VAT News - empcom.gov.in
VAT News - empcom.gov.in
VAT News - empcom.gov.in
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Argent<strong>in</strong>a<br />
Rates and exemptions – Buenos Aires city<br />
Laws No. 2,997 and No. 2,998, which were published <strong>in</strong><br />
the Official Gazette of the city of Buenos Aires, amended<br />
the city’s tax on gross receipts with effect from 1 January<br />
2009. The amendments can be summarized as follows:<br />
− the exemptions that previously applied to certa<strong>in</strong><br />
activities were abolished;<br />
− specific local manufacturers whose annual turnover<br />
does not exceed ARS 20 million are exempt from the<br />
tax on gross receipts and, where their turnover is<br />
higher than ARS 20 million, the tax rate is 1%;<br />
− a one-year exemption applies to entities or natural<br />
persons start<strong>in</strong>g a new activity <strong>in</strong> the city of Buenos<br />
Aires, under the condition that such an entity or person<br />
provides employment to at least three persons<br />
and the estimated annual turnover derived from the<br />
activity does not exceed ARS 0,000;<br />
− f<strong>in</strong>ancial activities are subject to the tax rate of %;<br />
− construction activities are subject to the tax rate of<br />
%;<br />
− the first sale of imported goods is subject to the tax<br />
rate of 4. %;<br />
− call and contact centres are subject to the tax rate of<br />
1%; and<br />
− exported services, which were previously subject to<br />
the rate of 1. %, are exempt from the tax on gross<br />
receipts.<br />
By adopt<strong>in</strong>g the above measures, the local congress has<br />
followed the proposal that was presented to it, 1 with the<br />
exception of the tax rate on telecommunications services,<br />
which rema<strong>in</strong>ed unchanged at %.<br />
Price reductions – Buenos Aires Prov<strong>in</strong>ce<br />
Prov<strong>in</strong>cial Law No. 1 ,9 0 amended Chapter 1 (a) of<br />
the Tax Code of the prov<strong>in</strong>ce of Buenos Aires. Under the<br />
amendment, which applies from 1 January 2009, reductions<br />
of the <strong>in</strong>itially charged prices cannot have the effect<br />
that, for the purposes of the tax on gross receipts, the<br />
related taxable turnover is reduced by more than %, i.e.<br />
where the price is reduced by more than %, the taxpayer<br />
must still account for the tax on 9 % of the <strong>in</strong>itial<br />
turnover. In this respect, it makes no difference whether<br />
the <strong>in</strong>itial price was reduced on the ground of a discount<br />
or bonus granted by the supplier to his customer, or on<br />
the ground that the transaction was cancelled. The new<br />
rule has the effect that the effective tax rate will be higher<br />
than the statutory rate.<br />
In response to a compla<strong>in</strong>t from the bus<strong>in</strong>ess society that<br />
the new rule has a negative impact on generally accepted<br />
commercial practices, the prov<strong>in</strong>cial Economy M<strong>in</strong>istry<br />
and Revenue Service have declared that the new rule will<br />
only be applied to “high-risk taxpayers” and that the limited<br />
scope of the new rule will be laid down by a decree<br />
and resolution that will be issued soon (but had not yet<br />
been issued at the end of February 2009). In the event of<br />
<strong>VAT</strong> <strong>News</strong><br />
price reductions <strong>in</strong> excess of %, legitimate bus<strong>in</strong>esses<br />
will be authorized to automatically adapt the taxable<br />
turnover correspond<strong>in</strong>gly.<br />
From our correspondent Daniel Calzetta<br />
Buenos Aires<br />
Australia<br />
Avoidance schemes – Immovable property<br />
The Australian Taxation Office (ATO) has uncovered a<br />
number of related schemes that have been used to avoid<br />
GST on sales of immovable property and has issued two<br />
“Taxpayer Alerts” warn<strong>in</strong>g taxpayers of the risk of engag<strong>in</strong>g<br />
<strong>in</strong> the schemes. Taxpayer Alerts are used by the ATO<br />
to dissuade taxpayers from enter<strong>in</strong>g <strong>in</strong>to, and tax advisers<br />
from recommend<strong>in</strong>g, schemes that have been uncovered<br />
before they proliferate too widely. The “stick” they<br />
wield is an explicit caution that the ATO may apply the<br />
general anti-avoidance rule <strong>in</strong> the GST Act and all associated<br />
penalties to persons who enter <strong>in</strong>to the identified<br />
schemes.<br />
The schemes under attack <strong>in</strong>volve arrangements by sellers<br />
of immovable property to maximize the entitlement<br />
to deduct <strong>in</strong>put tax. In Australia, all sales of commercial<br />
immovable property are subject to GST <strong>in</strong> the same<br />
manner as other taxable supplies and the <strong>in</strong>itial sale of<br />
residential immovable property is also subject to GST.<br />
Subsequent sales of residential property and rentals of<br />
residential property are exempt supplies (or, as they are<br />
called <strong>in</strong> Australia,“<strong>in</strong>put-taxed” supplies).<br />
The schemes are related to Australia’s transitional rules<br />
for residential properties enter<strong>in</strong>g the GST system. These<br />
rules, known as the “marg<strong>in</strong> scheme”, are <strong>in</strong>tended to<br />
ensure that no tax is imposed on the value of residential<br />
immovable property prior to its entry <strong>in</strong>to the GST system.<br />
The rules apply to enterprises that held residential<br />
properties at the time the GST was <strong>in</strong>troduced <strong>in</strong> mid-<br />
2000. The scheme allows property owners to value residential<br />
property when it enters the GST system and subtract<br />
that value from the eventual sale price to f<strong>in</strong>d the<br />
amount on which GST is levied. Property is taken to<br />
enter the GST system when the entity that owned the<br />
land on 1 July 2000 first registers for the GST.<br />
The first scheme described <strong>in</strong> a Taxpayer Alert is used by<br />
unregistered landowners who have acquired immovable<br />
property prior to 1 July 2000, when the GST commenced.<br />
The landowner could register for GST purposes<br />
at any time if it wished to construct residential premises<br />
on the land and claim <strong>in</strong>put tax. However, early registration<br />
to claim the <strong>in</strong>put tax would significantly raise the<br />
value of the marg<strong>in</strong> on which GST is levied because the<br />
start<strong>in</strong>g price of raw land would be well below the mar-<br />
1. See International <strong>VAT</strong> Monitor (2008), p. 4 0.<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
1 1
<strong>VAT</strong> <strong>News</strong><br />
ket value of the property after the premises has been<br />
constructed.<br />
The schemes seek to provide a means of recover<strong>in</strong>g <strong>in</strong>put<br />
tax while m<strong>in</strong>imiz<strong>in</strong>g the value of the marg<strong>in</strong>. This is<br />
done by hav<strong>in</strong>g the landowner contract with a GST-registered<br />
associate to construct and market the residential<br />
premises. The associate is provid<strong>in</strong>g taxable services to<br />
the landowner and can therefore deduct all <strong>in</strong>put tax it<br />
pays to the builders. The associate does not require any<br />
progress payments from the landowner as the premises<br />
are constructed.<br />
After the premises are built and immediately prior to the<br />
sale of the premises, the landowner registers and receives<br />
an <strong>in</strong>voice from the associate for all build<strong>in</strong>g and sell<strong>in</strong>g<br />
expenses. The landowner claims the GST <strong>in</strong>cluded <strong>in</strong> the<br />
<strong>in</strong>voice. It uses the marg<strong>in</strong> scheme to calculate the GST<br />
payable on the sale of the property and uses a valuation<br />
of the immovable property at the date of its GST registration<br />
(that is, after the premises were constructed). As a<br />
result, it is able to claim all <strong>in</strong>put tax and the output tax<br />
on the sale is very low (based on the small marg<strong>in</strong>).<br />
The ATO has <strong>in</strong>dicated a number of avenues that might<br />
be used to attack the arrangements. For example, it suggests<br />
that <strong>in</strong> many cases it will be possible to show that<br />
the property owner was under an obligation to register at<br />
a much earlier time, when it first decided to have premises<br />
constructed (which would shift the start<strong>in</strong>g value to<br />
a much lower amount). It also <strong>in</strong>dicated that the general<br />
anti-avoidance provision <strong>in</strong> the GST Act could apply to<br />
the schemes as they have the purpose or the effect of<br />
generat<strong>in</strong>g a tax benefit.<br />
A second scheme <strong>in</strong>volves residential properties that are<br />
constructed, leased, and then sold. As the properties are<br />
first leased (an exempt or <strong>in</strong>put-taxed supply), the owner<br />
is not entitled to recover GST on the costs of construction.<br />
Once aga<strong>in</strong>, the owner will contract with a GSTregistered<br />
associate to have the residential premises constructed<br />
and the associate will pay a builder to erect the<br />
premises, claim<strong>in</strong>g all <strong>in</strong>put tax <strong>in</strong>curred. The associate<br />
does not seek any progress payments and neither does it<br />
issue an <strong>in</strong>voice to the owner before the construction is<br />
completed or when the property is leased. If the owner<br />
subsequently sells the property to an <strong>in</strong>vestor (the property<br />
title be<strong>in</strong>g subject to the exist<strong>in</strong>g lease), the associate<br />
will <strong>in</strong>voice the owner just prior to the sale.<br />
The ATO questions a number of aspects of the transaction<br />
and concludes that the anti-avoidance provisions <strong>in</strong><br />
the GST Act are likely to apply, as the arrangement<br />
appears artificial and contrived <strong>in</strong> its design and execution.<br />
From our correspondent Richard Krever<br />
Monash University, Melbourne<br />
Austria<br />
In December 2008, the M<strong>in</strong>istry of F<strong>in</strong>ance released<br />
amendments to the <strong>VAT</strong> Guidel<strong>in</strong>es. The most important<br />
changes are as follows.<br />
Manag<strong>in</strong>g directors<br />
An <strong>in</strong>dependently act<strong>in</strong>g manag<strong>in</strong>g director of a private<br />
limited company, who is also the sole or ma<strong>in</strong> shareholder<br />
of the company, can, as a simplification measure,<br />
be treated as a non-taxable person, <strong>in</strong> particular if the<br />
company is not entitled to deduct the <strong>VAT</strong> on the director’s<br />
management fee.<br />
Members of the supervisory board of private foundations<br />
are <strong>in</strong> general regarded as taxable persons. However,<br />
they are not considered to be taxable persons, if<br />
they do not act <strong>in</strong>dependently and actually form part of<br />
the foundations’ organization.<br />
Conference rooms<br />
The lett<strong>in</strong>g of sem<strong>in</strong>ar rooms <strong>in</strong> hotels, together with<br />
technical equipment necessary for meet<strong>in</strong>gs, conferences,<br />
sem<strong>in</strong>ars, etc. and the provision of foods and beverages<br />
dur<strong>in</strong>g the coffee and tea breaks, is not ancillary to<br />
the provision of hotel accommodation (to the participants<br />
of the meet<strong>in</strong>g, conference or sem<strong>in</strong>ar) and, therefore,<br />
not subject to the reduced rate.<br />
Faxed <strong>in</strong>voices<br />
Until the end of 2009, taxable persons are entitled to<br />
deduct <strong>VAT</strong> mentioned on <strong>in</strong>voices that they have<br />
received by fax.<br />
Documentary evidence<br />
Where, <strong>in</strong> the course of a <strong>VAT</strong> audit, the tax authorities<br />
f<strong>in</strong>d that a supplier of goods holds <strong>in</strong>sufficient documentary<br />
evidence to show that his supplies were zero<br />
rated as <strong>in</strong>tra-Community supplies of goods, the supplier<br />
cannot repair that deficiency retrospectively for the<br />
purposes of the zero rate.<br />
Annual <strong>VAT</strong> congress<br />
In December 2008, the tax authorities published the<br />
results of the annual congress on various <strong>VAT</strong> issues. The<br />
most important conclusions were:<br />
Lett<strong>in</strong>g of residential property<br />
Real estate companies do not have the right to deduct<br />
<strong>in</strong>put <strong>VAT</strong> <strong>in</strong> respect of the lett<strong>in</strong>g of residential property<br />
(houses, apartments, etc.) to their shareholders for the<br />
latter’s private purposes, if such a lease is not on conditions<br />
that would have applied at arm’s length or the property<br />
was especially constructed accord<strong>in</strong>g to the wishes<br />
of the shareholder.<br />
Portfolio management<br />
Management by banks of their clients’ portfolio of shares<br />
and other securities is treated as a s<strong>in</strong>gle service that is<br />
subject to <strong>VAT</strong> if the bank exercises its management<br />
mandate without further <strong>in</strong>structions from the client.<br />
However, if the client decides on the asset management<br />
activities of the bank, the latter is considered as supply<strong>in</strong>g<br />
different services, which, for <strong>VAT</strong> purposes, must be<br />
treated accord<strong>in</strong>g to their nature (i.e. tax exempt or subject<br />
to <strong>VAT</strong>).<br />
1 2 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
Correct<strong>in</strong>g <strong>in</strong>voices<br />
Where <strong>VAT</strong> is not legally due and only payable to the<br />
authorities under Sec. 11(14) of the <strong>VAT</strong> Act, i.e. on the<br />
ground that the <strong>VAT</strong> was mentioned on an <strong>in</strong>voice, and<br />
the supplier subsequently corrects the <strong>in</strong>voice, the customer<br />
does not have to explicitly accept the <strong>in</strong>voice<br />
(unless he issues the correct<strong>in</strong>g <strong>in</strong>voice himself under<br />
the arrangements for self-<strong>in</strong>voic<strong>in</strong>g). Furthermore, the<br />
<strong>in</strong>itial <strong>in</strong>voices can only be corrected under those circumstances<br />
if the customer has not deducted the <strong>VAT</strong><br />
mentioned on the <strong>in</strong>voice or has actually repaid any<br />
deducted <strong>in</strong>put <strong>VAT</strong> to the tax authorities.<br />
Good faith<br />
The provision laid down by Sec. 12(1)(1) of the <strong>VAT</strong> Act<br />
that taxable persons are not entitled to deduct <strong>in</strong>put <strong>VAT</strong><br />
if they knew or should have known that the related supply<br />
was connected with <strong>VAT</strong> fraud has a clarify<strong>in</strong>g effect<br />
only. Those circumstances must be established under<br />
national law. In the case of carousel fraud, <strong>VAT</strong> shown on<br />
an <strong>in</strong>voice must be remitted to the authorities on the<br />
ground that the <strong>VAT</strong> has been mentioned on an <strong>in</strong>voice<br />
(see Art. 20 of the <strong>VAT</strong> Directive) and the recipient of<br />
the supply is not entitled to deduct that <strong>VAT</strong> as <strong>in</strong>put<br />
<strong>VAT</strong>, unless he was act<strong>in</strong>g <strong>in</strong> good faith. The recipient of<br />
the supply can be considered as hav<strong>in</strong>g acted <strong>in</strong> good<br />
faith, if he acted with due commercial diligence <strong>in</strong> order<br />
to ensure that he was not part of <strong>VAT</strong> fraud.<br />
Pharmaceuticals<br />
Under the amendment of the <strong>VAT</strong> Act that was published<br />
<strong>in</strong> Bundesgesetzblatt (Official Gazette) I 1 2/2008<br />
and entered <strong>in</strong>to force on 1 January 2009, the reduced<br />
<strong>VAT</strong> rate of 10% for pharmaceuticals exclusively applies<br />
to pharmaceuticals covered by the Arzneimittelgesetz<br />
(Act on pharmaceuticals), not to medical products<br />
fall<strong>in</strong>g under the Mediz<strong>in</strong>produktegesetz (Act on medical<br />
products). The latter products cont<strong>in</strong>ue to be subject to<br />
the standard rate of 20%.<br />
In its public notice of 17 December 2008, No.<br />
010219/0498-VI/4/2008, the M<strong>in</strong>istry of F<strong>in</strong>ance noted<br />
<strong>in</strong> this respect that Chapter 0 of the Comb<strong>in</strong>ed Nomenclature<br />
(“pharmaceutical products”) refers to both pharmaceuticals<br />
with<strong>in</strong> the mean<strong>in</strong>g of the Arzneimittelgesetz<br />
and medical products with<strong>in</strong> the mean<strong>in</strong>g of the Mediz<strong>in</strong>produktegesetz.<br />
Consequently, the importation of pharmaceutical<br />
products with<strong>in</strong> the mean<strong>in</strong>g of Chapter 0<br />
CN is not under all circumstances subject to the reduced<br />
rate of <strong>VAT</strong>.<br />
From our correspondent Hannes Gurtner<br />
Leitner+Leitner, L<strong>in</strong>z<br />
Belgium<br />
Hous<strong>in</strong>g as part of a social policy<br />
On 1 February 2009, the Royal Decree of 10 February<br />
2009, which amended Royal Decree No. 20 by <strong>in</strong>troduc<strong>in</strong>g<br />
several measures to stimulate the construction of<br />
houses as part of an economic stimulus package, was<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
published <strong>in</strong> the Official Gazette. The measures apply<br />
until the end of 2009.<br />
Under the amendments, the reduced rate of<br />
to:<br />
% applies<br />
– demolition and reconstruction of houses <strong>in</strong> the<br />
framework of the social policy;<br />
– construction and supplies of private dwell<strong>in</strong>gs<br />
<strong>in</strong>tended as the sole or ma<strong>in</strong> residence of the owner.<br />
In that case, the reduced rate applies to a ceil<strong>in</strong>g of<br />
EUR 0,000 and any surplus is subject to the stan-<br />
–<br />
dard rate;<br />
hous<strong>in</strong>g as part of a social policy, i.e. supplies of private<br />
dwell<strong>in</strong>gs, <strong>in</strong>tended for lett<strong>in</strong>g or sale <strong>in</strong> the<br />
framework of the social policy, made to prov<strong>in</strong>ces,<br />
<strong>in</strong>tercommunal companies, local authorities, <strong>in</strong>tercommunal<br />
public centres for social assistance and<br />
other social assistance centres.<br />
Work on immovable property used as shelter for psychiatric<br />
patients and the homeless is also subject to the<br />
reduced <strong>VAT</strong> rate.<br />
Monthly <strong>VAT</strong> refunds<br />
On 1 February 2009, the Royal Decree of 10 February<br />
2009, which amended Royal Decree No. 4 to the effect of<br />
extend<strong>in</strong>g the categories of taxable persons entitled to<br />
monthly refunds of excess <strong>in</strong>put <strong>VAT</strong>, was published <strong>in</strong><br />
the Official Gazette. Monthly refunds of excess <strong>in</strong>put tax<br />
are made to taxable persons who file their periodic <strong>VAT</strong><br />
returns on a monthly basis and structurally have excess<br />
<strong>in</strong>put tax due to the nature of their activities. The follow<strong>in</strong>g<br />
categories qualify for the refund:<br />
– taxable persons mak<strong>in</strong>g supplies of goods and services<br />
that are subject to the reverse charge mechanism,<br />
for example taxable persons operat<strong>in</strong>g <strong>in</strong> the<br />
construction sector or supply<strong>in</strong>g <strong>in</strong>vestment gold;<br />
– taxable persons carry<strong>in</strong>g out work on immovable<br />
property, supply<strong>in</strong>g build<strong>in</strong>gs, or assign<strong>in</strong>g or transferr<strong>in</strong>g<br />
rights <strong>in</strong> rem relat<strong>in</strong>g to build<strong>in</strong>gs, on the<br />
condition that those transactions are subject to <strong>VAT</strong><br />
at the rate of %;<br />
– <strong>in</strong> certa<strong>in</strong> cases, taxable persons supply<strong>in</strong>g goods<br />
and services that are deemed to be supplied abroad.<br />
Penalties relat<strong>in</strong>g to the reverse charge mechanism<br />
Under Art. 1(2) and (4) of the BTW Wetboek (<strong>VAT</strong><br />
Code), the reverse charge mechanism applies <strong>in</strong> an<br />
<strong>in</strong>creas<strong>in</strong>g number of cases. Under the reverse charge<br />
mechanism, suppliers of goods and services are not<br />
allowed to charge the <strong>VAT</strong> due on supplies to their customers<br />
but, <strong>in</strong>stead, the customers must account for <strong>VAT</strong><br />
through their periodic <strong>VAT</strong> returns on the value of the<br />
received supplies and, s<strong>in</strong>ce the reverse charge mechanism<br />
is limited to B2B situations, are entitled to deduct<br />
