include false statements 

on any form submitted to the South African Revenue 

Service (SARS), including application forms for VAT 

registration. 

As a further measure to combat VAT fraud, the use of 

biometric measures to verify the identity of persons 

applying for VAT registration has been proposed. 

Company reorganizations 

Reorganization relief measures were introduced in 200 , 

which are aimed at ensuring that company reorganizations 

are neutral for VAT purposes. However, where 

assets used for mixed purposes are transferred by banks 

and other companies making both taxed and exempt 

supplies, difficulties have arisen regarding, inter alia, 

adjustments of initially deducted input tax based on the 

change in use, and input tax deduction relating to commissions 

and legal fees. These issues will be addressed by 

the SARS in an interpretation note and, if necessary, 

amendments will be introduced. 

Late-payment interest 

Interest is payable where VAT payments are not made by 

the due date. The SARS may grant full or limited relief 

for interest due if there is no loss to the state or if there is 

no financial benefit for the taxpayer. The circumstances 

under which interest may be remitted will be clarified to 

ensure consistent application of this concession. 

From our correspondent Marlene Botes 

PricewaterhouseCoopers, Cape Town 

Sri Lanka 

Following the announcements in the Budget for 2009, 

which was presented on November 2008, 22 a press 

release was issued on 29 December 2008 announcing a 

number of changes to the VAT regime. Although they 

have not yet officially been legislated, the following 

changes have come into effect on 1 January 2009 on the 

basis of an administrative arrangement. The main 

changes are as follows. 



Rates 

The standard rate of 1 % has been reduced to 12%. 

Goods which were previously subject to the basic rate of 

% have become either exempt from VAT or subject to 

the standard rate of 12%. 

Registration threshold 

The registration threshold has been increased to SLR 

0,000 per tax period or SLR 2. million per year. The 

threshold for voluntary VAT registration has been 

increased to SLR million per year. 

Deduction of input tax 

The right to deduct input VAT in respect of transactions 

subject to the rate of 20% is limited to 12%. It should be 

noted that the budget proposed a 10% ceiling. VAT on 

the importation of goods can be recovered within a maximum 

period of two years (previously one year) from the 

time the customs import declaration was made. 

Switzerland 

Free warehouses 

In the framework of the entry into force of the new Customs 

Law on 1 May 2007, transitional arrangements 

were made for so-called free warehouses. During a 

period of two years, the arrangements applicable under 

the former Customs Law continued to apply to existing 

free warehouses, which had the effect that those warehouses 

continued to qualify as not forming part of the 

customs territory and, therefore, were also excluded 

from the territorial scope of VAT. On expiry of the transitional 

arrangements, on 1 May 2009, free warehouses 

are considered to form part of the customs territory and 

are within the territorial scope of VAT. 

The tax authorities have published an information sheet 

in which they explain the VAT treatment of transactions 

carried out in free warehouses, 2 rized as follows. 

which can be summa- 

From 1 May 2009, the following new rules apply: 

– supplies made in free warehouses can give rise to 

subjective VAT liability, even if the supplies are zero 

rated; 

– the simplified import procedure for supplies of 

– 

goods from abroad can no longer be applied to supplies 

of goods that leave free warehouses. However, 

under certain conditions, a similar procedure with 

the same effect can be applied, on request; 

services that are not ancillary to transport and are 

deemed to be supplied in the free warehouse are no 

longer zero rated but, instead, subject to the standard 

rate. 

22. See International VAT Monitor 1 (2008), p. 8. 

2 . Praxismitteilung “Mehrwertsteuerliche Behandlung der Zollfreilager 

nach Ablauf der zweijährigen Übergangsfrist” (Notice of 1 December 2008, 

VAT treatment of free warehouses after expiry of the two-year transition 

period). 

1 1


From 1 May 2009, the following rules are not changed: 

– goods not released for free circulation/non-taxed 

goods can be stored in a free warehouse; 

– supplies of goods that are stored in a free warehouse 

are zero rated; 

– work on goods (which is considered to constitute a 

supply of goods under Swiss VAT law) that are stored 

in a free warehouse is zero rated; 

– import VAT will be due before the goods are 

imported for free circulation and will be levied by 

the customs authorities; 

– supplies of services that qualify as ancillary to transport, 

and are deemed to be supplied in the free warehouse, 

are zero rated; 

– when they have received the customs document, taxable 

persons can claim the zero rate on export, if the 

goods are exported by means of placing them under 

the free warehouse arrangements; 

– the letting of space in a free warehouse is exempt 

from VAT, albeit with the possibility to opt for taxation. 