that <strong>VAT</strong> through the same returns.<br />
Violations of the reverse charge mechanism rules are<br />
subject to adm<strong>in</strong>istrative penalties which – depend<strong>in</strong>g<br />
on whether the penalty is imposed on the supplier or<br />
customer, the reverse charge mechanism was <strong>in</strong>correctly<br />
applied or <strong>in</strong>correctly not applied and the annual<br />
1
<strong>VAT</strong> <strong>News</strong><br />
amount of <strong>VAT</strong> <strong>in</strong>volved <strong>in</strong> the violation – are %, 10%<br />
or 20% of the <strong>VAT</strong> <strong>in</strong>volved. 2 In addition, the accompany<strong>in</strong>g<br />
violation of the <strong>in</strong>voic<strong>in</strong>g rules is subject to a<br />
penalty of EUR 0 per <strong>in</strong>voice, which is reduced <strong>in</strong><br />
accordance with the table of reductions of adm<strong>in</strong>istrative<br />
penalties as published <strong>in</strong> the Official Gazette of<br />
8 August 2002.<br />
Similar situations may arise <strong>in</strong> respect of <strong>in</strong>tra-Community<br />
acquisitions of goods or the importation of goods<br />
under postponed account<strong>in</strong>g. 4 In those cases, the penalties<br />
are, depend<strong>in</strong>g on the amount of <strong>VAT</strong> <strong>in</strong>volved <strong>in</strong> a<br />
period of one year, 10% or 20% of the amount of <strong>VAT</strong> or,<br />
provided that the importer is entitled to full <strong>in</strong>put tax<br />
deduction, EUR 0 per audit period, respectively.<br />
The failure to <strong>in</strong>clude the <strong>VAT</strong> <strong>in</strong>curred on <strong>in</strong>tra-Community<br />
acquisitions <strong>in</strong> the periodic <strong>VAT</strong> return is penalized<br />
with an adm<strong>in</strong>istrative f<strong>in</strong>e of 10 % or 20 % of the<br />
<strong>VAT</strong> owed. 7 Various adm<strong>in</strong>istrative f<strong>in</strong>es exist <strong>in</strong> cases of<br />
violations connected to the reverse charge mechanism<br />
on imports, <strong>in</strong>clud<strong>in</strong>g 0 EUR per control period for the<br />
failure to <strong>in</strong>clude <strong>VAT</strong> <strong>in</strong>curred on import, where such<br />
<strong>VAT</strong> is fully deductible, <strong>in</strong> the periodic <strong>VAT</strong> return. 8<br />
The M<strong>in</strong>ister of F<strong>in</strong>ance takes the view that the current<br />
penalty system is not consistent and that the penalties<br />
are not under all circumstances proportionate to the<br />
seriousness of the violation and the <strong>in</strong>terests of the<br />
Treasury. He has therefore charged the tax authorities<br />
with the task of mak<strong>in</strong>g proposals to improve the penalty<br />
system.<br />
Q&A, Chamber, Q. No. 9 from Mr Van Biesen on 0<br />
September 2008, QRVA, 24 November 2008, No. 042,<br />
112 .<br />
Refunds of <strong>VAT</strong> – <strong>VAT</strong> groups<br />
The M<strong>in</strong>ister of F<strong>in</strong>ance has po<strong>in</strong>ted out that the<br />
arrangements on <strong>VAT</strong> group<strong>in</strong>g with<strong>in</strong> the mean<strong>in</strong>g of<br />
Art. 11 of the <strong>VAT</strong> Directive only apply at national level<br />
and that the members of <strong>VAT</strong> groups can only rely on the<br />
advantages of the group<strong>in</strong>g arrangements <strong>in</strong> their relationship<br />
with the tax authorities of the Member State<br />
where they are established.<br />
It follows that only the members of a group which are<br />
legally <strong>in</strong>dependent can be regarded as taxable persons<br />
for the purposes of refunds of <strong>VAT</strong> under the Eighth<br />
Directive. In other words, refund applications made on<br />
behalf of several members of a foreign <strong>VAT</strong> group do not<br />
meet the criteria of the Eighth Directive. In order to be<br />
valid, refund applications must be made <strong>in</strong> the name of a<br />
s<strong>in</strong>gle legal person and the particulars of that person<br />
only must be <strong>in</strong>cluded <strong>in</strong> the refund application, with the<br />
exception of the <strong>VAT</strong> identification number, which may<br />
have been assigned to the <strong>VAT</strong> group to which the nonresident<br />
applicant belongs. However, if the group’s <strong>VAT</strong><br />
identification number has been cancelled, for example<br />
on the ground that the <strong>VAT</strong> group has been dissolved,<br />
refund applications made by former members of the<br />
group will <strong>in</strong> pr<strong>in</strong>ciple be refused.<br />
Members of a foreign <strong>VAT</strong> group wish<strong>in</strong>g to exercise<br />
their right to a refund under the Eighth Directive must<br />
present a certificate confirm<strong>in</strong>g that they are subject to<br />
<strong>VAT</strong> <strong>in</strong> the Member State where they are established. The<br />
circumstance that that certificate mentions the <strong>VAT</strong><br />
identification number of the <strong>VAT</strong> group to which the<br />
applicant belongs does not affect his status as a taxable<br />
person.<br />
Q&A, Chamber, Q. No. 288 from Mr Brotcorne on 24<br />
July 2008, QRVA, 27 October 2008, No. 0 8, 9802.<br />
Refunds of <strong>VAT</strong> – Partial refunds<br />
Under Art. of the Eighth Directive, refund applications<br />
made by taxable persons established <strong>in</strong> another EU<br />
Member State must be accompanied by a certificate<br />
issued by the tax authorities of the EU Member State<br />
where the applicant is established, confirm<strong>in</strong>g that the<br />
applicant is subject to <strong>VAT</strong> <strong>in</strong> that Member State. The<br />
models for that certificate and the refund application<br />
form are annexed to the Eighth Directive.<br />
Where, on the basis of the certificate and the <strong>in</strong>formation<br />
conta<strong>in</strong>ed <strong>in</strong> the refund application, the tax authorities<br />
decide that they do not have all the elements<br />
required to determ<strong>in</strong>e with certa<strong>in</strong>ty the amount of <strong>VAT</strong><br />
that can be refunded to the non-resident taxable person,<br />
the authorities are authorized to ask the applicant for the<br />
additional <strong>in</strong>formation they consider necessary to establish<br />
the applicant’s right to a refund. If the applicant carries<br />
out transactions that are both with<strong>in</strong> and outside the<br />
scope of the <strong>VAT</strong> Code, or that are both taxed and<br />
exempt, the certificate will simply state that the applicant<br />
is subject to <strong>VAT</strong>. The extent to which the applicant is<br />
entitled to obta<strong>in</strong> a refund is determ<strong>in</strong>ed on the basis of<br />
the rules applicable <strong>in</strong> the Member State of refund.<br />
Q&A, Chamber, Q. No. 291 from Mr Brotcorne on 24<br />
July 2008, QRVA, 27 October 2008, No. 0 8, 980 .<br />
CKBB and CLO – Change of address<br />
On 19 February 2009, the Central Office for non-resident<br />
taxable persons (CKBB), the service competent for<br />
both <strong>VAT</strong> identification and <strong>VAT</strong> refund, and the Central<br />
<strong>VAT</strong> Liaison Unit (CLO) moved from Jozef<br />
Stevensstraat 7 to Paleizenstraat/Rue des Palais 48, 10 0<br />
Brussels.<br />
On 22 February 2009, the <strong>VAT</strong> collection office competent<br />
for the CKBB (Central Office for non-resident tax-<br />
2. See Art. 70(1) of the <strong>VAT</strong> Code and Table G, categories IV or V of the<br />
annex to Royal Decree No. 41.<br />
. See Art. 70(4) of the <strong>VAT</strong> Code and category II of the first section of the<br />
Annex to Royal Decree No. 44.<br />
4. See Art. 1(1)(2°) of the <strong>VAT</strong> Code and Art. ( ) of Royal Decree No. 7.<br />
. See Art. 70(1) of the <strong>VAT</strong> Code and Table G, category V, of the annex to<br />
Royal Decree No. 41.<br />
. See category VIII, po<strong>in</strong>t , of Table G, category V, of the Annex to Royal<br />
Decree No. 41.<br />
7. See Art. 70 (1) of the <strong>VAT</strong> Code and Table G, category V, of the Annex to<br />
Royal Decree No. 41.<br />
8. See category VIII, po<strong>in</strong>t , of Table G of the annex to Royal Decree<br />
No. 41.<br />
1 4 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
able persons) moved from Kantersteen 47 to the F<strong>in</strong>ance<br />
Tower, Adm<strong>in</strong>istratief Centrum Kruidtu<strong>in</strong>/Centre Adm<strong>in</strong>istratif<br />
Botanique, Kruidtu<strong>in</strong>laan/Boulevard du Jard<strong>in</strong><br />
Botanique 0, 1000 Brussels.<br />
From our correspondent Patrick Wille<br />
The <strong>VAT</strong> House, Brussels<br />
Ben<strong>in</strong><br />
Exemptions<br />
The Budget for 2009 has been enacted as Law No. 2008-<br />
09 of 2 January 2009. Under Law 2008-09, new equipment<br />
and materials used for petrol stations, computer<br />
equipment, <strong>in</strong>clud<strong>in</strong>g software and pr<strong>in</strong>ters, and vehicles<br />
used for collective transport are exempt from <strong>VAT</strong> and<br />
customs duties, from 1 January until 1 December 2009.<br />
Brazil<br />
Law No. 11774/2008 of 17 September 2008, which<br />
resulted from the pass<strong>in</strong>g <strong>in</strong>to law of Provisional Measure<br />
No. 428, has <strong>in</strong>troduced several changes <strong>in</strong>to the federal<br />
tax legislation. The three most important changes<br />
are summarized as follows.<br />
Flat-rate deductions<br />
Under Law No. 11774, taxpayers cont<strong>in</strong>ue to be allowed<br />
to deduct, with<strong>in</strong> 12 months, from their PIS, import PIS,<br />
COFINS and import COFINS liabilities an amount<br />
based on depreciation of mach<strong>in</strong>es and new items of<br />
equipment which are earmarked for the production of<br />
goods and services. That flat-rate deduction had existed<br />
s<strong>in</strong>ce May 2008.<br />
Work on vessels<br />
Under Law No. 11774/2008, the zero rate of PIS, import<br />
PIS, COFINS, and import COFINS applies to materials<br />
and items of equipment, <strong>in</strong>clud<strong>in</strong>g parts, pieces and<br />
components, used for the construction, preservation,<br />
modernization, retrofit or repair of vessels registered or<br />
preregistered with the Brazilian Special System.<br />
Transport services<br />
Under Law No. 11774/2008, the suspension of PIS and<br />
COFINS has been extended to predom<strong>in</strong>antly export<strong>in</strong>g<br />
legal entities and multimodal 9 transport companies <strong>in</strong><br />
respect of transport of goods.<br />
FIFA World Cup<br />
Under ICMS Convention No. 108 of 2 September 2008,<br />
which was issued by the National F<strong>in</strong>ance Policy Council<br />
(CONFAZ), the states and the federal district are<br />
authorized, until 1 July 2014, to grant exemption from<br />
ICMS for transactions <strong>in</strong> goods and assets used for the<br />
construction, expansion, renovation or modernization<br />
of stadiums that will house the 2014 FIFA World Cup.<br />
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Olympics and Paralympics<br />
Under ICMS Convention No. 1 of December 2008,<br />
which was issued by the CONFAZ, the states and the federal<br />
district are authorized to grant exemption from<br />
ICMS for transactions <strong>in</strong>volv<strong>in</strong>g domestic and imported<br />
goods <strong>in</strong>tended for the Olympic and Paralympic Games<br />
<strong>in</strong> 201 . The concession only applies to transactions that<br />
are both exempt from import duty or exempt or zero<br />
rated for IPI and not subject to assessment of<br />
PIS/COFINS.<br />
From our correspondent Marcelo Marquez Roncaglia<br />
P<strong>in</strong>heiro Neto Advogados, São Paulo, Rio de Janeiro and<br />
Brasilía<br />
Transfer of ICMS credits<br />
Under Provisional Measure No. 4 1, which was published<br />
<strong>in</strong> the Official Gazette of 1 December 2008, the<br />
transfer of ICMS credits by export<strong>in</strong>g companies to<br />
other companies subject to ICMS is, with effect from 1<br />
January 2009, no longer subject to PIS and COFINS. 10<br />
Export<strong>in</strong>g companies accumulate those credits because<br />
export transactions are neither subject to PIS and<br />
COFINS, nor to ICMS.<br />
Bruno Carramaschi, Lefosse Advogados<br />
<strong>in</strong> cooperation with L<strong>in</strong>klaters LLP, Sao Paulo<br />
Burk<strong>in</strong>a Faso<br />
Railway transport<br />
It has been reported that, under the budget for 2009,<br />
transport by railway has become subject to <strong>VAT</strong>.<br />
Cameroon<br />
Law No. 2008/012 of 29 December 2008 enacted the<br />
F<strong>in</strong>ance Law for 2009. The provisions of that law apply<br />
from 1 January 2009.<br />
Health and life <strong>in</strong>surance<br />
Intermediary services rendered by brokers and agents<br />
and relat<strong>in</strong>g to health and life <strong>in</strong>surance are exempt from<br />
<strong>VAT</strong>. The <strong>in</strong>surance itself was already exempt. The<br />
related commissions <strong>in</strong>clude all payments made by<br />
<strong>in</strong>surance companies to brokers, general agents and all<br />
other <strong>in</strong>termediaries as remuneration for their activities<br />
<strong>in</strong> the framework of the sale or management of health<br />
and life <strong>in</strong>surance contracts.<br />
9. The terrestrial transport national agency def<strong>in</strong>es “multimodal transport”<br />
as the transport <strong>in</strong> which, <strong>in</strong> a s<strong>in</strong>gle contract, more than one type of transport<br />
(air, maritime, etc.) is used.<br />
10. COFINS (Contribuicão para o f<strong>in</strong>anciamento da seguridade social) is a<br />
federal social contribution levied at the rate of 7. % on the total turnover of<br />
legal entities, with the exception of turnover derived from practically all f<strong>in</strong>ancial<br />
services, and the value of imported goods. Under the non-cumulative system,<br />
entities subject to that contribution are entitled to deduct an amount<br />
correspond<strong>in</strong>g to the COFINS levied at the preced<strong>in</strong>g stage on certa<strong>in</strong> goods<br />
and services used for the purposes of their bus<strong>in</strong>ess.<br />
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<strong>VAT</strong> <strong>News</strong><br />
Alcoholic beverages<br />
On the importation of certa<strong>in</strong> alcoholic beverages, <strong>in</strong><br />
particular w<strong>in</strong>e, brandy, fermented dr<strong>in</strong>ks and vermouth,<br />
<strong>VAT</strong> and excise duties will be imposed on the “transactional<br />
value” of the imported goods.<br />
Canada<br />
Direct sell<strong>in</strong>g <strong>in</strong>dustry<br />
On 27 January 2009, the F<strong>in</strong>ance M<strong>in</strong>ister tabled the federal<br />
Budget. Most of the attention on the Budget has<br />
gone to the extensive spend<strong>in</strong>g proposals (both direct<br />
spend<strong>in</strong>g and tax credits) designed to kick-start the<br />
economy. The Liberals have announced that they will<br />
support the Conservative Budget, and thus the Budget<br />
proposals will def<strong>in</strong>itely be enacted.<br />
The Budget <strong>in</strong>cluded one detailed GST proposal, <strong>in</strong>troduc<strong>in</strong>g<br />
a new Sec. 178 to deal with network sellers. The<br />
Supplementary Information <strong>in</strong> the Budget provides this<br />
explanation:<br />
Simplification of the GST/HST for the direct sell<strong>in</strong>g<br />
<strong>in</strong>dustry<br />
The direct sell<strong>in</strong>g <strong>in</strong>dustry distributes goods to f<strong>in</strong>al consumers<br />
through a large number of contractors and sales<br />
representatives rather than through retail establishments.<br />
The direct sell<strong>in</strong>g <strong>in</strong>dustry generally employs two bus<strong>in</strong>ess<br />
models:<br />
– the buy-and-resell model, where contractors purchase<br />
goods from a direct seller and resell the goods<br />
to consumers with a markup; and<br />
– the commission-based model, where a network of<br />
sales representatives of a direct sell<strong>in</strong>g organization<br />
(a “network seller”) is established for arrang<strong>in</strong>g for<br />
the sales of the network seller’s goods to consumers,<br />
for which the representatives receive a commission.<br />
To simplify the operation of the goods and services<br />
tax/harmonized sales tax (GST/HST) for direct sellers and<br />
their contractors, the Excise Tax Act currently offers an<br />
alternative collection method (ACM) for direct sellers<br />
employ<strong>in</strong>g the buy-and-resell model [Secs. 178.1-178.<br />
ed.]. The method is not available to those <strong>in</strong> the direct sell<strong>in</strong>g<br />
<strong>in</strong>dustry employ<strong>in</strong>g the commission-based model.<br />
Where a direct seller elects to use the ACM, the contractor<br />
pays, to the direct seller, an amount equal to the<br />
GST/HST on the suggested retail price of the direct<br />
seller’s goods, and the direct seller is required to remit the<br />
equivalent tax to the <strong>gov</strong>ernment. The contractor is not<br />
obliged to remit GST/HST on the contractor’s sales of<br />
the direct seller’s goods to consumers, s<strong>in</strong>ce the amount<br />
of tax has already been remitted by the direct seller. In<br />
addition, under the ACM, sales of direct-seller goods by<br />
a contractor are ignored <strong>in</strong> determ<strong>in</strong><strong>in</strong>g whether the<br />
contractor qualifies as a small supplier for GST/HST<br />
purposes. Also, supplies by a direct seller of sales aids to a<br />
contractor, as well as supplies of host gifts made directly<br />
or <strong>in</strong>directly through a contractor, are not subject to<br />
GST/HST.<br />
The Budget 2009 proposes to allow network sellers who<br />
meet the conditions listed below to use a special<br />
GST/HST account<strong>in</strong>g method to simplify GST/HST<br />
compliance. With the approval of the M<strong>in</strong>ister of<br />
National Revenue, where those conditions are met and a<br />
network seller jo<strong>in</strong>tly elects with all of the network<br />
seller’s sales representatives to use the proposed method:<br />
– the commissions and bonuses received by these sales<br />
representatives from the network seller for arrang<strong>in</strong>g<br />
the sale of the network seller’s goods would not be<br />
subject to GST/HST;<br />
– the commissions and bonuses received by sales representatives<br />
from the network seller for arrang<strong>in</strong>g<br />
the sale of the network seller’s goods would be<br />
–<br />
ignored for determ<strong>in</strong><strong>in</strong>g whether sales representatives<br />
qualify as small suppliers who are not required<br />
to register for GST/HST purposes;<br />
certa<strong>in</strong> supplies by network sellers of sales aids to<br />
these sales representatives, and supplies of host gifts<br />
to the sales representatives and hosts, would not be<br />
subject to GST/HST; and<br />
– the sale of the goods by the network seller to the f<strong>in</strong>al<br />
consumer would cont<strong>in</strong>ue to be subject to the<br />
GST/HST under the normal rules.<br />
A GST/HST-registered network seller will generally be<br />
eligible to elect to use this special method for a fiscal year<br />
if the follow<strong>in</strong>g conditions are met:<br />
– all or substantially all of the sales of the network<br />
seller <strong>in</strong> the fiscal year are expected to be made<br />
through sales representatives or, if the network seller<br />
employs both bus<strong>in</strong>ess models referred to above,<br />
through a comb<strong>in</strong>ation of sales representatives and<br />
buy-and-resell contractors;<br />
– all or substantially all of the sales of the network<br />
seller <strong>in</strong> the fiscal year arranged by sales representatives<br />
are expected to be made to f<strong>in</strong>al consumers;<br />
– all or substantially all of the sales representatives of<br />
the network seller are expected to receive commissions<br />
and bonuses from the network seller of no<br />
more than CAD 0,000 <strong>in</strong> the fiscal year; and<br />
– jo<strong>in</strong>t elections are made with each new sales representative<br />
to cont<strong>in</strong>ue to qualify for the election.<br />
Where a network seller has elected to use the special<br />
GST/HST account<strong>in</strong>g method, and it is subsequently<br />
determ<strong>in</strong>ed that one or more of the conditions of the<br />
election were not met <strong>in</strong> a fiscal year, the network seller<br />
will be required to make an adjustment to the network<br />
seller’s GST/HST net tax. An adjustment to the<br />
GST/HST net tax of a network seller will also apply<br />
where the network seller fails to notify its sales representatives<br />
that the election has ceased to have effect.<br />
The Budget 2009 has also proposed that this special<br />