Standard rate 

The voters will decide in a referendum on 27 September 

2009 whether or not the standard rate of VAT of 7. % 

will be increased to 8% with effect from 1 January 2010. 

This increase is necessary in order to finance the risen 

costs of the disability insurance. The increase of the tax 

rate would be limited to a period of seven years. 

From our correspondent Reginald Derks 

VAT plus, Bern 

Anti-fraud agreement with the European Union 


Togo 

Free zones 

The Budget for 2009 has been enacted as Law No. 2008- 

018. Under Law No. 2008-018, goods manufactured in a 

free zone using raw materials imported from member 

countries of the Economic Community of West African 

States (ECOWAS), or produced in Togo, have become 

subject to VAT and customs duties. 

Companies qualifying for the free-zone regime are not 

subject to VAT for a period of ten years in respect of specific 

“essential goods and services”. 

Tunisia 

Electronic tax returns 

On the basis of a decision of the Minister of Finance of 1 

December 2008, which was published in Official Gazette 

No. 98 of December 2008, the turnover threshold, 

including all taxes and levies, above which businesses are 

required to file their tax returns electronically has been 

reduced from TND million to 2 million. The obligation 

to file tax returns in electronic format applies to all tax 

returns, including VAT returns, due on or after 11 

December 2008. 

Ukraine 

Energy-saving technologies 

Materials, equipment and spare parts imported for the 

implementation of energy-saving technologies for 

“industrial enterprises” are relieved of import duty and 

VAT. Guidance regarding eligible entities and the procedure 

for claiming the relief are expected to be released in 

due course. It is unclear from what date the concession 

will apply. 

Yulia Logunova, DLA Piper Ukraine, Kiev 

United Kingdom 

Budget 2009 

The Chancellor will issue the Budget Statement on 22 

April 2009, which is after the start of the new tax year 

and leaves Parliament not much time to scrutinize any 

new legislation before Royal Assent. 

Unjust enrichment 

In 2008, the European Court of Justice (ECJ) considered 

the claim made by Marks & Spencer (M&S) for repayment 

of VAT overpaid in respect of the supply of chocolate-covered 

cakes over a period of more than 20 years 

(that supply should have been zero rated) and ruled that 

the UK tax authorities (Her Majesty’s Revenue and Customs; 

HMRC) had contravened EU principles by treating 

M&S’s claim differently from similar claims made by 

its competitors. 24 Due to its supply of clothing, M&S was 

a “payment trader”, 2 whereas other suppliers of these teacakes 

were food retailers and, therefore, in a repayment 

position. Until May 200 , HMRC only applied the unjust 

enrichment defence (that, by receiving the refund, the 

claimant would be unjustly enriched because it had 

shifted the burden of the wrongly charged VAT to its 

customers) to output tax claims made by payment 

traders so the repayment traders received their refund in 

full, whereas M&S only received 10%. In May 200 , the 

law changed in order to ensure that both categories of 

claimants were treated equally. 

The ECJ broadly found in M&S’s favour that a blanket 

distinction between claims made by payment and repayment 

traders in respect of the same supplies could not be 

objectively justified and the case was remitted to the 

national court for final judgment. This final judgment 

was given recently and M&S received its refund in full. 

Following the decision of the House of Lords, HMRC 

issued a Brief in which they declared not to apply the 

unjust enrichment defence to any claims originally made 

before the change of law in May 200 . In order to receive 

a refund, claimants do not need to show that they were in 

competition with repayment traders making similar 

24. ECJ judgment of 10 April 2008 in Marks & Spencer plc v. Commissioners 

of Customs and Excise, Case C- 09/0 . 