GST/HST account<strong>in</strong>g method will be available <strong>in</strong><br />
respect of fiscal years of a network seller that beg<strong>in</strong> after<br />
2009.<br />
From our correspondent David M. Sherman<br />
Toronto, Ontario<br />
1 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
Central African Republic<br />
Petroleum products<br />
Law No. 08-024 of 7 December 2008 enacted the<br />
F<strong>in</strong>ance Law for 2009. Under Law No. 08-024, retail sales<br />
of petroleum products were added to the list of taxable<br />
transactions with effect from 1 January 2009.<br />
<strong>VAT</strong> on petroleum products is not deductible, unless the<br />
products are:<br />
– purchased by importers or wholesalers for resale, or<br />
used for the purposes of generat<strong>in</strong>g electricity for<br />
resale; or<br />
– used by manufacturers <strong>in</strong> <strong>in</strong>dustrial enterprises as<br />
fuel for fixed mach<strong>in</strong>ery.<br />
Rates<br />
Law No. 08-024 of 7 December 2008 provides that, from<br />
1 January 2009, the <strong>VAT</strong> rates are as follows:<br />
– the standard rate is 19%;<br />
– the reduced rate of % (previously 10%) applies to<br />
wheat, milk, frozen fish, and ref<strong>in</strong>ed oil; and<br />
– the zero rate applies to exports and related <strong>in</strong>ternational<br />
transport services, on the condition that the<br />
exports have been declared to, and verified by, the<br />
customs authorities.<br />
Ch<strong>in</strong>a (People’s Rep.)<br />
The amendments to the <strong>VAT</strong> system that entered <strong>in</strong>to<br />
effect on 1 January 2009 did not address certa<strong>in</strong> issues<br />
and, consequently, it was not clear whether the special<br />
reduced <strong>VAT</strong> rates and the simplified <strong>VAT</strong> collection<br />
system cont<strong>in</strong>ued to apply from that date. Under the<br />
simplified <strong>VAT</strong> collection system, small bus<strong>in</strong>esses are<br />
subject to a reduced rate of <strong>VAT</strong> and, at the same time,<br />
not entitled to deduct <strong>in</strong>put tax.<br />
On 19 January 2009, the M<strong>in</strong>istry of F<strong>in</strong>ance and the<br />
State Adm<strong>in</strong>istration of Taxation (SAT) jo<strong>in</strong>tly clarified<br />
the situation by means of a notice, Cai Shui [2009] No. 9,<br />
which applies with retrospective effect from 1 January<br />
2009. The notice conta<strong>in</strong>s the follow<strong>in</strong>g <strong>in</strong>formation.<br />
Reduced rates<br />
The follow<strong>in</strong>g goods cont<strong>in</strong>ue to be taxed at the reduced<br />
rate of 1 %:<br />
– agriculture products, <strong>in</strong>clud<strong>in</strong>g all primary products<br />
of vegetable or animal nature produced on farms, by<br />
cultivation or <strong>in</strong> the forestry <strong>in</strong>dustry and animal<br />
husbandry;<br />
– audio and visual products, <strong>in</strong>clud<strong>in</strong>g recorded audio<br />
and video tapes, records, CDs, laser discs, etc.;<br />
– electronic <strong>in</strong>formation carriers, such as CD-ROMs,<br />
rewritable CD-ROMs, floppy and hard disks, <strong>in</strong>tegrated<br />
circuit cards, various memory chips, etc.; and<br />
– dimethyl ether.<br />
Ord<strong>in</strong>ary taxpayers may opt for application of the rate of<br />
% <strong>in</strong> respect of the supply of the follow<strong>in</strong>g self-produced<br />
goods:<br />
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– electricity produced by small hydropower stations<br />
(hav<strong>in</strong>g a capacity of not more than 0,000 kilowatts)<br />
operat<strong>in</strong>g at, at least, county level;<br />
– sand, earth and stone materials used for construction<br />
or for production of construction materials;<br />
– bricks, tiles and lime from sand, earth and stone<br />
materials or other m<strong>in</strong>eral goods excavated by the<br />
taxpayer;<br />
– biological products made from microbe, microbe<br />
metabolite, animal tox<strong>in</strong>, and human and animal<br />
blood or tissue;<br />
– runn<strong>in</strong>g water; and<br />
– commercial concrete made of cement.<br />
Ord<strong>in</strong>ary taxpayers are subject to <strong>VAT</strong> at the rate of 4%<br />
<strong>in</strong> respect of:<br />
– sales of goods that the retailer has on consignment;<br />
– sales by pawnshops of uncollected goods; and<br />
– sales of goods <strong>in</strong> duty-free shops approved by the<br />
State Council or another authorized <strong>gov</strong>ernment<br />
department.<br />
Disposal of self-used fixed assets by ord<strong>in</strong>ary taxpayers<br />
must be taxed <strong>in</strong> accordance with Art. 4 of notice Cai<br />
Shui [2008] No. 170, which states that self-produced or<br />
purchased fixed assets are generally taxed at the rate of<br />
2%, if the assets were purchased prior to 1 December<br />
2008. The sale of self-used goods other than fixed assets<br />
is subject to <strong>VAT</strong> at the normally applicable rate.<br />
It should be noted that, where an ord<strong>in</strong>ary taxpayer has<br />
opted for taxation as a small bus<strong>in</strong>ess, i.e. under the simplified<br />
collection system, the option is irrevocable for a<br />
period of three years.<br />
Simplified collection system<br />
Under the condition that they have not deducted <strong>in</strong>put<br />
tax, small bus<strong>in</strong>esses cont<strong>in</strong>ue to be subject to the follow<strong>in</strong>g<br />
concessions under the simplified <strong>VAT</strong> collection system:<br />
– disposals of self-used fixed assets referred to <strong>in</strong> Art.<br />
10 of the <strong>VAT</strong> Implement<strong>in</strong>g Rules are taxed at the<br />
rate of 2% (i.e. half of 4%) and disposal of other selfused<br />
goods is subject to the rate of %.<br />
– sales of second-hand goods are subject to <strong>VAT</strong> at the<br />
rate of 2% (i.e. half of 4%). “Second-hand goods” are<br />
used goods that still represent some value, such as<br />
second-hand cars, motorcycles and yachts, not selfused<br />
personal goods.<br />
Export of textiles and garments<br />
On February 2009, the M<strong>in</strong>istry of F<strong>in</strong>ance and the<br />
SAT issued a notice, Cai Shui [2009] No. 14, which provides<br />
that, with retrospective effect from 1 February<br />
2009, the <strong>VAT</strong> refund rate for exported textile and garments<br />
is <strong>in</strong>creased from 14% to 1 %. A detailed list of eligible<br />
textiles and garments is attached to the notice.<br />
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<strong>VAT</strong> <strong>News</strong><br />
Croatia<br />
Free <strong>in</strong>ventory goods<br />
The tax authorities generally took the view that, where<br />
they provide free <strong>in</strong>ventory goods that are necessary for<br />
the distribution of their products to retail outlets, for<br />
example refrigerators to be used <strong>in</strong> retail shops and bars<br />
to store products that must be chilled, racks for display of<br />
their products, etc., the supplier must account for <strong>VAT</strong> at<br />
the standard rate of 22% on the value of the goods. However,<br />
the tax authorities have recently taken the position<br />
that the suppliers are not liable to account for <strong>VAT</strong> on the<br />
free-of-charge provision of those <strong>in</strong>ventory goods to<br />
retailers, provided that the supplier reta<strong>in</strong>s ownership<br />
and rema<strong>in</strong>s responsible for ma<strong>in</strong>tenance of the goods,<br />
and that the customer cannot dispose of, change or<br />
remove them without the supplier’s prior approval.<br />
From our correspondent Sanja Stojic<br />
Ernst & Young d.o.o., Zagreb<br />
Czech Republic<br />
Council Decision – Border bridges – Germany<br />
See under European Union.<br />
Denmark<br />
On 2 February 2009, the Tax Commission, which has<br />
been established by the <strong>gov</strong>ernment to come up with<br />
proposals for substantial amendments of the tax system,<br />
published its proposals. As regards <strong>VAT</strong>, the Commission’s<br />
proposals <strong>in</strong>clude various measures which are<br />
aimed at align<strong>in</strong>g the <strong>VAT</strong> system with that laid down by<br />
the European <strong>VAT</strong> Directive.<br />
Management of real estate<br />
Under Sec. 1 (1)(8) of the <strong>VAT</strong> Act, management of<br />
immovable property is currently exempt from <strong>VAT</strong>, presumably<br />
on the basis of the transitional provisions laid<br />
down by Art. 71 of the <strong>VAT</strong> Directive and item B 2 of<br />
Annex X to that Directive (services of liberal professionals).<br />
The Tax Commission has proposed to abolish this<br />
specific <strong>VAT</strong> exemption, which will have the effect that,<br />
if the <strong>gov</strong>ernment adopts the proposal, management of<br />
immovable property will be subject to <strong>VAT</strong> at the standard<br />
rate of 2 %.<br />
New build<strong>in</strong>gs and build<strong>in</strong>g land<br />
Under Sec. 1 (1)(9) of the <strong>VAT</strong> Act, the supply of<br />
immovable property is currently generally exempt from<br />
<strong>VAT</strong> on the basis of the transitional provisions laid down<br />
by Art. 71 of the <strong>VAT</strong> Directive and item B 9 of Annex X<br />
to that Directive. Under the general system laid down by<br />
Art. 1 (1)(j) and (k) of the <strong>VAT</strong> Directive, supplies of<br />
build<strong>in</strong>gs and land are exempt from <strong>VAT</strong>; however, the<br />
supply of build<strong>in</strong>gs before first occupation and of build<strong>in</strong>g<br />
land, as referred to <strong>in</strong> Art. 12(1)(a) and (b) of the Directive<br />
are excluded from the Community exemption.<br />
The Tax Commission has proposed to align the scope of<br />
the national exemption with that of the <strong>VAT</strong> Directive,<br />
which will have the effect that, if the <strong>gov</strong>ernment adopts<br />
the Commission’s proposal, the supply of build<strong>in</strong>gs<br />
before first occupation and build<strong>in</strong>g land will be subject<br />
to <strong>VAT</strong> at the standard rate.<br />
Travel agents<br />
Under Sec. 1 (1)(1 ) of the <strong>VAT</strong> Act, services of travel<br />
agents are currently exempt from <strong>VAT</strong> on the basis of the<br />
transitional provisions laid down by Art. 71 of the <strong>VAT</strong><br />
Directive and item B 1 of Annex X to that Directive.<br />
The Tax Commission has proposed to amend the legislation<br />
to the effect that services of travel agents are taxed.<br />
In this context, the Commission has not <strong>in</strong>dicated that<br />
the services of travel agents will be subject to the marg<strong>in</strong><br />
scheme laid down by Arts. 0 to 10 of the <strong>VAT</strong> Directive.<br />
It is expected that the f<strong>in</strong>al proposal of the <strong>gov</strong>ernment<br />
will be more specific as regards the details of<br />
the system of taxation, i.e. application of a special marg<strong>in</strong><br />
scheme, which, under the current version of the <strong>VAT</strong><br />
Directive, is compulsory.<br />
Passenger transport<br />
Under Sec. 1 (1)(1 ) of the <strong>VAT</strong> Act, passenger transport<br />
is currently exempt from <strong>VAT</strong> on the basis of the transitional<br />
provisions laid down by Art. 71 of the <strong>VAT</strong> Directive<br />
and item B 10 of Annex X to that Directive. The<br />
Tax Commission has proposed to abolish that specific<br />
exemption <strong>in</strong> order to align the <strong>VAT</strong> regime applicable to<br />
passenger transport with the general <strong>VAT</strong> system laid<br />
down by the Directive.<br />
<strong>News</strong>papers<br />
Under Sec. 4(1)(14) of the <strong>VAT</strong> Act, the supply of newspapers<br />
is currently zero rated. The Tax Commission has<br />
proposed to abolish this zero rate. If the <strong>gov</strong>ernment follows<br />
the Commission’s proposal, newspapers will be subject<br />
to the standard rate of <strong>VAT</strong>.<br />
Currently the <strong>gov</strong>ernment supports the first three proposals<br />
mentioned above, but not the last two. The <strong>gov</strong>ernment<br />
is expected to respond to the Commission’s<br />
proposals with formal draft legislation no later than<br />
April 2009.<br />
From our correspondent Claus B. Jespersen<br />
PricewaterhouseCoopers, Copenhagen<br />
Djibouti<br />
Introduction of <strong>VAT</strong><br />
<strong>VAT</strong> was <strong>in</strong>troduced on 1 January 2009. The tax is levied<br />
on supplies of goods and services. The standard rate is<br />
7% and the zero rate applies to certa<strong>in</strong> transactions, such<br />
as exports and <strong>in</strong>ternational passenger transport.<br />
The follow<strong>in</strong>g transactions are exempt from <strong>VAT</strong>:<br />
– bank<strong>in</strong>g transactions;<br />
– unprocessed agricultural products directly supplied<br />
to f<strong>in</strong>al consumers;<br />
– basic food products, etc.<br />
1 8 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
Consumption tax rates<br />
The budget for 2009 has been enacted as Law No.<br />
41/AN/08/ eme L. Under that Law, which applies from 1<br />
January 2009, the rates of various consumption taxes<br />
(taxes <strong>in</strong>térieures de consummation, TICs) applicable to<br />
products that are also subject to <strong>VAT</strong> have been<br />
decreased by 7 percentage po<strong>in</strong>ts.<br />
Free-trade zone<br />
Under Law No. 41/AN/08, the scope of application of<br />
<strong>VAT</strong> has been extended, with effect from 1 January 2009,<br />
to companies operat<strong>in</strong>g <strong>in</strong> the free-trade zone.<br />
European Union<br />
Proposed Directive and Communication – <strong>VAT</strong><br />
<strong>in</strong>voic<strong>in</strong>g rules<br />
On 28 January 2009, the European Commission presented<br />
a proposal to amend <strong>VAT</strong> Directive 200 /112<br />
with respect to the <strong>VAT</strong> <strong>in</strong>voic<strong>in</strong>g rules (COM(2009) 21<br />
f<strong>in</strong>al). The proposal is based on a Communication on the<br />
technological developments <strong>in</strong> the field of electronic<br />
<strong>in</strong>voic<strong>in</strong>g (COM(2009) 20 f<strong>in</strong>al) and supplements the<br />
arrangements on the shift<strong>in</strong>g of the time frame for fil<strong>in</strong>g<br />
recapitulative statements laid down by Directive<br />
2008/117.<br />
The proposal is aimed at <strong>in</strong>creas<strong>in</strong>g the use of electronic<br />
<strong>in</strong>voic<strong>in</strong>g, reduc<strong>in</strong>g the adm<strong>in</strong>istrative burdens on bus<strong>in</strong>esses,<br />
support<strong>in</strong>g small and medium-sized enterprises<br />
(SMEs) and combat<strong>in</strong>g <strong>VAT</strong> fraud. The most important<br />
features of the proposal are summarized below and further<br />
details can be found <strong>in</strong> the (marg<strong>in</strong>ally edited) FAQs<br />
below.<br />
Time of chargeability<br />
<strong>VAT</strong> will become chargeable on the date of the chargeable<br />
event as determ<strong>in</strong>ed by the time of supply. Invoices<br />
must be issued at the latest by the 1 th day of the month<br />
follow<strong>in</strong>g the chargeable event.<br />
Right to deduct<br />
As regards the right to deduct, the proposal conta<strong>in</strong>s the<br />
follow<strong>in</strong>g measures:<br />
– customers will be obliged to hold a valid <strong>in</strong>voice <strong>in</strong><br />
order to be entitled to claim a <strong>VAT</strong> deduction <strong>in</strong> all<br />
cases, <strong>in</strong>clud<strong>in</strong>g transactions subject to the reverse<br />
charge mechanism. Member States may still accept<br />
other evidence when a valid <strong>in</strong>voice is not available;<br />
– the optional cash account<strong>in</strong>g method, which currently<br />
allows Member States to provide that certa<strong>in</strong><br />
categories of taxable persons account for <strong>VAT</strong> on<br />
their output transactions when they receive payment<br />
from their customers, and deduct <strong>in</strong>put tax when<br />
they pay their suppliers, will be extended to all Member<br />
States. The scheme should be available for all<br />
micro enterprises with an annual turnover that does<br />
not exceed EUR 2 million;<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
– even if the supplier accounts for output <strong>VAT</strong> on the<br />
basis of cash receipts, the customer should nevertheless<br />
be entitled to deduct that <strong>VAT</strong> immediately; and<br />
– the date of chargeability of the tax, which also determ<strong>in</strong>es<br />
the time the tax can be deducted, must be<br />
stated on the <strong>in</strong>voice.<br />
Issue of <strong>in</strong>voices<br />
It is proposed to create a set of harmonized rules for<br />
bus<strong>in</strong>ess-to-bus<strong>in</strong>ess (B2B) <strong>in</strong>voices as a result of which<br />
a taxable person issu<strong>in</strong>g an <strong>in</strong>voice <strong>in</strong> the country where<br />
he is identified for <strong>VAT</strong> has legal certa<strong>in</strong>ty that the<br />
<strong>in</strong>voice is valid throughout the European Union. Consequently,<br />
bus<strong>in</strong>esses can meet their obligations from the<br />
state where they are established.<br />
Furthermore, the proposal is also aimed at harmoniz<strong>in</strong>g<br />
the <strong>in</strong>voic<strong>in</strong>g rules for exempt supplies, the time limits<br />
for issu<strong>in</strong>g <strong>in</strong>voices, the use of summary <strong>in</strong>voices and<br />
self-bill<strong>in</strong>g, and the outsourc<strong>in</strong>g of the <strong>in</strong>voic<strong>in</strong>g process<br />
to third parties.<br />
For <strong>VAT</strong> control purposes and <strong>in</strong> order to reduce adm<strong>in</strong>istrative<br />
burdens, the proposal also grants Member<br />
States the option to require simplified <strong>in</strong>voices for B2C<br />
supplies made by both resident and non-resident bus<strong>in</strong>esses.<br />
Contents of <strong>in</strong>voices<br />
Full <strong>VAT</strong> <strong>in</strong>voices would be required <strong>in</strong> respect of B2B<br />
supplies if<br />
– the customer will be exercis<strong>in</strong>g the right to deduct<br />
<strong>VAT</strong>;<br />
– the supplier has the right to deduct related <strong>in</strong>put<br />
<strong>VAT</strong>; and<br />
– the transaction concerns a cross-border supply.<br />
With respect to the particulars which must be mentioned<br />
on the <strong>in</strong>voice, the follow<strong>in</strong>g three changes are<br />
proposed:<br />
– the customer’s <strong>VAT</strong> identification number must be<br />
mentioned;<br />
– the requirement that the <strong>in</strong>voice must <strong>in</strong>dicate the<br />
date on which the goods or services are supplied will<br />
be replaced by <strong>in</strong>dication of the date on which the<br />
tax becomes chargeable; and<br />
– where <strong>VAT</strong> is due <strong>in</strong> a Member State where the supplier<br />
is not established and the customer must<br />
account for that <strong>VAT</strong> under the reverse charge mechanism,<br />
the supplier will no longer be required to<br />
mention the <strong>VAT</strong> rate and the amount of <strong>VAT</strong> due on<br />
the <strong>in</strong>voice.<br />
In respect of B2C supplies, bus<strong>in</strong>esses would be allowed<br />
to issue simplified <strong>in</strong>voices because, <strong>in</strong> these cases, the<br />
<strong>VAT</strong> can normally not be deducted. Bus<strong>in</strong>esses would<br />
also be allowed to issue to other bus<strong>in</strong>esses simplified<br />
credit notes and simplified <strong>in</strong>voices relat<strong>in</strong>g to exempt<br />
supplies. F<strong>in</strong>ally, simplified <strong>in</strong>voices may be issued where<br />
the amount of the <strong>in</strong>voice is less than EUR 200.<br />
1 9
<strong>VAT</strong> <strong>News</strong><br />
E-<strong>in</strong>voic<strong>in</strong>g<br />
In order to elim<strong>in</strong>ate the current barriers to e-<strong>in</strong>voic<strong>in</strong>g,<br />
it is proposed to treat paper and electronic <strong>in</strong>voices<br />
equally, and abolish the obligation that e-<strong>in</strong>voices must<br />
be accompanied by an advanced e-signature or must be<br />
issued by means of EDI.<br />
Storage of <strong>in</strong>voices<br />
Invoices would have to be stored for a period of six years<br />
<strong>in</strong> all EU Member States and paper <strong>in</strong>voices may be converted<br />
<strong>in</strong>to electronic <strong>in</strong>voices for storage purposes.<br />
If the proposal is adopted, Member States must comply<br />
with the new <strong>in</strong>voic<strong>in</strong>g rules from 1 January 201 .<br />
IP/09/1 2 of 28 January 2009 and COM(2009) 20 and 21<br />
f<strong>in</strong>al.<br />
Invoic<strong>in</strong>g rules – Frequently asked questions<br />
On 28 January 2009, the follow<strong>in</strong>g frequently asked<br />
questions as regards the review of the <strong>VAT</strong> <strong>in</strong>voic<strong>in</strong>g<br />
rules were published on the European Commission’s<br />
website.<br />
Why is there a need to change the <strong>VAT</strong> <strong>in</strong>voic<strong>in</strong>g rules?<br />
The current national <strong>VAT</strong> <strong>in</strong>voic<strong>in</strong>g rules are excessively<br />
complicated and disparate, which has not only facilitated<br />
<strong>VAT</strong> carousel fraud but has also led to unnecessary<br />
adm<strong>in</strong>istrative burdens on bus<strong>in</strong>esses operat<strong>in</strong>g cross<br />
border. In particular, the current rules have hampered<br />
the uptake of electronic <strong>in</strong>voic<strong>in</strong>g. The proposal puts forward<br />
much simpler and more modern comprehensive<br />
rules that also provide effective means of control to tax<br />
adm<strong>in</strong>istrations.<br />
The view that the current <strong>in</strong>voic<strong>in</strong>g rules have shortcom<strong>in</strong>gs<br />
is shared by bus<strong>in</strong>esses, as evidenced by the replies<br />
to the public consultation and by the op<strong>in</strong>ion of the High<br />
Level Group of Independent Stakeholders (HLG). There<br />
is thus clearly a need to further simplify, modernize and<br />
harmonize the exist<strong>in</strong>g <strong>in</strong>voic<strong>in</strong>g rules.<br />
What are the ma<strong>in</strong> changes to the rules on <strong>in</strong>voic<strong>in</strong>g?<br />
The proposal on <strong>in</strong>voic<strong>in</strong>g conta<strong>in</strong>s numerous changes.<br />
They are aimed at reduc<strong>in</strong>g burdens on bus<strong>in</strong>esses, promot<strong>in</strong>g<br />
SMEs, <strong>in</strong>creas<strong>in</strong>g the uptake of electronic <strong>in</strong>voic<strong>in</strong>g<br />
and help<strong>in</strong>g Member States tackle fraud.<br />
The changes affect ma<strong>in</strong>ly the conditions for issu<strong>in</strong>g<br />
<strong>in</strong>voices, the content of <strong>VAT</strong> <strong>in</strong>voices, electronic <strong>in</strong>voic<strong>in</strong>g<br />
and the storage of <strong>in</strong>voices.<br />
Does this proposal help to tackle fraud?<br />
Yes. The proposal helps to tackle <strong>VAT</strong> carousel fraud that<br />
<strong>in</strong>volves cross-border transactions (see IP/08/4 4) <strong>in</strong><br />
several ways.<br />
Firstly, the proposal ensures that the date of supply of an<br />
<strong>in</strong>tra-Community transaction co<strong>in</strong>cides with the date of<br />
chargeability of the tax on the subsequent <strong>in</strong>tra-Community<br />
acquisition. Currently, those dates do not co<strong>in</strong>cide.<br />
The date of chargeability of the tax on the <strong>in</strong>tra-<br />
Community acquisition is set, at the latest, on the 1 th<br />
day of the month follow<strong>in</strong>g the date of supply. Fraudsters<br />
abuse this rule by systematically report<strong>in</strong>g the transaction<br />
to the national tax authorities the month after it has<br />
taken place so as to avoid timely controls. The proposed<br />
measure supplements the change from the quarterly to<br />
the monthly bus<strong>in</strong>ess report<strong>in</strong>g to tax adm<strong>in</strong>istrations<br />
agreed <strong>in</strong> December 2008 (see MEX/08/121 , 10th<br />
item).<br />
Secondly, where the supplier is required to issue an<br />
<strong>in</strong>voice, the customer will be required to hold that<br />
<strong>in</strong>voice <strong>in</strong> order to claim <strong>in</strong>put tax. Member States will<br />
have the possibility to require a valid <strong>in</strong>voice, even if taxable<br />
persons claim <strong>VAT</strong> that they have accounted for<br />
under the reverse charge mechanism.<br />
Thirdly, any bus<strong>in</strong>ess claim<strong>in</strong>g deduction of <strong>VAT</strong> must<br />
hold an <strong>in</strong>voice that conta<strong>in</strong>s the supplier’s <strong>VAT</strong> identification<br />
number.<br />
How will this proposal make electronic <strong>in</strong>voic<strong>in</strong>g<br />
easier?<br />
The Commission believes by treat<strong>in</strong>g paper and electronic<br />
<strong>in</strong>voices equally, the <strong>VAT</strong> obstacles that hamper<br />
the use of electronic <strong>in</strong>voic<strong>in</strong>g will be removed. The current<br />
rules for e-<strong>in</strong>voic<strong>in</strong>g requir<strong>in</strong>g either use of an<br />
advanced electronic signature or transmission of the<br />
<strong>in</strong>voice through EDI (electronic data <strong>in</strong>terchange),<br />
which, together with the various optional arrangements<br />
that the Member States are allowed to make and their<br />
non-harmonized <strong>in</strong>terpretation of the formal rules,<br />
make electronic <strong>in</strong>voic<strong>in</strong>g difficult to implement, especially<br />
<strong>in</strong> cross-border situations. These optional conditions<br />
will be removed.<br />
What are the benefits for small and medium-sized<br />
enterprises (SMEs) from this proposal?<br />
This proposal forms part of the Small Bus<strong>in</strong>ess Act<br />
adopted on 2 June 2008. 11 There are a number of measures<br />
conta<strong>in</strong>ed <strong>in</strong> the proposal that are specifically aimed<br />
at SMEs.<br />
These measures <strong>in</strong>clude the option for Member States to<br />
<strong>in</strong>troduce an account<strong>in</strong>g scheme based on cash receipts<br />
and the use of simplified <strong>in</strong>voices, especially <strong>in</strong> respect of<br />
transactions with a low value.<br />
The more technical questions are the follow<strong>in</strong>g:<br />
What are the changes that affect the conditions for<br />
issu<strong>in</strong>g an <strong>in</strong>voice?<br />
The conditions for issu<strong>in</strong>g an <strong>in</strong>voice can be summarized<br />
as follows:<br />
(a) Self-bill<strong>in</strong>g. Customers cont<strong>in</strong>ue to be allowed to<br />
issue <strong>VAT</strong> <strong>in</strong>voices. However, the requirement of<br />
hav<strong>in</strong>g a prior agreement with the supplier and the<br />
required acceptance by the supplier of each <strong>in</strong>voice<br />
11. IP/08/100 .<br />
140 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
under conditions determ<strong>in</strong>ed by each Member State<br />
are withdrawn. These conditions are replaced by the<br />
requirement that the clause “self-billed <strong>in</strong>voice” is<br />
mentioned on the <strong>in</strong>voice.<br />
(b) Summary <strong>in</strong>voices. The option for Member States to<br />
set the conditions for summary <strong>in</strong>voices is removed.<br />
Instead, all bus<strong>in</strong>esses may issue summary <strong>in</strong>voices,<br />
provided that all the details required for an <strong>in</strong>dividual<br />
<strong>in</strong>voice are <strong>in</strong>cluded, and that the period to<br />
which the summary <strong>in</strong>voice relates is not longer than<br />
one calendar month.<br />
(c) Exempt supplies. The option for Member States to<br />
allow that an <strong>in</strong>voice must not be issued for exempt<br />
supplies is removed. Instead, full <strong>VAT</strong> <strong>in</strong>voices are<br />
required <strong>in</strong> respect of zero-rated supplies, and simplified<br />
<strong>in</strong>voices <strong>in</strong> respect of exempt supplies. This<br />
dist<strong>in</strong>ction is based on the fact that the risk of fraud<br />
is higher when the supplier can claim <strong>in</strong>put <strong>VAT</strong> <strong>in</strong><br />
relation to the supplies he has made. Also, zero-rated<br />
supplies are typically exports, <strong>in</strong> respect of which the<br />
supplier would normally, for commercial reasons,<br />
issue a full <strong>in</strong>voice, and <strong>in</strong> respect of which most<br />
Member States require a full <strong>in</strong>voice. The proposed<br />
measure harmonizes the rules across the European<br />
Union.<br />
(d) When an <strong>in</strong>voice must be issued. If required, all bus<strong>in</strong>esses<br />
must issue an <strong>in</strong>voice by the 1 th day of the<br />
month follow<strong>in</strong>g the date of the supply.<br />
(e) Outsourc<strong>in</strong>g of <strong>in</strong>voic<strong>in</strong>g to third parties outside the<br />
European Union. The option for Member States to<br />
impose conditions on bus<strong>in</strong>esses that outsource<br />
<strong>in</strong>voic<strong>in</strong>g to third parties outside the European<br />
Union is deleted.<br />
(f ) Simplified <strong>in</strong>voices. Member States have the option to<br />
require a simplified <strong>in</strong>voice <strong>in</strong> respect of B2C (bus<strong>in</strong>ess-to-consumer)<br />
supplies. In respect of B2B transactions,<br />
bus<strong>in</strong>esses can issue simplified credit notes<br />
and simplified <strong>in</strong>voices for low-value (less than EUR<br />
200) and exempt transactions, with the exception of<br />
cross-border transactions.<br />
(g) Full <strong>VAT</strong> <strong>in</strong>voices. Full <strong>VAT</strong> <strong>in</strong>voices are required <strong>in</strong><br />
respect of all B2B supplies, unless the issue of a simplified<br />
<strong>in</strong>voice is allowed.<br />
(h) Distance sales. The requirement to issue an <strong>in</strong>voice<br />
for distance sales <strong>in</strong> all cases is removed. A simplified<br />
<strong>in</strong>voice may be required <strong>in</strong> a Member State if an<br />
established bus<strong>in</strong>ess is required <strong>in</strong> that Member<br />
State to issue an <strong>in</strong>voice for a similar supply.<br />
(i) Payment on account preced<strong>in</strong>g a supply. The current<br />
rules require that <strong>in</strong> respect of payments on account<br />
for a future <strong>in</strong>tra-Community supply of goods an<br />
<strong>in</strong>voice is issued. The <strong>in</strong>voice then creates a chargeability<br />
to tax. The proposal only requires an <strong>in</strong>voice<br />
to be issued after the supply is made remov<strong>in</strong>g any<br />
ambiguities <strong>in</strong> <strong>in</strong>voic<strong>in</strong>g for an <strong>in</strong>tra-Community<br />
supply that has not yet been made.<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
What are the changes that affect the contents of an<br />
<strong>in</strong>voice?<br />
These can be summarized as follows:<br />
(a) Amendment to an <strong>in</strong>voice (credit and debit notes). The<br />
contents of credit or debit notes are harmonized and<br />
the details required are those of a simplified <strong>in</strong>voice,<br />
provided that the credit or debit note makes reference<br />
to the orig<strong>in</strong>al <strong>in</strong>voice.<br />
(b) The currency of the <strong>VAT</strong> amount. The amount of <strong>VAT</strong><br />
will cont<strong>in</strong>ue to be required to be expressed <strong>in</strong> the<br />
currency of the Member State where the tax is due.<br />
Amounts of <strong>VAT</strong> expressed <strong>in</strong> any other currency<br />
will have to be converted on the basis of the<br />
exchange rates published by the European Central<br />
Bank.<br />
(c) Simplified <strong>in</strong>voices. Simplified <strong>in</strong>voices must conta<strong>in</strong><br />
all the follow<strong>in</strong>g details, which are largely those conta<strong>in</strong>ed<br />
<strong>in</strong> the proposed Art. 2 8(2) of the <strong>VAT</strong> Directive:<br />
– date of issue;<br />
– <strong>VAT</strong> identification number of the supplier;<br />
– description of the goods or services supplied,<br />
and their value;<br />
– the amount of <strong>VAT</strong> to be paid or credited, or the<br />
<strong>in</strong>formation needed to calculate that amount.<br />
(d) Full <strong>VAT</strong> <strong>in</strong>voices. Full <strong>VAT</strong> <strong>in</strong>voices conta<strong>in</strong> the<br />
details listed <strong>in</strong> the proposed Art. 22 of the <strong>VAT</strong><br />
Directive. Such <strong>in</strong>voices must conta<strong>in</strong> the follow<strong>in</strong>g<br />
details:<br />
(1) date of issue;<br />
(2) sequential number that uniquely identifies the<br />
<strong>in</strong>voice;<br />
( ) supplier’s <strong>VAT</strong> identification number;<br />
(4) customer’s <strong>VAT</strong> identification number;<br />
( ) supplier’s full name and address;<br />
( ) customer’s full name and address;<br />
(7) description of the quantity and nature of the<br />
goods supplied or services rendered;<br />
(8) date on which the tax becomes chargeable (due<br />
to the Treasury);<br />
(9) applicable <strong>VAT</strong> rate;<br />
(10) amount of <strong>VAT</strong> payable;<br />
(11) specification of the amount of <strong>VAT</strong> payable per<br />
<strong>VAT</strong> rate or exemption;<br />
(12) unit price of the goods or services, exclusive of<br />
tax, discounts or rebates (unless <strong>in</strong>cluded <strong>in</strong> the<br />
unit price);<br />
There are two changes as compared to the current rules.<br />
Firstly, the customer’s <strong>VAT</strong> identification number<br />
(<strong>in</strong>dent 4) must be mentioned under all circumstances.<br />
Currently, that obligation is limited to <strong>in</strong>tra-Community<br />
supplies of goods, transactions <strong>in</strong> respect of which the<br />
customer is liable to account for the <strong>VAT</strong> and, at the discretion<br />
of the Member States, the obligation also applies<br />
<strong>in</strong> respect of domestic transactions. Secondly, the date on<br />
which the supply is made is replaced by the date on<br />
which the tax becomes chargeable (due to the Treasury)<br />
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(see <strong>in</strong>dent 8). The latter enables the customer to claim<br />
the <strong>VAT</strong> for the period <strong>in</strong> which it becomes chargeable.<br />
In respect of cross-border transactions for which the<br />
customer is liable to account for <strong>VAT</strong> under the reverse<br />
charge mechanism, the <strong>in</strong>voice no longer needs to <strong>in</strong>dicate<br />
the <strong>VAT</strong> rate and the correspond<strong>in</strong>g amount of <strong>VAT</strong><br />
due (see <strong>in</strong>dents 9 and 10) because it may be difficult for<br />
the non-resident supplier to determ<strong>in</strong>e the correct rate<br />
of <strong>VAT</strong> applicable <strong>in</strong> his customer’s Member State.<br />
Are there any other details required on a full <strong>VAT</strong><br />
<strong>in</strong>voice?<br />
Yes, the other details that must be mentioned on a full<br />
<strong>VAT</strong> <strong>in</strong>voice depend on the nature of the supply, such as:<br />
– <strong>in</strong> respect of exempt12 supplies, the code “EX” must<br />
be <strong>in</strong>dicated on the <strong>in</strong>voice; and<br />
– <strong>in</strong> respect of transactions that are subject to the<br />
reverse charge mechanism, the code “RC” must be<br />
<strong>in</strong>dicated on the <strong>in</strong>voice.<br />
The currently applicable references to the <strong>VAT</strong> Directive<br />
or national legislation, or any other <strong>in</strong>dications that the<br />
supply is exempt or subject to the reverse charge mechanism<br />
are removed.<br />
What are the changes that affect electronic <strong>in</strong>voic<strong>in</strong>g?<br />
As regards electronic <strong>in</strong>voic<strong>in</strong>g, the changes can be summarized<br />
as follows.<br />
Bus<strong>in</strong>esses will be able to send electronic <strong>in</strong>voices under<br />
the same conditions as they would send paper <strong>in</strong>voices.<br />
The condition that electronic <strong>in</strong>voices must be sent<br />
under an advanced electronic signature or through “electronic<br />
data <strong>in</strong>terchange” (EDI) are removed. The other<br />
optional conditions for send<strong>in</strong>g electronic <strong>in</strong>voices are<br />
also removed.<br />
The recipient of an electronic <strong>in</strong>voice will no longer be<br />
required to expressly accept it. The normal commercial<br />
practice of tacit acceptance of <strong>in</strong>voices will also apply to<br />
electronic <strong>in</strong>voices.<br />
What are the changes that affect the storage of <strong>in</strong>voices?<br />
As regards storage of <strong>in</strong>voices, the proposed changes can<br />
be summarized as follows.<br />
The option for Member States to require storage of<br />
<strong>in</strong>voices <strong>in</strong> their orig<strong>in</strong>al format is removed, which<br />
enables bus<strong>in</strong>esses to store paper <strong>in</strong>voices <strong>in</strong> electronic<br />
form.<br />
The option for Member States to set the period of storage<br />
is withdrawn. The proposed common storage period<br />
for <strong>VAT</strong> <strong>in</strong>voices is set at six years.<br />
Member States will cont<strong>in</strong>ue to be able to request that<br />
<strong>in</strong>voices are translated <strong>in</strong>to their national language.<br />
However, any Member State request<strong>in</strong>g such a translation<br />
must state to which “particular <strong>in</strong>voices” the request<br />
relates, which puts an end to the different approaches of<br />
the Member States <strong>in</strong> this respect.<br />
As regards the place of storage, Member States can only<br />
impose the condition that the <strong>in</strong>voices must be made<br />
available without undue delay. The requirement that<br />
<strong>in</strong>voices must be made available electronically (onl<strong>in</strong>e)<br />
where they are stored outside of the Member State of the<br />
supplier or customer is removed.<br />
Bus<strong>in</strong>esses will no longer be required to notify the tax<br />
authorities of the place where they store their <strong>in</strong>voices.<br />
Member States currently have the option to require that,<br />
<strong>in</strong> respect of B2C supplies, private <strong>in</strong>dividuals keep the<br />
<strong>in</strong>voices received or that non-taxable legal persons store<br />
the <strong>in</strong>voices. Those options will be withdrawn.<br />
In which Member State do the <strong>in</strong>voic<strong>in</strong>g rules apply?<br />
The issue of <strong>in</strong>voices is subject to the rules applicable <strong>in</strong><br />
the Member State where the supplier is identified for<br />
<strong>VAT</strong>. However, if the supply is subject to the reverse<br />
charge mechanism, the rules applicable <strong>in</strong> the customer’s<br />
Member State apply.<br />
Storage of <strong>in</strong>voices received by the customer is subject to<br />
the rules applicable <strong>in</strong> the Member State where the customer<br />
is <strong>in</strong>dentified and storage of the duplicates of the<br />
<strong>in</strong>voices issued by the supplier is subject to the rules<br />
applicable <strong>in</strong> the Member State where the supplier is<br />
<strong>in</strong>dentified.<br />
What is the change to the rule on the chargeability of<br />
<strong>VAT</strong> for <strong>in</strong>tra-Community supplies?<br />
Invoices issued before the 1 th day of the month follow<strong>in</strong>g<br />
the date of an <strong>in</strong>tra-Community supply will no<br />
longer give rise to chargeability of the tax. Instead, the<br />
chargeability of the tax <strong>in</strong> respect of <strong>in</strong>tra-Community<br />
supplies will be determ<strong>in</strong>ed only by the date of the supply.<br />
Will the chargeability of <strong>VAT</strong> for <strong>in</strong>tra-Community<br />
acquisitions also change?<br />
Yes. The chargeability of the tax on <strong>in</strong>tra-Community<br />
acquisitions will arise only when the supply is made, i.e.<br />
no longer on the 1 th day of the month follow<strong>in</strong>g the<br />
supply or at the time of issue of the related <strong>in</strong>voice.<br />
What is the change as regards hold<strong>in</strong>g a valid <strong>in</strong>voice to<br />
claim deduction?<br />
In general, <strong>in</strong> order to exercise their right to deduct <strong>in</strong>put<br />
tax, taxable persons are required to hold a valid <strong>VAT</strong><br />
<strong>in</strong>voice, even if the supply is subject to the reverse charge<br />
mechanism. Nevertheless, Member States may cont<strong>in</strong>ue<br />
to base the right to deduct on other evidence.<br />
What is the change <strong>in</strong> respect of account<strong>in</strong>g for <strong>VAT</strong> on<br />
a cash basis?<br />
Member States will have the option, without hav<strong>in</strong>g to<br />
apply for authorization to derogate from the <strong>VAT</strong> Dir-<br />
12. Editor’s note: It should be noted that the Community term “exemption”<br />
refers to both true exemptions (i.e. transactions <strong>in</strong> respect of which the supplier<br />
is not entitled to deduct related <strong>in</strong>put tax), and zero rates.<br />
142 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
ective, to <strong>in</strong>troduce a cash account<strong>in</strong>g scheme under<br />