2 . Taxable persons for whom, for a tax period, the amount of output tax 

payable to the tax authorities exceeds the amount of deductible input tax. 


supplies. Claims that are still open will be settled. Closed 

claims, i.e. cases in which the taxable person had not 

challenged HMRC’s refusal to accept his claim on the 

ground of unjust enrichment, and those in which 

HMRC’s refusal had been upheld in court, can be resubmitted 

for consideration. However, it is not clear what 

time limits apply in this respect. If HMCR treats the 

resubmitted claim as a new claim, it will be out of time 

under the United Kingdom’s three-year limitation 

period. HMRC have been asked to clarify this point. 

Revenue Brief 0 /09. 

From our correspondent Karen Killington 

KPMG UK LLP 

United States 

California 

Nexus of Internet vendors 

Following the success of the New York Department of 

Taxation in the proceedings before the New York Superior 

Court concerning the so-called “Amazon-tax”, 2 

other states are following suit in introducing similar legislation. 

In California, two pieces of legislation have been proposed 

thus far to change the definition of nexus and 

force certain Internet vendors to collect sales and use 

taxes. Proposal AB 27 establishes a presumption of nexus 

forcing certain remote sellers to collect and remit Californian 

sales and use taxes. This presumption is satisfied 

when a resident of California, directly or indirectly, 

refers potential customers to a remote seller that generates 

over USD 10,000 in sales annually. The legislation 

further seeks to implement the Multistate Tax Commission’s 

controversial Nexus Bulletin 9 -1, which would 

impose the obligation to collect sales tax on retailers who 

utilize independent contractors to perform repair services. 

AB 178 is comparable to AB 27, except that it does 

not include the MTC Nexus Bulletin provisions. 

In Connecticut, Proposal SB 80 also establishes a presumption 

of nexus when a resident of Connecticut, 

directly or indirectly, refers potential customers to a 

remote seller that generates over USD ,000 in sales 

annually, with effect from 1 April 2009. The bill was 

referred to the Joint Committee on Finance, Revenue 

and Bonding. 

In Minnesota, Proposals SF 282 and HF 401 would also 

impose the obligation to collect sales and use tax on 

remote sellers when a resident of Minnesota, directly or 

indirectly, refers potential customers to them, which 

generates over USD 10,000 in sales. Proposal SF 282 was 

referred to the Senate Taxation Committee and proposal 

HF 401 to the House Taxation Committee. 

In North Carolina, the Revenue Laws Study Committee 

has proposed Legislative Proposal # to impose the obligation 

to collect sales and use tax on remote Internet 

sellers (in addition to imposing the state’s sales and use 

tax on “digital goods”). The bill has yet to be introduced. 

Connecticut 


See California. 

Michigan 



Definition of sales price 

The definition of the term “sales price” has been 

amended to include consideration received by a seller 

from a third party. 

PB 4 8, 2008. 

Conformation to SSUTA 

By way of Public Acts 4 , 4 7 and 4 9, 27 Michigan has 

amended its state law in conformity with the Streamlined 

Sales and Use Tax Agreement (SSUTA 28 ) by means 

of: 

– allowing consideration received by auto dealers 

from a manufacturer as reimbursement pursuant to 

a “family plan”-type discount transaction to be 

exempt from sales tax; 

– clarifying the instance in which certified service 

providers are eligible for a sales tax exemption; and 

– updating and clarifying various definitions. 

Redefinition of gross receipts 

Michigan SB 10 8, which was signed into law as Public 

Act 4 , removed taxes, fees, interest income, royalties, 

surcharges, and other elements from the concept of gross 

receipts for the purposes of the state’s business tax. 

PA 4 , 9 January 2009. 

Biomass-harvesting machinery 

Michigan HB 8 2, which was signed into law as Public 

Act 41 , amended the sales tax provisions to provide an 

exemption for the sale of machinery that is capable of 

simultaneously harvesting crops and biomass residue, or 

that is manufactured for the purpose of harvesting agricultural 

biomass grown solely as an energy source. 

Medicaid medical services 

Michigan HB 192, which was signed into law as Public 

Act 440, amended the Use Tax Act to provide that the use 

or consumption of medical services provided by Medicaid-managed 

care organizations be taxed in the same 

manner as tangible personal property. 

PA 440 of 9 January 2009. 