which bus<strong>in</strong>esses account for output <strong>VAT</strong> when they<br />
receive payment from their customers and deduct <strong>in</strong>put<br />
<strong>VAT</strong> when they pay their suppliers. Members States can<br />
set the ceil<strong>in</strong>g for use of that scheme at an annual<br />
turnover EUR 2 million, which is the EU def<strong>in</strong>ition of a<br />
“micro enterprise”. Member States may allow the customer<br />
of a bus<strong>in</strong>ess that applies the cash account<strong>in</strong>g<br />
scheme to deduct the <strong>VAT</strong> immediately, rather than hav<strong>in</strong>g<br />
to wait until he pays his supplier.<br />
The amended <strong>in</strong>formation on the <strong>in</strong>voice will enable the<br />
customer to determ<strong>in</strong>e when he can exercise his right to<br />
deduct the related <strong>VAT</strong>.<br />
Will bus<strong>in</strong>esses be able to store <strong>in</strong>voices electronically,<br />
<strong>in</strong>stead of on paper?<br />
Yes. Member States that currently require that the<br />
<strong>in</strong>voice must be stored <strong>in</strong> their orig<strong>in</strong>al format will have<br />
to allow bus<strong>in</strong>esses to store those <strong>in</strong>voices electronically.<br />
Will all the rules on <strong>in</strong>voic<strong>in</strong>g be harmonized<br />
throughout the European Union?<br />
No. All the <strong>VAT</strong> rules on <strong>in</strong>voic<strong>in</strong>g will be harmonized<br />
with one exception. Member States cont<strong>in</strong>ue to have the<br />
option to provide whether an <strong>in</strong>voice is needed <strong>in</strong><br />
respect of B2C transactions. However, the B2C <strong>in</strong>voice <strong>in</strong><br />
that case can only be a simplified <strong>in</strong>voice.<br />
All the other options currently available to Member<br />
States are either withdrawn or harmonized.<br />
Is the <strong>VAT</strong> amount on an <strong>in</strong>voice still required <strong>in</strong> the<br />
currency of the Member State where the tax is due?<br />
Yes. In order to ensure that the <strong>VAT</strong> declared matches the<br />
<strong>VAT</strong> deducted, the amount of <strong>VAT</strong> must be stated on the<br />
<strong>in</strong>voice <strong>in</strong> the currency of the Member State where the<br />
tax is due.<br />
However, the rules for conversion of amounts expressed<br />
<strong>in</strong> another currency have been simplified to help bus<strong>in</strong>esses.<br />
The exchange rate that must be used is the<br />
exchange rate published by the European Central Bank<br />
(ECB). The various facilities that the ECB offers should<br />
reduce the burden of this requirement on bus<strong>in</strong>esses.<br />
Why is there still the option for Member States to<br />
cont<strong>in</strong>ue to require bus<strong>in</strong>esses to issue an <strong>in</strong>voice for<br />
B2C supplies?<br />
That option is reta<strong>in</strong>ed to help the tax authorities control<br />
fraud. However, the conditions under which the option<br />
can be exercised are made more bus<strong>in</strong>ess friendly. If they<br />
are required, B2C <strong>in</strong>voices only must conta<strong>in</strong> the details<br />
required for simplified <strong>in</strong>voices.<br />
Are there any benefits for distance sellers <strong>in</strong> this<br />
proposal?<br />
Yes. Distance sellers are only required to issue simplified<br />
<strong>in</strong>voices if, for the same supply, bus<strong>in</strong>esses established <strong>in</strong><br />
that Member State are also required to issue an <strong>in</strong>voice <strong>in</strong><br />
respect of B2C transactions. The requirement that dis-<br />
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<strong>VAT</strong> <strong>News</strong><br />
tance sellers must issue an <strong>in</strong>voice under all circumstances<br />
is removed.<br />
How will bus<strong>in</strong>esses know that a simplified <strong>in</strong>voice is<br />
required for B2C supplies?<br />
Currently, the <strong>in</strong>voic<strong>in</strong>g rules applicable <strong>in</strong> the Member<br />
States are published on the Commission’s website (see<br />
http://ec.europa.eu/taxation_customs/taxation/vat/<br />
traders/vat_community/<strong>in</strong>dex_en.htm).<br />
The Commission will keep that <strong>in</strong>formation up to date<br />
and, <strong>in</strong> addition, Member States may be required to publish<br />
the <strong>in</strong>formation on their websites.<br />
Is the requirement to issue an <strong>in</strong>voice by the 15th of the<br />
month follow<strong>in</strong>g the date of the supply not too short a<br />
period?<br />
It is true that, for bus<strong>in</strong>esses <strong>in</strong> certa<strong>in</strong> Member States,<br />
the new condition will be stricter than that which currently<br />
applies. For bus<strong>in</strong>esses <strong>in</strong> other Member States, the<br />
period will be longer than they are used to.<br />
Any harmonized period by which <strong>in</strong>voices must be<br />
issued requires a balance between the <strong>in</strong>terest of the<br />
issuer, who must be able to issue the <strong>in</strong>voice with<strong>in</strong> that<br />
period, and that of the customer, who needs a valid<br />
<strong>in</strong>voice to recover the <strong>VAT</strong>. If the period is too short, the<br />
issuer may experience difficulties to comply with his<br />
obligation to issue the <strong>in</strong>voice <strong>in</strong> time and if it is too long,<br />
the customer may face the burden of hav<strong>in</strong>g to f<strong>in</strong>ance<br />
the <strong>VAT</strong>. The deadl<strong>in</strong>e set creates a reasonable balance<br />
and is equal to the exist<strong>in</strong>g deadl<strong>in</strong>e relat<strong>in</strong>g to <strong>in</strong>tra-<br />
Community supplies.<br />
Has the public been consulted on the changes to the <strong>VAT</strong><br />
rules on <strong>in</strong>voic<strong>in</strong>g?<br />
Yes, the Commission launched a public consultation to<br />
<strong>in</strong>volve all stakeholders <strong>in</strong> the review of the <strong>VAT</strong> <strong>in</strong>voic<strong>in</strong>g<br />
legislation.<br />
A detailed summary report of the results of the public<br />
consultation is available at: http://ec.europa.eu/<br />
taxation_customs/common/consultations/tax/<strong>in</strong>dex_<br />
en.htm.<br />
European Commission’s website.<br />
Proposed Directives – Mutual assistance <strong>in</strong> recovery<br />
of taxes<br />
On 2 February 2009, the European Commission presented<br />
two proposals for new Directives <strong>in</strong>tended to<br />
improve mutual assistance between the tax authorities of<br />
the Member States as regards the assessment and recovery<br />
of taxes. The proposal on mutual assistance as<br />
regards the assessment of taxes does not apply to <strong>VAT</strong><br />
because mutual assistance <strong>in</strong> that field of taxation is<br />
already covered by a fairly recent Community <strong>in</strong>strument,<br />
i.e. Regulation No. 1798/200 of 7 October 200 .<br />
The exist<strong>in</strong>g arrangements on mutual assistance<br />
between the tax authorities of the Member States as<br />
regards the recovery of taxes is <strong>in</strong> pr<strong>in</strong>ciple based on a<br />
Directive that was designed <strong>in</strong> the mid-1970s of the pre-<br />
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<strong>VAT</strong> <strong>News</strong><br />
vious century, i.e. Directive 7 / 08. Although that Directive<br />
has recently been codified and replaced by Directive<br />
2008/ of 2 May 2008, this <strong>in</strong>strument has,<br />
accord<strong>in</strong>g to the Commission, proved to be <strong>in</strong>sufficient<br />
to meet the requirements of the <strong>in</strong>ternal market as it has<br />
evolved <strong>in</strong> the last 0 years.<br />
The mobility of persons and capital <strong>in</strong> the mid-1970s of<br />
the previous century is not comparable to the mobility<br />
today. Today, fraudsters take advantage of the territorial<br />
limitations on the powers of national tax authorities,<br />
which enable them to hide from the authorities transactions<br />
carried out <strong>in</strong> another Member State or organize<br />
<strong>in</strong>solvencies <strong>in</strong> Member States where they have tax debts.<br />
It can be derived from economic literature that tax fraud<br />
generally amounts to 2% to 2. % of GDP, i.e. between<br />
EUR 200 and 2 0 billion. <strong>VAT</strong> carousel fraud is one of<br />
the biggest problems, but smuggl<strong>in</strong>g and counterfeit<strong>in</strong>g<br />
alcohol and tobacco products (excise duty fraud) and<br />
fraud <strong>in</strong> the field of direct taxation are equally serious.<br />
The draft Directive on mutual assistance as regards the<br />
recovery of taxes <strong>in</strong>tends to re<strong>in</strong>force and improve the<br />
recovery assistance between the Member States. Accord<strong>in</strong>g<br />
to the Commission, it should help to <strong>in</strong>crease the<br />
recovery ratio, which currently amounts to only % of<br />
the total for which recovery assistance is requested.<br />
IP/09/201 of 2 February 2009 and COM(2009) 28.<br />
Council Decision – Border bridges – Czech Republic<br />
and Germany<br />
On 10 February 2009, the Council of the European<br />
Union adopted a Decision authoriz<strong>in</strong>g the Czech<br />
Republic and Germany to apply measures derogat<strong>in</strong>g<br />
from Art. of Directive 200 /112 <strong>in</strong> relation to the construction<br />
and subsequent ma<strong>in</strong>tenance of one border<br />
bridge, and the ma<strong>in</strong>tenance of 22 exist<strong>in</strong>g border<br />
bridges, all of which are partly on the territory of the<br />
Czech Republic and partly on the territory of the Federal<br />
Republic of Germany. The details of the bridges <strong>in</strong> question<br />
are listed <strong>in</strong> the Annex to the Decision. The authorization<br />
will automatically be extended to the construction<br />
and ma<strong>in</strong>tenance of any additional bridges, which<br />
are brought with<strong>in</strong> the scope of the Agreement by an<br />
exchange of diplomatic notes.<br />
Under this decision, as regards the border bridges <strong>in</strong><br />
respect of which the Czech Republic is solely responsible<br />
for ma<strong>in</strong>tenance, the bridges are deemed to be part of the<br />
Czech territory for the purposes of supplies of goods and<br />
services and <strong>in</strong>tra-Community acquisitions of goods<br />
<strong>in</strong>tended for ma<strong>in</strong>tenance of these bridges; as regards the<br />
border bridge <strong>in</strong> respect of which Germany is responsible<br />
for construction and ma<strong>in</strong>tenance and the border bridges<br />
<strong>in</strong> respect of which Germany is solely responsible for<br />
ma<strong>in</strong>tenance, the bridges are deemed to be part of the German<br />
territory for the purposes of supplies of goods and<br />
services and <strong>in</strong>tra-Community acquisitions of goods<br />
<strong>in</strong>tended for construction or ma<strong>in</strong>tenance of these bridges.<br />
Council Decision 2009/118/EC of 10 February 2009, OJ<br />
L41 of 12 February 2009.<br />
Anti-fraud agreement with Switzerland<br />
On 17 February 2009, the Cooperation Agreement<br />
between the European Community and Switzerland<br />
aimed at combat<strong>in</strong>g fraud and any other illegal activities<br />
to the detriment of their f<strong>in</strong>ancial <strong>in</strong>terests (“the Agreement“),<br />
which was signed on 2 October 2004, and the<br />
Council Decision of 18 December 2008 relat<strong>in</strong>g thereto,<br />
were published <strong>in</strong> the Official Journal of the European<br />
Union.<br />
The objective of the Agreement is to extend adm<strong>in</strong>istrative<br />
and mutual legal assistance <strong>in</strong> crim<strong>in</strong>al matters<br />
between the European Union and Switzerland. The<br />
Agreement covers adm<strong>in</strong>istrative and crim<strong>in</strong>al procedures<br />
aimed at prevention, detection, <strong>in</strong>vestigation, prosecution<br />
and repression of fraud or any other illegal activity<br />
<strong>in</strong>volv<strong>in</strong>g, <strong>in</strong>ter alia, violation of the legislation on<br />
<strong>VAT</strong>, special consumption taxes and excise duties.<br />
Council Decision 2009/127/EC of 18 December 2008,<br />
OJ L 4 of 17 February 2009, p. .<br />
Anti-fraud agreement with Liechtenste<strong>in</strong> – Ecof<strong>in</strong><br />
At the meet<strong>in</strong>g of the EU Council for Economic and<br />
F<strong>in</strong>ancial Affairs (Ecof<strong>in</strong> Council) on 10 February 2009,<br />
the Council took note of the fact that the Commission<br />
has submitted, on 11 December 2008, a proposal for a<br />
Council Decision on the sign<strong>in</strong>g, on behalf of the Community,<br />
of the Cooperation Agreement between, on the<br />
one part, the European Community and its Member<br />
States and, on the other part, the Pr<strong>in</strong>cipality of Liechtenste<strong>in</strong>,<br />
to combat fraud and any other illegal activities<br />
to the detriment of their f<strong>in</strong>ancial <strong>in</strong>terests.<br />
Follow<strong>in</strong>g the discussion held at the meet<strong>in</strong>g of the<br />
Council on 4 November 2008, the Council strongly<br />
<strong>in</strong>vited the Commission to cont<strong>in</strong>ue the negotiations<br />
with Liechtenste<strong>in</strong>, <strong>in</strong> conformity with the mandate of<br />
200 , <strong>in</strong> order to obta<strong>in</strong> such changes <strong>in</strong> the text of the<br />
draft agreement to ensure effective adm<strong>in</strong>istrative assistance<br />
and access to <strong>in</strong>formation with regard to all forms<br />
of <strong>in</strong>vestment, <strong>in</strong> particular foundations and trusts.<br />
As regards the provision of <strong>in</strong>formation <strong>in</strong> tax matters to<br />
the Member States, the Council expects Liechtenste<strong>in</strong> to<br />
encompass <strong>in</strong> the agreement with the European Community<br />
and its Member States obligations that are at least<br />
similar <strong>in</strong> scope as those which Liechtenste<strong>in</strong> recently<br />
agreed on with other countries.<br />
F<strong>in</strong>ally, the Council called on the Commission to report<br />
back on any progress at one of its forthcom<strong>in</strong>g meet<strong>in</strong>gs,<br />
at the latest <strong>in</strong> May 2009.<br />
Press release 2922nd Council meet<strong>in</strong>g.<br />
<strong>VAT</strong> fraud – Fiscalis Sem<strong>in</strong>ar<br />
The Dutch tax and customs adm<strong>in</strong>istration and the<br />
European Commission held a one-day Fiscalis sem<strong>in</strong>ar<br />
<strong>in</strong> Amsterdam on 2 January 2009 on fight<strong>in</strong>g <strong>VAT</strong><br />
fraud. The participants exchanged views and ideas on<br />
measures conta<strong>in</strong>ed <strong>in</strong> the Commission’s Communication<br />
on a coord<strong>in</strong>ated strategy to improve the fight<br />
144 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
aga<strong>in</strong>st <strong>VAT</strong> fraud <strong>in</strong> the European Union, which was<br />
presented on 1 December 2008.<br />
The sem<strong>in</strong>ar brought together representatives from<br />
bus<strong>in</strong>esses, the national tax adm<strong>in</strong>istrations and European<br />
<strong>in</strong>stitutions. It focused on both short-term and<br />
longer-term measures to combat <strong>VAT</strong> fraud. All presentations<br />
are available on TAXUD’s website.<br />
European Commission’s website.<br />
Reduced <strong>VAT</strong> rates – Ecof<strong>in</strong><br />
At the meet<strong>in</strong>g of the EU Council for Economic and<br />
F<strong>in</strong>ancial Affairs (Ecof<strong>in</strong> Council) on 10 February 2009,<br />
the Council discussed the issue of reduced rates of <strong>VAT</strong><br />
<strong>in</strong> the context of the economic recovery plan approved<br />
by the European Council <strong>in</strong> December 2008.<br />
The presidency <strong>in</strong>dicated that it will reflect on how to<br />
take the dossier forward <strong>in</strong> response to the European<br />
Council’s request to settle the issue by March 2009. A further<br />
discussion is expected at the Council’s meet<strong>in</strong>g on<br />
10 March 2009, <strong>in</strong> the run-up to the next European<br />
Council, on 19 and 20 March 2009.<br />
Allow<strong>in</strong>g Member States to apply reduced <strong>VAT</strong> rates <strong>in</strong><br />
certa<strong>in</strong> sectors is one of the actions that form part of the<br />
economic recovery plan.<br />
The current EU rules on <strong>VAT</strong> rates are set by Directive<br />
200 /112. They are the outcome of a variety of <strong>in</strong>itiatives<br />
over the years, <strong>in</strong>clud<strong>in</strong>g the 1992 decision on the harmonization<br />
of <strong>VAT</strong> rates <strong>in</strong> the context of the EU s<strong>in</strong>gle<br />
market, the 2000 decision to temporarily allow reduced<br />
<strong>VAT</strong> rates on labour-<strong>in</strong>tensive services with a view to<br />
stimulat<strong>in</strong>g employment, and the 2004 derogations<br />
allowed to newly acceded Member States. In addition,<br />
the Commission promised to present a proposal <strong>in</strong> April<br />
2009 on the application of reduced rates to specific environmental<br />
goods and services, focus<strong>in</strong>g pr<strong>in</strong>cipally on<br />
energy efficiency <strong>in</strong> build<strong>in</strong>gs.<br />
In 2008, the Commission proposed a Directive aimed at<br />
allow<strong>in</strong>g all Member States to apply reduced rates – on a<br />
permanent basis – to labour-<strong>in</strong>tensive services, <strong>in</strong>clud<strong>in</strong>g<br />
restaurant services. 1<br />
Reduced <strong>VAT</strong> on environment-friendly products –<br />
Study<br />
On 2 January 2009, the European Commission published<br />
a study on the current and potential use of<br />
reduced <strong>VAT</strong> for environment-friendly products, and its<br />
application to energy consumption by households. The<br />
analysis is carried out <strong>in</strong> the context of EU policy<br />
approach to climate change and energy security, <strong>in</strong>clud<strong>in</strong>g<br />
<strong>in</strong>teraction with other policy <strong>in</strong>struments at EU and<br />
national levels. The study focuses on what role – if any –<br />
<strong>VAT</strong> rate policy should play <strong>in</strong> underp<strong>in</strong>n<strong>in</strong>g these<br />
objectives.<br />
European Commission’s website.<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
Fiji<br />
<strong>VAT</strong> <strong>News</strong><br />
Zero rat<strong>in</strong>g<br />
The Budget for 2009 was presented on 21 November<br />
2008. Under the budget, the zero rat<strong>in</strong>g of goods for <strong>VAT</strong><br />
purposes only applies from 1 January 2009 on the condition<br />
that evidence is provided to the Commissioner that<br />
the proceeds of the exported goods and services are<br />
transferred to Fiji.<br />
F<strong>in</strong>land<br />
Tax accounts<br />
The <strong>gov</strong>ernment has proposed a new system for report<strong>in</strong>g,<br />
pay<strong>in</strong>g and reclaim<strong>in</strong>g taxes through “tax accounts”.<br />
If approved as proposed, the system will come <strong>in</strong>to force<br />
at the beg<strong>in</strong>n<strong>in</strong>g of the year 2010 and, at the <strong>in</strong>itial stage,<br />
applies to “self-assessed” taxes, i.e. taxes that are reported<br />
and paid on the entrepreneurs’ <strong>in</strong>itiative, <strong>in</strong>clud<strong>in</strong>g <strong>VAT</strong>,<br />
withhold<strong>in</strong>g tax, social security tax, tax at source, <strong>in</strong>surance<br />
premium tax and lottery tax. The proposal therefore<br />
also conta<strong>in</strong>s many amendments to, <strong>in</strong>ter alia, the<br />
<strong>VAT</strong> Act. At the second stage, which is envisaged to commence<br />
<strong>in</strong> the year 2012, the tax account system will be<br />
extended to the other taxes.<br />
The ma<strong>in</strong> purpose of the new tax account system is to<br />
make the tax collection system more taxpayer friendly<br />
and cost efficient for both the tax authorities and entrepreneurs.<br />
The new system will provide every taxpayer<br />
with his own tax account, which they will use for fil<strong>in</strong>g<br />
tax returns and declarations and mak<strong>in</strong>g payments. The<br />
account may also conta<strong>in</strong> other <strong>in</strong>formation regard<strong>in</strong>g<br />
the taxpayer’s tax position.<br />
The deadl<strong>in</strong>es for report<strong>in</strong>g and pay<strong>in</strong>g taxes will be unified<br />
under the new system. The unified due date is proposed<br />
to be the 12th day of the month follow<strong>in</strong>g the<br />
month to which the report relates. The ultimate goal is to<br />
enable taxpayers to file only a s<strong>in</strong>gle monthly tax report<br />
conta<strong>in</strong><strong>in</strong>g <strong>in</strong>formation on all tax liabilities and, consequently,<br />
make only a s<strong>in</strong>gle monthly payment cover<strong>in</strong>g<br />
all taxes due for that month. The tax authorities will allocate<br />
the total amount received to the taxes due, on the<br />
basis of a method laid down by the law.<br />
The tax account system will prevent unnecessary money<br />
transfers between the tax authorities and taxpayers. For<br />
example, entrepreneurs will no longer have to apply for a<br />
refund of <strong>VAT</strong> because their <strong>VAT</strong> claim will automatically<br />
be offset aga<strong>in</strong>st their other tax liabilities or, alternatively,<br />
be refunded.<br />
Taxpayers will be liable for payment of late-payment<br />
<strong>in</strong>terest and, on the other hand, receive <strong>in</strong>terest for any<br />
credit balance <strong>in</strong> their tax account. Late payment of <strong>VAT</strong><br />
will no longer give rise to imposition of a penalty. How-<br />
1 . Proposal for a Council Directive amend<strong>in</strong>g Directive 200 /112/EC as<br />
regards reduced rates of value added tax, COM(2008) 428.<br />
14
<strong>VAT</strong> <strong>News</strong><br />
ever, a new penalty charge is proposed on late <strong>VAT</strong><br />
report<strong>in</strong>g.<br />
The report<strong>in</strong>g period is <strong>in</strong> pr<strong>in</strong>ciple the calendar month<br />
but, depend<strong>in</strong>g on the entrepreneur’s annual turnover,<br />
that period is extended to the calendar quarter or calendar<br />
year.<br />
From our correspondent Jonna Kontu<br />
Indirect Tax Practice Leader, Tax and Legal<br />
Deloitte & Touche Oy<br />
Food<br />
On 19 December 2008, the parliament approved the<br />
Budget Bill for 2009, and the laws were confirmed by the<br />
president on 0 December 2008. Under the Budget, <strong>VAT</strong><br />
on food is reduced from 17% to 12%, with effect from 1<br />
October 2009.<br />
Germany<br />
All the measures conta<strong>in</strong>ed <strong>in</strong> the proposals for the Tax<br />
Act 2009 and the Tax Bureaucracy Reduction Act 2009 14<br />
have entered <strong>in</strong>to effect on 1 January 2009 or – to the<br />
extent they concern the new place-of-supply rules relat<strong>in</strong>g<br />
to services – will enter <strong>in</strong>to effect on 1 January 2010,<br />
201 and 201 , respectively. The only exception concerns<br />
re<strong>in</strong>troduction of a 0% reduction of the <strong>VAT</strong> that<br />
can be deducted by sole entrepreneurs or partnerships <strong>in</strong><br />
respect of cars that are not exclusively used for bus<strong>in</strong>ess<br />
purposes. That proposal, which required authorization<br />
by the Council under Art. 9 of the <strong>VAT</strong> Directive, has<br />
completely been withdrawn <strong>in</strong> the light of the current<br />
economic climate and, <strong>in</strong> particular, the downturn <strong>in</strong> the<br />
automobile <strong>in</strong>dustry. The most important consequences<br />
of the two Acts are summarized as follows.<br />
Medical services<br />
The <strong>VAT</strong> exemption for medical services of doctors and<br />
hospitals, and the conditions under which the exemption<br />
applies, have been rephrased. The exemption for costshar<strong>in</strong>g<br />
associations, which is based on Art. 1 2(1)(f ) of<br />
the <strong>VAT</strong> Directive and previously applied to shared practices<br />
of doctors and operators of medical equipment, has<br />
been extended to associations or partnerships of hospitals<br />
and of doctors with hospitals, provided that those<br />
groups only claim from their members exact reimbursement<br />
of their share of the jo<strong>in</strong>t expenses.<br />
Free ports<br />
The general zero rat<strong>in</strong>g of supplies of goods that are<br />
brought <strong>in</strong>to a free port and, for <strong>VAT</strong> purposes, are considered<br />
to be exported has been limited to cases <strong>in</strong> which<br />
the customer will use the goods exclusively for fully taxable<br />
transactions.<br />
<strong>VAT</strong> returns<br />
The fil<strong>in</strong>g threshold for monthly <strong>VAT</strong> returns has been<br />
<strong>in</strong>creased from EUR ,1 to 7, 00, whereas the threshold<br />
for fil<strong>in</strong>g quarterly returns has been <strong>in</strong>creased from<br />
EUR 12 to 1,000.<br />
Summary <strong>in</strong>voices<br />
The requirement that, <strong>in</strong> respect of electronic <strong>in</strong>voices<br />
exchanged through EDI (Electronic Data Interchange), a<br />
summary <strong>in</strong>voice <strong>in</strong> paper or electronic format with a<br />
qualified signature must be submitted has been withdrawn.<br />
Postal services<br />
As a consequence of the liberalization of the postal services<br />
market, the exemption for universal postal services,<br />
which has always been limited to the services rendered<br />
by Deutsche Post, has been extended to all providers of<br />
universal postal services.<br />
From our correspondent Sonja Mühleisen<br />
Deloitte & Touche GmbH<br />
Council Decision – Border bridges – Czech Republic<br />
See under European Union.<br />
14 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD<br />
India<br />
Builders<br />
The huge controversy as to the question of whether<br />
builders are required to pay service tax, <strong>in</strong> respect of the<br />
conclusion of an agreement with a third party for the sale<br />
of an apartment or unit <strong>in</strong> a residential complex, is now<br />
set at rest by a clarification laid down by a circular 1 of 29<br />
January 2009, which the Central Board of Excise and<br />
Customs (CBEC) issued on behalf of the M<strong>in</strong>istry of<br />
F<strong>in</strong>ance and the <strong>gov</strong>ernment of India. In the circular, the<br />
CBEC has answered that question <strong>in</strong> the negative.<br />
The tax authorities, at the field level, had taken a view<br />
that, when builders enter <strong>in</strong>to an agreement to sell an<br />
apartment or unit to be constructed, the contract<strong>in</strong>g<br />
party becomes <strong>in</strong> effect the owner of the build<strong>in</strong>g to be<br />
constructed and the builder becomes <strong>in</strong> effect a service<br />
provider provid<strong>in</strong>g a service that consists of construct<strong>in</strong>g<br />
the property. Construction services are one of the<br />
categories of services that are subject to service tax. 1<br />
The builders, on the other hand, argued that enter<strong>in</strong>g<br />
<strong>in</strong>to an agreement to sell an apartment or unit to be constructed<br />
does not have the effect that the contract<strong>in</strong>g<br />
party becomes the owner of the property. The apartment<br />
or unit is transferred to the buyer only after its construction<br />
has been completed, and what is transferred or sold<br />
at that time is an immovable property. The amounts paid<br />
by the contract<strong>in</strong>g party to the builder dur<strong>in</strong>g the period<br />
of construction are merely advance payments relat<strong>in</strong>g to<br />
a future sale which has been agreed. It is therefore out of<br />
the question that the builder provides any service to the<br />
contract<strong>in</strong>g party. The transaction is the sale of an apartment<br />
or unit <strong>in</strong> a residential complex, which is the sale of<br />
an immovable property and, under the current provisions<br />
of the Service Tax Law, the sale of immovable prop-<br />
14. See International <strong>VAT</strong> Monitor (2008).<br />
1 . No. 108/02/2009-ST.<br />
1 . Only specifically def<strong>in</strong>ed categories of services are subject to service tax.
erty is not a service and service tax is not payable on such<br />
transactions.<br />
The builders challenged the position adopted by the tax<br />
officers <strong>in</strong> appeals aga<strong>in</strong>st assessments of service tax <strong>in</strong><br />
<strong>in</strong>dividual cases and also through a direct challenge of<br />
the notices issued by the tax officers <strong>in</strong>tend<strong>in</strong>g to recover<br />
service tax <strong>in</strong> respect of such transactions <strong>in</strong> court. The<br />
courts and appellate authorities took different positions:<br />
some agreed with the tax authorities and others with the<br />
builders. The issue was still pend<strong>in</strong>g at various levels of<br />
appellate authorities when the matter was settled by the<br />
M<strong>in</strong>istry, which accepted the arguments of the builders.<br />
The circular that was issued by the CBEC is beneficial for<br />
the taxpayers and b<strong>in</strong>d<strong>in</strong>g on the tax authorities.<br />
Educational <strong>in</strong>stitutions<br />
The applicability of service tax to private <strong>in</strong>stitutions<br />
that give courses and issue diplomas or certificates <strong>in</strong><br />
collaboration with <strong>in</strong>stitutions or universities established<br />
abroad, and to coach<strong>in</strong>g or tra<strong>in</strong><strong>in</strong>g provided by<br />
non-profit or charitable organizations was recently<br />
addressed by the CBEC. 17<br />
Service tax is payable by “commercial tra<strong>in</strong><strong>in</strong>g or coach<strong>in</strong>g<br />
centres”. That category refers to any <strong>in</strong>stitution provid<strong>in</strong>g<br />
commercial tra<strong>in</strong><strong>in</strong>g or coach<strong>in</strong>g <strong>in</strong> any field<br />
other than sports. Specifically excluded from this category<br />
are preschool coach<strong>in</strong>g and tra<strong>in</strong><strong>in</strong>g, and coach<strong>in</strong>g<br />
and tra<strong>in</strong><strong>in</strong>g by <strong>in</strong>stitutes that issue a degree, diploma or<br />
educational qualification recognized by the law, for the<br />
time be<strong>in</strong>g <strong>in</strong> force.<br />
Institutes provid<strong>in</strong>g coach<strong>in</strong>g or tra<strong>in</strong><strong>in</strong>g <strong>in</strong> collaboration<br />
with an <strong>in</strong>stitute or university established abroad<br />
claimed that their services led to the issue of a degree or<br />
diploma by a non-resident <strong>in</strong>stitution or university,<br />
which is recognized by law <strong>in</strong> the country of residence.<br />
The position of the tax authorities, which has now been<br />
confirmed by the CBEC, has always been that the term<br />
“recognized by the law for the time be<strong>in</strong>g <strong>in</strong> force” must<br />
be <strong>in</strong>terpreted as mean<strong>in</strong>g recognition of the degree or<br />
certificate <strong>in</strong> India. At present, such recognition is <strong>gov</strong>erned<br />
by specific regulations and, under those regulations,<br />
certificates or qualifications issued by non-resident<br />
<strong>in</strong>stitutes and universities are not recognized <strong>in</strong><br />
India.<br />
Non-profit and charitable organizations took the position<br />
that the category of “commercial tra<strong>in</strong><strong>in</strong>g or coach<strong>in</strong>g<br />
centres” covers education or tra<strong>in</strong><strong>in</strong>g provided on a<br />
commercial basis, i.e. with the aim to make a profit. S<strong>in</strong>ce<br />
non-profit or charitable organizations do not aim to<br />
make a profit, they should not be subject to service tax.<br />
This position was accepted by some appellate authorities.<br />
However, the CBEC has now clarified that the word<br />
“commercial” must not be <strong>in</strong>terpreted by reference to the<br />
aim with which the coach<strong>in</strong>g or tra<strong>in</strong><strong>in</strong>g is provided, but<br />
by reference to the type of tra<strong>in</strong><strong>in</strong>g or coach<strong>in</strong>g. Consequently,<br />
provided that it relates to a commercial field, the<br />
coach<strong>in</strong>g or tra<strong>in</strong><strong>in</strong>g activities are subject to service tax,<br />
regardless of whether the activities are carried out by a<br />
profit-seek<strong>in</strong>g, non-profit or charitable organization.<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
Standard rate of service tax<br />
In view of the upcom<strong>in</strong>g elections, the Budget for 2009<br />
has not been presented on 28 February 2009. The<br />
<strong>in</strong>terim budget (vote on account) was presented on 1<br />
January 2009 and conta<strong>in</strong>ed no tax policy-related<br />
announcements or changes <strong>in</strong> tax rates.<br />
However, <strong>in</strong> a notification 18 issued on 24 February 2009,<br />
the standard rate of service tax is reduced from 12% to<br />
10% with immediate effect.<br />
From our correspondent Bhavna Doshi<br />
Bharat S Raut & Co., KPMG, Mumbai<br />
Ireland<br />
Standard rate<br />
With effect from 1 December 2008, the standard rate of<br />
<strong>VAT</strong> has been <strong>in</strong>creased from 21% to 21. %.<br />
Travel agents<br />
The F<strong>in</strong>ance (No. 2) Act 2008 will <strong>in</strong>troduce, with effect<br />
from 1 January 2010, <strong>in</strong>to national law the marg<strong>in</strong><br />
scheme for the services of travel agents, as provided for<br />
<strong>in</strong> Arts. 0 to 10 of the <strong>VAT</strong> Directive. The travel agent<br />
marg<strong>in</strong> scheme applies to tour operators and travel<br />
agents, act<strong>in</strong>g as pr<strong>in</strong>cipals, whose supplies consist of<br />
services, such as transport and accommodation which<br />
they have bought <strong>in</strong> from third parties for the direct benefit<br />
of the traveller. The supply of such services as a travel<br />
package is treated as a s<strong>in</strong>gle supply. Under the scheme,<br />
tour operators and travel agents will be subject to <strong>VAT</strong> at<br />
21. % on their marg<strong>in</strong>.<br />
Low-emission company cars<br />
After 0 December 2008, subject to a number of conditions,<br />
registered bus<strong>in</strong>esses are entitled to deduct 20% of<br />
the <strong>VAT</strong> paid <strong>in</strong> respect of the purchase, hir<strong>in</strong>g, <strong>in</strong>tra-<br />
Community acquisition or importation of new qualify<strong>in</strong>g<br />
low-emission vehicles used primarily for bus<strong>in</strong>ess<br />
purposes.<br />
Fil<strong>in</strong>g and payment<br />
Registered taxable persons normally account for <strong>VAT</strong> on<br />
a bimonthly basis. The returns must be filed not later<br />
than the 19th day of the month follow<strong>in</strong>g the end of the<br />
tax period.<br />
With effect from 1 January 2009, the fil<strong>in</strong>g and payment<br />
deadl<strong>in</strong>e for <strong>VAT</strong> returns filed through the Revenue<br />
Onl<strong>in</strong>e Service has been extended by 4 days to the 2 rd<br />
day of the follow<strong>in</strong>g month. With effect from the same<br />
date, taxable persons whose affairs are dealt with by Revenue’s<br />
Large Cases Division and certa<strong>in</strong> public bodies<br />
will be required to file their <strong>VAT</strong> returns electronically.<br />
17. Circular No. 107/01/2009-SC dated 28 January 2009.<br />
18. Notification No 8/2009-ST.<br />
147
<strong>VAT</strong> <strong>News</strong><br />
Unjust enrichment<br />
Unjust enrichment can occur <strong>in</strong> circumstances where a<br />
taxable person, who <strong>in</strong>itially overpaid tax because of an<br />
error <strong>in</strong> law, gets a w<strong>in</strong>dfall ga<strong>in</strong> if the tax authorities<br />
repay that tax to him. Such a w<strong>in</strong>dfall ga<strong>in</strong> is considered<br />
to be unjust where the burden of the overpaid tax was<br />
not borne by the taxable person but, rather, had been<br />
passed on to his customer. The Act sets out the method<br />
by which a claim for repayment of overpaid <strong>VAT</strong> must be<br />
made and the factors which will be taken <strong>in</strong>to account <strong>in</strong><br />
determ<strong>in</strong><strong>in</strong>g whether or not a repayment would result <strong>in</strong><br />
unjust enrichment.<br />
Penalties<br />
With effect from 24 December 2008, the standard<br />
penalty for a <strong>VAT</strong> compliance breach has been <strong>in</strong>creased<br />
from EUR 1, 20 to 4,000. Furthermore, the Act provides<br />
for additional penalties of EUR ,000 to ,000 for a variety<br />
of careless and deliberate acts or omissions.<br />
Tea and coffee<br />
Tea and coffee supplied <strong>in</strong> non-dr<strong>in</strong>kable form are subject<br />
to the zero rate, whereas tea and coffee supplied <strong>in</strong><br />
dr<strong>in</strong>kable form are subject to the reduced rate of 1 . %.<br />
From our correspondent Michael O’Connor<br />
William Fry Tax Advisers, Dubl<strong>in</strong><br />
Laos<br />
Utilities, beer and fuel<br />
Follow<strong>in</strong>g the approval of the <strong>VAT</strong> Law by the National<br />
Assembly <strong>in</strong> December 200 , 19 it has been reported that,<br />
with effect from 1 January 2009, locally produced and<br />
imported electricity, water, certa<strong>in</strong> brands of beer and<br />
fuel have become subject to <strong>VAT</strong> at the rate of 10%.<br />
Extension of <strong>VAT</strong><br />
The <strong>gov</strong>ernment has reportedly reconfirmed its <strong>in</strong>tention<br />
to ultimately replace the bus<strong>in</strong>ess turnover tax by<br />
the newly <strong>in</strong>troduced <strong>VAT</strong> but, s<strong>in</strong>ce not all companies<br />
are ready for the <strong>VAT</strong>, it has decided to limit, for the time<br />
be<strong>in</strong>g, the field of application of <strong>VAT</strong> to companies<br />
whose <strong>in</strong>vestments exceed LAK billion (approximately<br />
USD 9 ,000). Companies whose <strong>in</strong>vestments exceed<br />
LAK 400 million are allowed to participate <strong>in</strong> the <strong>VAT</strong><br />
system on a voluntary basis after they have proved their<br />
ability to comply with the new tax system. The <strong>gov</strong>ernment<br />
hopes that the <strong>VAT</strong> system can be fully implemented<br />
<strong>in</strong> the next fiscal year, i.e. <strong>in</strong> the period from 1<br />
October 2009 to 0 September 2010.<br />
Under the current system, f<strong>in</strong>al consumers must request<br />
a receipt for every transaction that is subject to <strong>VAT</strong>. In<br />
the absence of a receipt, the <strong>gov</strong>ernment will not be able<br />
to trace the transaction. It is expected that the <strong>gov</strong>ernment<br />
will encourage f<strong>in</strong>al consumers to participate <strong>in</strong><br />
the <strong>VAT</strong> system by means of a broad publicity campaign.<br />
Latvia<br />
Build<strong>in</strong>g land<br />
On 24 February, the cab<strong>in</strong>et of m<strong>in</strong>isters approved the<br />
draft amendments to the <strong>VAT</strong> Law. The draft conta<strong>in</strong>s a<br />
def<strong>in</strong>ition of “build<strong>in</strong>g land” and provides that its supply<br />
is subject to <strong>VAT</strong> at the standard rate. In order to come<br />
<strong>in</strong>to effect, the amendments must be adopted by the parliament.<br />
Currently, the supply of immovable property (except for<br />
the first sale of new immovable property), <strong>in</strong>clud<strong>in</strong>g<br />
land, is exempt from <strong>VAT</strong>. This is contrary to the <strong>VAT</strong><br />
Directive, to the extent the exemption is applied to build<strong>in</strong>g<br />
land.<br />
The draft def<strong>in</strong>es build<strong>in</strong>g land as a plot of land <strong>in</strong><br />
respect of which a permit has been issued for construction,<br />
eng<strong>in</strong>eer<strong>in</strong>g communications 20 or construction of a<br />
road. Where such a permit is issued after 1 December<br />
2010, the supply of the build<strong>in</strong>g land would be subject to<br />
<strong>VAT</strong>.<br />
Liechtenste<strong>in</strong><br />
Anti-fraud agreement with the European Union –<br />
Ecof<strong>in</strong><br />
See under European Union.<br />
Macedonia<br />
Deferral of payment<br />
A law amend<strong>in</strong>g the Tax Procedure Law was published <strong>in</strong><br />
Official Gazette No. 1 9 of 22 December 2008 and<br />
entered <strong>in</strong>to force on 1 January 2009.<br />
The amendments re<strong>in</strong>troduce the procedure for deferral<br />
of the payment of tax on demand of the taxpayer, if:<br />
– there is serious doubt about the validity of the tax<br />
assessment made by the tax adm<strong>in</strong>istration; or<br />
– payment of the tax liability would “endanger” the<br />
existence of the taxpayer.<br />
The deferral can only be approved by the revenue office,<br />
if the payment is secured by mortgage, a security <strong>in</strong> the<br />
form of movable property a bank guarantee, or a personal<br />
guarantee provided by a third person. The value of<br />