2 . See Amazon.com LLC and Overstock.com Inc. v. New York State Department 

of Taxation under VAT Case Notes in this issue, p. 1 . 

27. See Michigan HB 4 80, 4 and , respectively. 

28. See Robert F. van Brederode,“The Harmonization of Sales and Use Taxes 

in the United States”, International VAT Monitor (2007), pp. 4 8 to 44 . 

1


Minnesota 



New Jersey 

Small businesses 

New Jersey has expanded the eligibility of small-businesses 

for exemption under the urban enterprise zone 

sales tax rebate programme to include businesses with 

annual gross receipts up to USD 10 million. 

New Jersey Assembly, 2720 of 27 October 2008. 

North Carolina 



From our correspondent Robert van Brederode 

New York University, School of Law, New York, NY 

Vietnam 

Non-resident contractors 

On 1 December 2008, the Ministry of Finance issued 

Circular No. 1 4/2008/TT-BTC (“Circular 1 4”), which 

contains detailed provisions on the tax treatment of 

non-resident contractors and subcontractors, which 

apply from 1 January 2009. Circular 1 4 supersedes Circular 

No. 0 on Foreign Contractor Tax (FCT) and Circular 

No. 1 /1999/TT-BTC on freight tax. 

Circular 1 4 applies to virtually all non-resident organizations, 

regardless of whether or not they have a permanent 

establishment (PE) in Vietnam, and individuals that 

carry on a business in Vietnam or receive business 

income sourced in Vietnam, either directly, on the basis 

of contracts with Vietnamese organizations or individuals, 

or indirectly, as subcontractors. 

The FCT is not imposed on the mere supply of goods to 

Vietnam’s overseas ports or border gates, provided that 

the supply is not accompanied by any services performed 

in Vietnam. Circular 1 4 explicitly excludes 

non-resident organizations and individuals who: 

– provide services outside Vietnam; or 

– provide, outside Vietnam, the following services to 

Vietnamese organizations or individuals: 

– repair of means of transport, machinery, equipment, 

including replacement of parts of those 

goods; 

– advertising and marketing services; 

– investment and trade promotion services; 

– brokerage services relating to sales of goods; 

– training services; 

– freight sharing services performed outside Vietnam; 

and 

– provision of transmission lines and satellite 

bands from abroad. 

For the purposes of the FCT, a distinction must be made 

between corporate and individual non-resident contractors. 

As regards: 

– non-resident organizations, the FCT contains an element 

of VAT and an element of corporate income 

tax; and 

– non-resident individuals, the FCT contains an element 

of VAT and an element of personal income tax. 

The non-resident organization or individual must 

account for VAT under the “credit method” if: 

– it has a PE in Vietnam or is a tax resident of Vietnam; 

– its business operations in Vietnam have run for at 

least 18 days from the date the contract entered into 

– 

effect; and 

it has adopted the Vietnamese accounting system. 

The non-resident party must file its tax returns and pay 

the tax directly to the tax authorities. The Vietnamese 

contracting partner must notify the local tax office 

within 20 days of the signing of the contract. 

This method enables the non-resident party to charge 

VAT to its customers in Vietnam and deduct input VAT, 

if any. 

Where the non-resident party does not meet the criteria 

set out above, the VAT must be paid under the “directcalculation” 

method. Within 20 days of the signing of the 

contract, the Vietnamese contracting partner must 

report, to the local tax office, its obligation to pay FCT on 

behalf of the non-resident party. 

VAT payable = VAT rate x “added value” of the goods or services 

The current standard VAT rate is 10%, although specific 

goods and services are subject to VAT at the rate of %. 

The “added value” is a fixed percentage, which, depending 

on the type of business, is either 0% or 0% of the 

taxable turnover, i.e. total turnover, including taxes and 

costs paid by the Vietnamese party. 

It should be noted that, in Circular 1 4, the leasing of 

machinery and equipment is reclassified as a service 

(and thus subject to % VAT), whereas it was previously 

classified as a commercial right (exempt from VAT). 

Where a package of services is provided, the contract 

must separately identify the value of each element, and 

VAT must be paid accordingly. In the absence of such a 

specification, the taxable turnover is the entire value of 

the contract at the deemed value added rate of 0%. 