the guarantee must be at least 2 0% of the liability (previously<br />
1 0%).<br />
Payment of the tax due can be deferred for a specified<br />
period of time or the tax can be paid <strong>in</strong> not more than<br />
monthly <strong>in</strong>stalments. Interest is due for the period of<br />
deferral and is calculated as provided <strong>in</strong> the Law.<br />
Antun Belamarik, Skopje<br />
19. See International <strong>VAT</strong> Monitor (2007), p. 201, and International <strong>VAT</strong><br />
Monitor 1 (2008), p. .<br />
20. Eng<strong>in</strong>eer<strong>in</strong>g communications is def<strong>in</strong>ed as a device, equipment or an<br />
aggregate of devices and equipment <strong>in</strong>tended to supply a structure (build<strong>in</strong>g,<br />
construction) with raw materials, communications, energy resources and<br />
other resources.<br />
148 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
Madagascar<br />
Refunds of <strong>VAT</strong><br />
The Budget Bill for 2009 was enacted on 18 December<br />
2009. Under the Budget 2009, refunds of excess <strong>in</strong>put<br />
<strong>VAT</strong>, which were previously limited to export-oriented<br />
bus<strong>in</strong>esses and bus<strong>in</strong>esses established <strong>in</strong> free zones, are<br />
extended to all bus<strong>in</strong>esses, provided that the deductible<br />
<strong>VAT</strong> relates to <strong>in</strong>vestments <strong>in</strong> capital goods.<br />
Moldova<br />
Transnistria – Discrim<strong>in</strong>atory <strong>VAT</strong> treatment<br />
On 17 February 2009, Law No. 1 -XVI of February<br />
2009 amend<strong>in</strong>g the <strong>VAT</strong> legislation was published <strong>in</strong> the<br />
Official Gazette. Before Law 1 -XVI entered <strong>in</strong>to force,<br />
the reduced rate of 8% applied to bread and bakery products,<br />
milk and dairy products supplied with<strong>in</strong> the territory<br />
of Moldova. However, where they were supplied<br />
from Transnistria, those goods were subject to 20% <strong>VAT</strong>.<br />
Transnistria is the area located on the west bank of the<br />
Dniester river, which has no tax relations with the revenue<br />
authorities of Moldova.<br />
Under Law No. 1 -XVI, the discrim<strong>in</strong>atory <strong>VAT</strong> treatment<br />
of bread and bakery products, milk and dairy<br />
products was ended.<br />
Vasile Foltea, Soter & Partners, Chis<strong>in</strong>au<br />
Netherlands<br />
Company cars<br />
In respect of company passenger cars that the taxable<br />
person also uses for private purposes, <strong>VAT</strong> paid on the<br />
purchase and use of the car can <strong>in</strong>itially be deducted <strong>in</strong><br />
full. That <strong>in</strong>itial deduction must subsequently be<br />
adjusted at the end of every year for private use of the car.<br />
The annual adjustment is 12% of the expenses that, for<br />
the purposes of <strong>in</strong>come tax, are not considered to be<br />
deductible bus<strong>in</strong>ess expenses, which are, <strong>in</strong> pr<strong>in</strong>ciple, set<br />
at a flat rate of 22% of the catalogue price of the car. The<br />
percentage of 12 is a weighted average of the car<br />
expenses (purchase or lease of the car, fuel, ma<strong>in</strong>tenance,<br />
etc.) that are subject to the standard rate of 19% and the<br />
expenses that are not subject to <strong>VAT</strong> (<strong>in</strong>surance, taxes).<br />
With effect from 1 January 2009, the percentage of 22<br />
has been reduced to 20 <strong>in</strong> respect of qualify<strong>in</strong>g,“environment-friendly”<br />
cars, i.e. cars with a relatively low emission<br />
and low fuel consumption.<br />
Under Decree No. CPP2009/109M of 9 February 2009,<br />
the same reduction applies, with retrospective effect to 1<br />
January 2009, for the purposes of calculat<strong>in</strong>g the annual<br />
adjustments of the <strong>in</strong>itial <strong>in</strong>put <strong>VAT</strong> deduction <strong>in</strong><br />
respect of environment-friendly cars. That reduction has<br />
the effect that the annual adjustment for private use of<br />
environment-friendly cars is 12% × 20% = 2.4% of the<br />
listed price of the car. In respect of other cars, the annual<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
adjustment rema<strong>in</strong>s 12% × 22% = 2. 4% of the listed<br />
price.<br />
From our correspondent Marjole<strong>in</strong> van Delft<br />
Shell International BV, The Hague<br />
New Zealand<br />
Small and medium-sized bus<strong>in</strong>esses<br />
On 4 February 2009, the <strong>gov</strong>ernment announced various<br />
tax changes to assist small and medium-size bus<strong>in</strong>esses<br />
with their cash flows and to meet their tax obligations.<br />
The ma<strong>in</strong> changes are:<br />
– the rate of <strong>in</strong>terest for underpayments of tax will be<br />
reduced from 14.24% to 9.7 %, and the rate for overpayments<br />
of tax will decrease from . % to 4.2 %.<br />
–<br />
The changes have been made by Order <strong>in</strong> Council<br />
and will apply from 1 March 2009; and<br />
numerous thresholds will be <strong>in</strong>creased, <strong>in</strong>clud<strong>in</strong>g the<br />
threshold for account<strong>in</strong>g for GST on the basis of<br />
cash receipts, which will be raised from NZD 1.<br />
million to NZD 2 million, and the GST registration<br />
threshold, which will be <strong>in</strong>creased from NZD 40,000<br />
to NZD 0,000. These changes will also be <strong>in</strong>troduced<br />
<strong>in</strong> the new tax bill.<br />
Prof. Dr. Kev<strong>in</strong> Holmes<br />
Victoria University of Well<strong>in</strong>gton<br />
Russia<br />
Under Federal Laws No. 2 1-FZ of 4 December 2008<br />
and No. 282-FZ of 2 December 2008 the follow<strong>in</strong>g two<br />
amendments, <strong>in</strong>ter alia, were made to the <strong>VAT</strong> Chapter<br />
of the Tax Code.<br />
Trade-<strong>in</strong> sales of vehicles<br />
From 1 April 2009, <strong>in</strong> respect of the sale of vehicles<br />
which were purchased from <strong>in</strong>dividuals that do not<br />
qualify as taxpayers for <strong>VAT</strong> purposes, the taxable base<br />
for <strong>VAT</strong> purposes is the difference between the purchase<br />
and sell<strong>in</strong>g price for the vehicles.<br />
Transfers between <strong>in</strong>surers<br />
From 1 March 2009, amounts received by an <strong>in</strong>surer<br />
under an agreement concluded with the <strong>in</strong>surer of the<br />
party that caused the damage, for direct compensation<br />
for the damage <strong>in</strong> the framework of the Law on mandatory<br />
<strong>in</strong>surance of legal liability of vehicle owners<br />
(OSAGO) will no longer bear <strong>VAT</strong>.<br />
Transfer of creditor’s rights<br />
Accord<strong>in</strong>g to the clarifications of the M<strong>in</strong>istry of<br />
F<strong>in</strong>ance, 21 the <strong>VAT</strong> exemption for the transfer of creditor’s<br />
rights result<strong>in</strong>g from credit or loan agreements <strong>in</strong> a<br />
monetary form only applies to the first transfer of the<br />
rights, i.e. the transfer of his rights by the person who<br />
granted the credit or loan. Subsequent transfers are sub-<br />
21. Letter of the M<strong>in</strong>istry of F<strong>in</strong>ance of 12 January 2009, No. 0 -07-11/1.<br />
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<strong>VAT</strong> <strong>News</strong><br />
ject to <strong>VAT</strong> <strong>in</strong> accordance with the provisions laid down<br />
by Art. 1 (4) of the Tax Code, i.e. the difference<br />
between, on the one hand, what the creditor receives<br />
from the borrower or, where he transfers his rights, from<br />
the new creditor and, on the other hand, what he paid to<br />
the previous creditor for the acquisition of the rights.<br />
From our correspondent Oleg Berez<strong>in</strong><br />
Deloitte, Russia<br />
S<strong>in</strong>gapore<br />
On 22 January 2009, the M<strong>in</strong>ister of F<strong>in</strong>ance presented<br />
the Budget for 2009 to the parliament. As regards GST,<br />
details of the budget are summarized as follows.<br />
Deduction by funds<br />
Qualify<strong>in</strong>g funds that are managed by a prescribed fund<br />
manager <strong>in</strong> S<strong>in</strong>gapore will be allowed to claim a substantial<br />
portion of their <strong>in</strong>put GST on specific expenses dur<strong>in</strong>g<br />
the period from 22 January 2009 to 1 March 2014.<br />
International aircraft<br />
From 1 April 2009, the zero rate of GST applicable to<br />
qualify<strong>in</strong>g aircraft will be extended to <strong>in</strong>clude:<br />
– all aircraft which are wholly used, or <strong>in</strong>tended to be<br />
wholly used, for <strong>in</strong>ternational transport of goods<br />
and passengers, <strong>in</strong>clud<strong>in</strong>g private aircraft, provided<br />
that they are wholly used, or <strong>in</strong>tended to be wholly<br />
used, for travel outside S<strong>in</strong>gapore; and<br />
– the sale, ma<strong>in</strong>tenance or repair of aircraft components<br />
or systems, provided that they form part of a<br />
qualify<strong>in</strong>g aircraft. A new scheme will also be <strong>in</strong>troduced<br />
to facilitate the importation of aircraft components<br />
or systems for qualify<strong>in</strong>g aircraft without<br />
GST.<br />
Temporary removal from GST control<br />
With effect from 1 April 2009, GST will be suspended <strong>in</strong><br />
respect of goods (<strong>in</strong>clud<strong>in</strong>g w<strong>in</strong>e) temporarily removed<br />
from a zero-GST or licensed warehouse for the purposes<br />
of be<strong>in</strong>g auctioned or exhibited, even if the goods are<br />
sold dur<strong>in</strong>g the auction or exhibition. Suspension of<br />
GST applies on the condition that the goods are subsequently<br />
returned to the warehouse.<br />
Exempt w<strong>in</strong>e<br />
With effect from 1 April 2009, a specified quantity of<br />
w<strong>in</strong>e for use at approved w<strong>in</strong>e exhibitions and conference<br />
events will be exempt from GST.<br />
Slovenia<br />
Electronic <strong>VAT</strong> returns and EC sales list<strong>in</strong>g forms<br />
From 1 January 2009, all registered taxable persons,<br />
regardless of whether they are established with<strong>in</strong> or outside<br />
Slovenia, must file their <strong>VAT</strong> returns and EC sales<br />
list<strong>in</strong>g forms through the Internet portal of the tax<br />
authorities, called “E-davki”.<br />
The tax authorities have issued a new DDV Pravilnik<br />
(M<strong>in</strong>isterial <strong>VAT</strong> Order) that changed some of the exist<strong>in</strong>g<br />
provisions. The amendments came <strong>in</strong>to effect on 1<br />
January 2009. The most important amendments are<br />
summarized as follows.<br />
Accelerated refunds<br />
Taxable persons who have the status of “exporter” have<br />
the right to receive a refund of excess <strong>in</strong>put tax with<strong>in</strong> 0<br />
days from the date of application, whereas other applicants<br />
receive the excess <strong>in</strong>put <strong>VAT</strong> with<strong>in</strong> 0 days. In<br />
order to determ<strong>in</strong>e whether a person has the status of<br />
exporter, supplies of goods to be assembled or <strong>in</strong>stalled<br />
<strong>in</strong> another Member State are considered to be exported<br />
for the purposes of the accelerated refunds.<br />
At the time of writ<strong>in</strong>g, a proposal to shorten the refund<br />
period for both exporters and non-exporters to 21 days<br />
is under discussion <strong>in</strong> the parliament.<br />
Correction of output <strong>VAT</strong><br />
Until the end of 2008, suppliers of goods and services<br />
were only allowed to correct the amount of <strong>VAT</strong> charged<br />
to their customers on an <strong>in</strong>voice <strong>in</strong> the report<strong>in</strong>g period<br />
<strong>in</strong> which they received a written statement from their<br />
customer confirm<strong>in</strong>g that he had not claimed the <strong>VAT</strong> as<br />
<strong>in</strong>put <strong>VAT</strong> or had corrected the <strong>in</strong>put <strong>VAT</strong> on his <strong>VAT</strong><br />
return. Provided that the customer states that he has not<br />
yet claimed the <strong>VAT</strong>, the new rules allow the issuer of the<br />
<strong>in</strong>voice to correct the <strong>VAT</strong> <strong>in</strong> the report<strong>in</strong>g period <strong>in</strong><br />
which he discovered the mistake, which means that,<br />
under specific circumstances, the correction can be<br />
made earlier.<br />
Pro rata<br />
In the case that a taxable person, that is us<strong>in</strong>g a pro rata<br />
on the basis of a provisional proportion, is no longer<br />
<strong>VAT</strong> registered, new rules are added regulat<strong>in</strong>g the obligation,<br />
the manner and timeframe for the calculation<br />
and correction with respect to the f<strong>in</strong>al entitlement to<br />
<strong>in</strong>put <strong>VAT</strong>. The old rules had measures for taxable persons<br />
mak<strong>in</strong>g the correction of the provisional proportion<br />
at the end of the calendar year and did not cover the<br />
situation of correct<strong>in</strong>g this dur<strong>in</strong>g the year (<strong>in</strong> which a<br />
taxable person also may cease to be <strong>VAT</strong> registered).<br />
From our correspondent Lucijan Klemenčič<br />
Ernst & Young, Ljubljana<br />
South Africa<br />
Compulsory registration threshold<br />
With effect from 1 March 2009, the threshold for compulsory<br />
<strong>VAT</strong> registration is ZAR 1 million. Prior to that<br />
date, persons with an annual taxable turnover of more<br />
than ZAR 00,000 (calculated on the basis of the past 12<br />
months and the next 12 months) were obliged to apply<br />
for <strong>VAT</strong> registration.<br />
1 0 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
Budget 2009:<br />
The 2009 Budget was delivered on 11 February 2009.<br />
The proposed <strong>VAT</strong> amendments which have been<br />
announced are outl<strong>in</strong>ed below.<br />
Voluntary registration threshold<br />
Currently, a person carry<strong>in</strong>g on an enterprise may apply<br />
for voluntary registration if his turnover exceeded ZAR<br />
20,000 <strong>in</strong> the previous 12 months. This threshold is<br />
aimed at reduc<strong>in</strong>g the risk of fraudulent claims for <strong>VAT</strong><br />
refunds. It has now been proposed that this threshold be<br />
<strong>in</strong>creased to ZAR 0,000 from 1 March 2010.<br />
<strong>VAT</strong> fraud<br />
False statements made on <strong>VAT</strong> returns constitute an<br />
offence for <strong>VAT</strong> purposes. It has been proposed that the<br />
list of offences be extended to <strong>in</strong>clude false statements<br />
on any form submitted to the South African Revenue<br />
Service (SARS), <strong>in</strong>clud<strong>in</strong>g application forms for <strong>VAT</strong><br />
registration.<br />
As a further measure to combat <strong>VAT</strong> fraud, the use of<br />
biometric measures to verify the identity of persons<br />
apply<strong>in</strong>g for <strong>VAT</strong> registration has been proposed.<br />
Company reorganizations<br />
Reorganization relief measures were <strong>in</strong>troduced <strong>in</strong> 200 ,<br />
which are aimed at ensur<strong>in</strong>g that company reorganizations<br />
are neutral for <strong>VAT</strong> purposes. However, where<br />
assets used for mixed purposes are transferred by banks<br />
and other companies mak<strong>in</strong>g both taxed and exempt<br />
supplies, difficulties have arisen regard<strong>in</strong>g, <strong>in</strong>ter alia,<br />
adjustments of <strong>in</strong>itially deducted <strong>in</strong>put tax based on the<br />
change <strong>in</strong> use, and <strong>in</strong>put tax deduction relat<strong>in</strong>g to commissions<br />
and legal fees. These issues will be addressed by<br />
the SARS <strong>in</strong> an <strong>in</strong>terpretation note and, if necessary,<br />
amendments will be <strong>in</strong>troduced.<br />
Late-payment <strong>in</strong>terest<br />
Interest is payable where <strong>VAT</strong> payments are not made by<br />
the due date. The SARS may grant full or limited relief<br />
for <strong>in</strong>terest due if there is no loss to the state or if there is<br />
no f<strong>in</strong>ancial benefit for the taxpayer. The circumstances<br />
under which <strong>in</strong>terest may be remitted will be clarified to<br />
ensure consistent application of this concession.<br />
From our correspondent Marlene Botes<br />
PricewaterhouseCoopers, Cape Town<br />
Sri Lanka<br />
Follow<strong>in</strong>g the announcements <strong>in</strong> the Budget for 2009,<br />
which was presented on November 2008, 22 a press<br />
release was issued on 29 December 2008 announc<strong>in</strong>g a<br />
number of changes to the <strong>VAT</strong> regime. Although they<br />
have not yet officially been legislated, the follow<strong>in</strong>g<br />
changes have come <strong>in</strong>to effect on 1 January 2009 on the<br />
basis of an adm<strong>in</strong>istrative arrangement. The ma<strong>in</strong><br />
changes are as follows.<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
Rates<br />
The standard rate of 1 % has been reduced to 12%.<br />
Goods which were previously subject to the basic rate of<br />
% have become either exempt from <strong>VAT</strong> or subject to<br />
the standard rate of 12%.<br />
Registration threshold<br />
The registration threshold has been <strong>in</strong>creased to SLR<br />
0,000 per tax period or SLR 2. million per year. The<br />
threshold for voluntary <strong>VAT</strong> registration has been<br />
<strong>in</strong>creased to SLR million per year.<br />
Deduction of <strong>in</strong>put tax<br />
The right to deduct <strong>in</strong>put <strong>VAT</strong> <strong>in</strong> respect of transactions<br />
subject to the rate of 20% is limited to 12%. It should be<br />
noted that the budget proposed a 10% ceil<strong>in</strong>g. <strong>VAT</strong> on<br />
the importation of goods can be recovered with<strong>in</strong> a maximum<br />
period of two years (previously one year) from the<br />
time the customs import declaration was made.<br />
Switzerland<br />
Free warehouses<br />
In the framework of the entry <strong>in</strong>to force of the new Customs<br />
Law on 1 May 2007, transitional arrangements<br />
were made for so-called free warehouses. Dur<strong>in</strong>g a<br />
period of two years, the arrangements applicable under<br />
the former Customs Law cont<strong>in</strong>ued to apply to exist<strong>in</strong>g<br />
free warehouses, which had the effect that those warehouses<br />
cont<strong>in</strong>ued to qualify as not form<strong>in</strong>g part of the<br />
customs territory and, therefore, were also excluded<br />
from the territorial scope of <strong>VAT</strong>. On expiry of the transitional<br />
arrangements, on 1 May 2009, free warehouses<br />
are considered to form part of the customs territory and<br />
are with<strong>in</strong> the territorial scope of <strong>VAT</strong>.<br />
The tax authorities have published an <strong>in</strong>formation sheet<br />
<strong>in</strong> which they expla<strong>in</strong> the <strong>VAT</strong> treatment of transactions<br />
carried out <strong>in</strong> free warehouses, 2 rized as follows.<br />
which can be summa-<br />
From 1 May 2009, the follow<strong>in</strong>g new rules apply:<br />
– supplies made <strong>in</strong> free warehouses can give rise to<br />
subjective <strong>VAT</strong> liability, even if the supplies are zero<br />
rated;<br />
– the simplified import procedure for supplies of<br />
–<br />
goods from abroad can no longer be applied to supplies<br />
of goods that leave free warehouses. However,<br />
under certa<strong>in</strong> conditions, a similar procedure with<br />
the same effect can be applied, on request;<br />
services that are not ancillary to transport and are<br />
deemed to be supplied <strong>in</strong> the free warehouse are no<br />
longer zero rated but, <strong>in</strong>stead, subject to the standard<br />
rate.<br />
22. See International <strong>VAT</strong> Monitor 1 (2008), p. 8.<br />
2 . Praxismitteilung “Mehrwertsteuerliche Behandlung der Zollfreilager<br />
nach Ablauf der zweijährigen Übergangsfrist” (Notice of 1 December 2008,<br />
<strong>VAT</strong> treatment of free warehouses after expiry of the two-year transition<br />
period).<br />
1 1
<strong>VAT</strong> <strong>News</strong><br />
From 1 May 2009, the follow<strong>in</strong>g rules are not changed:<br />
– goods not released for free circulation/non-taxed<br />
goods can be stored <strong>in</strong> a free warehouse;<br />
– supplies of goods that are stored <strong>in</strong> a free warehouse<br />
are zero rated;<br />
– work on goods (which is considered to constitute a<br />
supply of goods under Swiss <strong>VAT</strong> law) that are stored<br />
<strong>in</strong> a free warehouse is zero rated;<br />
– import <strong>VAT</strong> will be due before the goods are<br />
imported for free circulation and will be levied by<br />