Tax concessions 

On 21 January 2009, the Prime Minister issued Decision 

No. 1 /2009/QD-TTg, which contained tax concessions 

aimed at mitigating the consequences of the international 

economic crisis. The concessions include a reduction 

by 0% of the VAT rate on specific goods and services, 

such as coal, chemicals, automobiles and 

automobile components, transport (with the exception 

of international transport), tourism and hotel accommodation, 

etc. 


Zambia 

On 0 January 2009, the Minister of Finance and 

National Planning presented the Budget for 2009/10 to 

the National Assembly. As regards VAT, the details of the 

Budget are summarized below. All measures apply from 

1 January 2009. 

Zero rate 

The following machinery and equipment are zero rated 

for VAT purposes: 

– windmills and maize dehullers; 

– two-wheeled tractors and accessories; 

– tractors of up to 0 horse power; 

– ploughs, harrows, disc harrows, planters, seeders, 

rippers/subsoilers, and cultivators; 

– pump sets; and 

– “backpack” sprayers (agricultural sprayers). 

The field of application of the zero rate to tour activities 

for tourists has been extended to include services subcontracted 

between tour operators. 

Deferment scheme 

Copper and cobalt concentrates qualify for the VAT 

deferment scheme. 

Australia 

First sale of immovable property 

The recent decision of the Federal Court in South Steyne 

Hotel establishes important precedents for the interpretation 

of the GST rules applicable to sales of immovable 

property. 

The Australian GST generally treats the sale and letting 

of commercial property as ordinary taxable supplies to 

avoid any risk of compounding tax where the customer 

is a registered business. By contrast, the sale and letting 

of residential premises are normally treated as exempt 

supplies (called “input-taxed supplies” in Australian GST 

terminology). However, the first sale of residential premises 

is subject to GST. 

The sale and letting of a subset of residential premises 

called “commercial residential premises”, for example an 

entire hotel, are also treated as taxable supplies. 

The facts in South Steyne Hotel concerned an enterprise 

that had purchased an operating hotel that was subsequently 

divided into separate titles for each apartment in 

the hotel. The enterprise sold the management rights and 

associated immovable property (reception area, offices, 

parking lot) to a hotel management company and leased 

several apartments to a company associated with the 

hotel operator. The enterprise and the hotel operator 

argued that the lease of apartments to the hotel operator 

VAT Case Notes 



Seasonal crops 

Persons who are exclusively or predominantly engaged 

in the production of seasonal crops can file their VAT 

returns on a quarterly basis, instead of monthly. 

Storage of records 

Suppliers of goods and services are required to maintain 

business records in the English language and preserve 

them for a period of six years (previously, five years). 

Refunds 

The VAT refund period for exploration companies has 

been increased to seven years. 

Multi-facility economic zones 

Supplies made to developers of multi-facility economic 

zones and industrial parks are zero rated and, if they are 

made by non-resident suppliers, the supplies are 

excluded from the reverse charge mechanism. 

was a taxable supply, which would enable the hotel operator 

to claim input GST in respect of the lease payments 

it made. The Commissioner of Taxation argued that the 

supply was an exempt supply of residential premises that 

were not commercial residential premises. 

Subsequently, the enterprise sold several of its apartments 

(subject to the leases to the hotel operator) to private 

investors. 

For the Commissioner’s argument on the leases to the 

hotel operator to succeed, he had to show that a commercial 

residential premises means an entire building – 

that is the entire hotel and not simply an apartment in a 

hotel lease – so the lease to the hotel operator of a single 

apartment in the hotel complex was not a lease of commercial 

residential premises. This argument was successful 

and the Federal Court found the lease of the apartment 

to the hotel operator was an exempt supply of 

residential premises that were not commercial residential 

premises. 

At the same time, the Court held that the supply of a 

hotel room to a guest was an ordinary taxable supply, as it 

falls into an exception to the definition of a supply of residential 

premises which states that an exempt supply of 

residential premises does not include “a supply of accommodation 

in commercial residential premises provided 

to an individual by the entity that owns or controls the 

commercial residential premises”. 

1

VAT News - empcom.gov.in

Create successful ePaper yourself

Delete template?

Save as template?