the customs authorities;<br />
– supplies of services that qualify as ancillary to transport,<br />
and are deemed to be supplied <strong>in</strong> the free warehouse,<br />
are zero rated;<br />
– when they have received the customs document, taxable<br />
persons can claim the zero rate on export, if the<br />
goods are exported by means of plac<strong>in</strong>g them under<br />
the free warehouse arrangements;<br />
– the lett<strong>in</strong>g of space <strong>in</strong> a free warehouse is exempt<br />
from <strong>VAT</strong>, albeit with the possibility to opt for taxation.<br />
Standard rate<br />
The voters will decide <strong>in</strong> a referendum on 27 September<br />
2009 whether or not the standard rate of <strong>VAT</strong> of 7. %<br />
will be <strong>in</strong>creased to 8% with effect from 1 January 2010.<br />
This <strong>in</strong>crease is necessary <strong>in</strong> order to f<strong>in</strong>ance the risen<br />
costs of the disability <strong>in</strong>surance. The <strong>in</strong>crease of the tax<br />
rate would be limited to a period of seven years.<br />
From our correspondent Reg<strong>in</strong>ald Derks<br />
<strong>VAT</strong> plus, Bern<br />
Anti-fraud agreement with the European Union<br />
See under European Union.<br />
Togo<br />
Free zones<br />
The Budget for 2009 has been enacted as Law No. 2008-<br />
018. Under Law No. 2008-018, goods manufactured <strong>in</strong> a<br />
free zone us<strong>in</strong>g raw materials imported from member<br />
countries of the Economic Community of West African<br />
States (ECOWAS), or produced <strong>in</strong> Togo, have become<br />
subject to <strong>VAT</strong> and customs duties.<br />
Companies qualify<strong>in</strong>g for the free-zone regime are not<br />
subject to <strong>VAT</strong> for a period of ten years <strong>in</strong> respect of specific<br />
“essential goods and services”.<br />
Tunisia<br />
Electronic tax returns<br />
On the basis of a decision of the M<strong>in</strong>ister of F<strong>in</strong>ance of 1<br />
December 2008, which was published <strong>in</strong> Official Gazette<br />
No. 98 of December 2008, the turnover threshold,<br />
<strong>in</strong>clud<strong>in</strong>g all taxes and levies, above which bus<strong>in</strong>esses are<br />
required to file their tax returns electronically has been<br />
reduced from TND million to 2 million. The obligation<br />
to file tax returns <strong>in</strong> electronic format applies to all tax<br />
returns, <strong>in</strong>clud<strong>in</strong>g <strong>VAT</strong> returns, due on or after 11<br />
December 2008.<br />
Ukra<strong>in</strong>e<br />
Energy-sav<strong>in</strong>g technologies<br />
Materials, equipment and spare parts imported for the<br />
implementation of energy-sav<strong>in</strong>g technologies for<br />
“<strong>in</strong>dustrial enterprises” are relieved of import duty and<br />
<strong>VAT</strong>. Guidance regard<strong>in</strong>g eligible entities and the procedure<br />
for claim<strong>in</strong>g the relief are expected to be released <strong>in</strong><br />
due course. It is unclear from what date the concession<br />
will apply.<br />
Yulia Logunova, DLA Piper Ukra<strong>in</strong>e, Kiev<br />
United K<strong>in</strong>gdom<br />
Budget 2009<br />
The Chancellor will issue the Budget Statement on 22<br />
April 2009, which is after the start of the new tax year<br />
and leaves Parliament not much time to scrut<strong>in</strong>ize any<br />
new legislation before Royal Assent.<br />
Unjust enrichment<br />
In 2008, the European Court of Justice (ECJ) considered<br />
the claim made by Marks & Spencer (M&S) for repayment<br />
of <strong>VAT</strong> overpaid <strong>in</strong> respect of the supply of chocolate-covered<br />
cakes over a period of more than 20 years<br />
(that supply should have been zero rated) and ruled that<br />
the UK tax authorities (Her Majesty’s Revenue and Customs;<br />
HMRC) had contravened EU pr<strong>in</strong>ciples by treat<strong>in</strong>g<br />
M&S’s claim differently from similar claims made by<br />
its competitors. 24 Due to its supply of cloth<strong>in</strong>g, M&S was<br />
a “payment trader”, 2 whereas other suppliers of these teacakes<br />
were food retailers and, therefore, <strong>in</strong> a repayment<br />
position. Until May 200 , HMRC only applied the unjust<br />
enrichment defence (that, by receiv<strong>in</strong>g the refund, the<br />
claimant would be unjustly enriched because it had<br />
shifted the burden of the wrongly charged <strong>VAT</strong> to its<br />
customers) to output tax claims made by payment<br />
traders so the repayment traders received their refund <strong>in</strong><br />
full, whereas M&S only received 10%. In May 200 , the<br />
law changed <strong>in</strong> order to ensure that both categories of<br />
claimants were treated equally.<br />
The ECJ broadly found <strong>in</strong> M&S’s favour that a blanket<br />
dist<strong>in</strong>ction between claims made by payment and repayment<br />
traders <strong>in</strong> respect of the same supplies could not be<br />
objectively justified and the case was remitted to the<br />
national court for f<strong>in</strong>al judgment. This f<strong>in</strong>al judgment<br />
was given recently and M&S received its refund <strong>in</strong> full.<br />
Follow<strong>in</strong>g the decision of the House of Lords, HMRC<br />
issued a Brief <strong>in</strong> which they declared not to apply the<br />
unjust enrichment defence to any claims orig<strong>in</strong>ally made<br />
before the change of law <strong>in</strong> May 200 . In order to receive<br />
a refund, claimants do not need to show that they were <strong>in</strong><br />
competition with repayment traders mak<strong>in</strong>g similar<br />
24. ECJ judgment of 10 April 2008 <strong>in</strong> Marks & Spencer plc v. Commissioners<br />
of Customs and Excise, Case C- 09/0 .<br />
2 . Taxable persons for whom, for a tax period, the amount of output tax<br />
payable to the tax authorities exceeds the amount of deductible <strong>in</strong>put tax.<br />
1 2 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
supplies. Claims that are still open will be settled. Closed<br />
claims, i.e. cases <strong>in</strong> which the taxable person had not<br />
challenged HMRC’s refusal to accept his claim on the<br />
ground of unjust enrichment, and those <strong>in</strong> which<br />
HMRC’s refusal had been upheld <strong>in</strong> court, can be resubmitted<br />
for consideration. However, it is not clear what<br />
time limits apply <strong>in</strong> this respect. If HMCR treats the<br />
resubmitted claim as a new claim, it will be out of time<br />
under the United K<strong>in</strong>gdom’s three-year limitation<br />
period. HMRC have been asked to clarify this po<strong>in</strong>t.<br />
Revenue Brief 0 /09.<br />
From our correspondent Karen Kill<strong>in</strong>gton<br />
KPMG UK LLP<br />
United States<br />
California<br />
Nexus of Internet vendors<br />
Follow<strong>in</strong>g the success of the New York Department of<br />
Taxation <strong>in</strong> the proceed<strong>in</strong>gs before the New York Superior<br />
Court concern<strong>in</strong>g the so-called “Amazon-tax”, 2<br />
other states are follow<strong>in</strong>g suit <strong>in</strong> <strong>in</strong>troduc<strong>in</strong>g similar legislation.<br />
In California, two pieces of legislation have been proposed<br />
thus far to change the def<strong>in</strong>ition of nexus and<br />
force certa<strong>in</strong> Internet vendors to collect sales and use<br />
taxes. Proposal AB 27 establishes a presumption of nexus<br />
forc<strong>in</strong>g certa<strong>in</strong> remote sellers to collect and remit Californian<br />
sales and use taxes. This presumption is satisfied<br />
when a resident of California, directly or <strong>in</strong>directly,<br />
refers potential customers to a remote seller that generates<br />
over USD 10,000 <strong>in</strong> sales annually. The legislation<br />
further seeks to implement the Multistate Tax Commission’s<br />
controversial Nexus Bullet<strong>in</strong> 9 -1, which would<br />
impose the obligation to collect sales tax on retailers who<br />
utilize <strong>in</strong>dependent contractors to perform repair services.<br />
AB 178 is comparable to AB 27, except that it does<br />
not <strong>in</strong>clude the MTC Nexus Bullet<strong>in</strong> provisions.<br />
In Connecticut, Proposal SB 80 also establishes a presumption<br />
of nexus when a resident of Connecticut,<br />
directly or <strong>in</strong>directly, refers potential customers to a<br />
remote seller that generates over USD ,000 <strong>in</strong> sales<br />
annually, with effect from 1 April 2009. The bill was<br />
referred to the Jo<strong>in</strong>t Committee on F<strong>in</strong>ance, Revenue<br />
and Bond<strong>in</strong>g.<br />
In M<strong>in</strong>nesota, Proposals SF 282 and HF 401 would also<br />
impose the obligation to collect sales and use tax on<br />
remote sellers when a resident of M<strong>in</strong>nesota, directly or<br />
<strong>in</strong>directly, refers potential customers to them, which<br />
generates over USD 10,000 <strong>in</strong> sales. Proposal SF 282 was<br />
referred to the Senate Taxation Committee and proposal<br />
HF 401 to the House Taxation Committee.<br />
In North Carol<strong>in</strong>a, the Revenue Laws Study Committee<br />
has proposed Legislative Proposal # to impose the obligation<br />
to collect sales and use tax on remote Internet<br />
sellers (<strong>in</strong> addition to impos<strong>in</strong>g the state’s sales and use<br />
tax on “digital goods”). The bill has yet to be <strong>in</strong>troduced.<br />
Connecticut<br />
Nexus of Internet vendors<br />
See California.<br />
Michigan<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
Def<strong>in</strong>ition of sales price<br />
The def<strong>in</strong>ition of the term “sales price” has been<br />
amended to <strong>in</strong>clude consideration received by a seller<br />
from a third party.<br />
PB 4 8, 2008.<br />
Conformation to SSUTA<br />
By way of Public Acts 4 , 4 7 and 4 9, 27 Michigan has<br />
amended its state law <strong>in</strong> conformity with the Streaml<strong>in</strong>ed<br />
Sales and Use Tax Agreement (SSUTA 28 ) by means<br />
of:<br />
– allow<strong>in</strong>g consideration received by auto dealers<br />
from a manufacturer as reimbursement pursuant to<br />
a “family plan”-type discount transaction to be<br />
exempt from sales tax;<br />
– clarify<strong>in</strong>g the <strong>in</strong>stance <strong>in</strong> which certified service<br />
providers are eligible for a sales tax exemption; and<br />
– updat<strong>in</strong>g and clarify<strong>in</strong>g various def<strong>in</strong>itions.<br />
Redef<strong>in</strong>ition of gross receipts<br />
Michigan SB 10 8, which was signed <strong>in</strong>to law as Public<br />
Act 4 , removed taxes, fees, <strong>in</strong>terest <strong>in</strong>come, royalties,<br />
surcharges, and other elements from the concept of gross<br />
receipts for the purposes of the state’s bus<strong>in</strong>ess tax.<br />
PA 4 , 9 January 2009.<br />
Biomass-harvest<strong>in</strong>g mach<strong>in</strong>ery<br />
Michigan HB 8 2, which was signed <strong>in</strong>to law as Public<br />
Act 41 , amended the sales tax provisions to provide an<br />
exemption for the sale of mach<strong>in</strong>ery that is capable of<br />
simultaneously harvest<strong>in</strong>g crops and biomass residue, or<br />
that is manufactured for the purpose of harvest<strong>in</strong>g agricultural<br />
biomass grown solely as an energy source.<br />
Medicaid medical services<br />
Michigan HB 192, which was signed <strong>in</strong>to law as Public<br />
Act 440, amended the Use Tax Act to provide that the use<br />
or consumption of medical services provided by Medicaid-managed<br />
care organizations be taxed <strong>in</strong> the same<br />
manner as tangible personal property.<br />
PA 440 of 9 January 2009.<br />
2 . See Amazon.com LLC and Overstock.com Inc. v. New York State Department<br />
of Taxation under <strong>VAT</strong> Case Notes <strong>in</strong> this issue, p. 1 .<br />
27. See Michigan HB 4 80, 4 and , respectively.<br />
28. See Robert F. van Brederode,“The Harmonization of Sales and Use Taxes<br />
<strong>in</strong> the United States”, International <strong>VAT</strong> Monitor (2007), pp. 4 8 to 44 .<br />
1
<strong>VAT</strong> <strong>News</strong><br />
M<strong>in</strong>nesota<br />
Nexus of Internet vendors<br />
See California.<br />
New Jersey<br />
Small bus<strong>in</strong>esses<br />
New Jersey has expanded the eligibility of small-bus<strong>in</strong>esses<br />
for exemption under the urban enterprise zone<br />
sales tax rebate programme to <strong>in</strong>clude bus<strong>in</strong>esses with<br />
annual gross receipts up to USD 10 million.<br />
New Jersey Assembly, 2720 of 27 October 2008.<br />
North Carol<strong>in</strong>a<br />
Nexus of Internet vendors<br />
See California.<br />
From our correspondent Robert van Brederode<br />
New York University, School of Law, New York, NY<br />
Vietnam<br />
Non-resident contractors<br />
On 1 December 2008, the M<strong>in</strong>istry of F<strong>in</strong>ance issued<br />
Circular No. 1 4/2008/TT-BTC (“Circular 1 4”), which<br />
conta<strong>in</strong>s detailed provisions on the tax treatment of<br />
non-resident contractors and subcontractors, which<br />
apply from 1 January 2009. Circular 1 4 supersedes Circular<br />
No. 0 on Foreign Contractor Tax (FCT) and Circular<br />
No. 1 /1999/TT-BTC on freight tax.<br />
Circular 1 4 applies to virtually all non-resident organizations,<br />
regardless of whether or not they have a permanent<br />
establishment (PE) <strong>in</strong> Vietnam, and <strong>in</strong>dividuals that<br />
carry on a bus<strong>in</strong>ess <strong>in</strong> Vietnam or receive bus<strong>in</strong>ess<br />
<strong>in</strong>come sourced <strong>in</strong> Vietnam, either directly, on the basis<br />
of contracts with Vietnamese organizations or <strong>in</strong>dividuals,<br />
or <strong>in</strong>directly, as subcontractors.<br />
The FCT is not imposed on the mere supply of goods to<br />
Vietnam’s overseas ports or border gates, provided that<br />
the supply is not accompanied by any services performed<br />
<strong>in</strong> Vietnam. Circular 1 4 explicitly excludes<br />
non-resident organizations and <strong>in</strong>dividuals who:<br />
– provide services outside Vietnam; or<br />
– provide, outside Vietnam, the follow<strong>in</strong>g services to<br />
Vietnamese organizations or <strong>in</strong>dividuals:<br />
– repair of means of transport, mach<strong>in</strong>ery, equipment,<br />
<strong>in</strong>clud<strong>in</strong>g replacement of parts of those<br />
goods;<br />
– advertis<strong>in</strong>g and market<strong>in</strong>g services;<br />
– <strong>in</strong>vestment and trade promotion services;<br />
– brokerage services relat<strong>in</strong>g to sales of goods;<br />
– tra<strong>in</strong><strong>in</strong>g services;<br />
– freight shar<strong>in</strong>g services performed outside Vietnam;<br />
and<br />
– provision of transmission l<strong>in</strong>es and satellite<br />
bands from abroad.<br />
For the purposes of the FCT, a dist<strong>in</strong>ction must be made<br />
between corporate and <strong>in</strong>dividual non-resident contractors.<br />
As regards:<br />
– non-resident organizations, the FCT conta<strong>in</strong>s an element<br />
of <strong>VAT</strong> and an element of corporate <strong>in</strong>come<br />
tax; and<br />
– non-resident <strong>in</strong>dividuals, the FCT conta<strong>in</strong>s an element<br />
of <strong>VAT</strong> and an element of personal <strong>in</strong>come tax.<br />
The non-resident organization or <strong>in</strong>dividual must<br />
account for <strong>VAT</strong> under the “credit method” if:<br />
– it has a PE <strong>in</strong> Vietnam or is a tax resident of Vietnam;<br />
– its bus<strong>in</strong>ess operations <strong>in</strong> Vietnam have run for at<br />
least 18 days from the date the contract entered <strong>in</strong>to<br />
–<br />
effect; and<br />
it has adopted the Vietnamese account<strong>in</strong>g system.<br />
The non-resident party must file its tax returns and pay<br />
the tax directly to the tax authorities. The Vietnamese<br />
contract<strong>in</strong>g partner must notify the local tax office<br />
with<strong>in</strong> 20 days of the sign<strong>in</strong>g of the contract.<br />
This method enables the non-resident party to charge<br />
<strong>VAT</strong> to its customers <strong>in</strong> Vietnam and deduct <strong>in</strong>put <strong>VAT</strong>,<br />
if any.<br />
Where the non-resident party does not meet the criteria<br />
set out above, the <strong>VAT</strong> must be paid under the “directcalculation”<br />
method. With<strong>in</strong> 20 days of the sign<strong>in</strong>g of the<br />
contract, the Vietnamese contract<strong>in</strong>g partner must<br />
report, to the local tax office, its obligation to pay FCT on<br />
behalf of the non-resident party.<br />
<strong>VAT</strong> payable = <strong>VAT</strong> rate x “added value” of the goods or services<br />
The current standard <strong>VAT</strong> rate is 10%, although specific<br />
goods and services are subject to <strong>VAT</strong> at the rate of %.<br />
The “added value” is a fixed percentage, which, depend<strong>in</strong>g<br />
on the type of bus<strong>in</strong>ess, is either 0% or 0% of the<br />
taxable turnover, i.e. total turnover, <strong>in</strong>clud<strong>in</strong>g taxes and<br />
costs paid by the Vietnamese party.<br />
It should be noted that, <strong>in</strong> Circular 1 4, the leas<strong>in</strong>g of<br />
mach<strong>in</strong>ery and equipment is reclassified as a service<br />
(and thus subject to % <strong>VAT</strong>), whereas it was previously<br />
classified as a commercial right (exempt from <strong>VAT</strong>).<br />
Where a package of services is provided, the contract<br />
must separately identify the value of each element, and<br />
<strong>VAT</strong> must be paid accord<strong>in</strong>gly. In the absence of such a<br />
specification, the taxable turnover is the entire value of<br />
the contract at the deemed value added rate of 0%.<br />
Tax concessions<br />
On 21 January 2009, the Prime M<strong>in</strong>ister issued Decision<br />
No. 1 /2009/QD-TTg, which conta<strong>in</strong>ed tax concessions<br />
aimed at mitigat<strong>in</strong>g the consequences of the <strong>in</strong>ternational<br />
economic crisis. The concessions <strong>in</strong>clude a reduction<br />
by 0% of the <strong>VAT</strong> rate on specific goods and services,<br />
such as coal, chemicals, automobiles and<br />
automobile components, transport (with the exception<br />
of <strong>in</strong>ternational transport), tourism and hotel accommodation,<br />
etc.<br />
1 4 INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009 © IBFD
Zambia<br />
On 0 January 2009, the M<strong>in</strong>ister of F<strong>in</strong>ance and<br />
National Plann<strong>in</strong>g presented the Budget for 2009/10 to<br />
the National Assembly. As regards <strong>VAT</strong>, the details of the<br />
Budget are summarized below. All measures apply from<br />
1 January 2009.<br />
Zero rate<br />
The follow<strong>in</strong>g mach<strong>in</strong>ery and equipment are zero rated<br />
for <strong>VAT</strong> purposes:<br />
– w<strong>in</strong>dmills and maize dehullers;<br />
– two-wheeled tractors and accessories;<br />
– tractors of up to 0 horse power;<br />
– ploughs, harrows, disc harrows, planters, seeders,<br />
rippers/subsoilers, and cultivators;<br />
– pump sets; and<br />
– “backpack” sprayers (agricultural sprayers).<br />
The field of application of the zero rate to tour activities<br />
for tourists has been extended to <strong>in</strong>clude services subcontracted<br />
between tour operators.<br />
Deferment scheme<br />
Copper and cobalt concentrates qualify for the <strong>VAT</strong><br />
deferment scheme.<br />
Australia<br />
First sale of immovable property<br />
The recent decision of the Federal Court <strong>in</strong> South Steyne<br />
Hotel establishes important precedents for the <strong>in</strong>terpretation<br />
of the GST rules applicable to sales of immovable<br />
property.<br />
The Australian GST generally treats the sale and lett<strong>in</strong>g<br />
of commercial property as ord<strong>in</strong>ary taxable supplies to<br />
avoid any risk of compound<strong>in</strong>g tax where the customer<br />
is a registered bus<strong>in</strong>ess. By contrast, the sale and lett<strong>in</strong>g<br />
of residential premises are normally treated as exempt<br />
supplies (called “<strong>in</strong>put-taxed supplies” <strong>in</strong> Australian GST<br />
term<strong>in</strong>ology). However, the first sale of residential premises<br />
is subject to GST.<br />
The sale and lett<strong>in</strong>g of a subset of residential premises<br />
called “commercial residential premises”, for example an<br />
entire hotel, are also treated as taxable supplies.<br />
The facts <strong>in</strong> South Steyne Hotel concerned an enterprise<br />
that had purchased an operat<strong>in</strong>g hotel that was subsequently<br />
divided <strong>in</strong>to separate titles for each apartment <strong>in</strong><br />
the hotel. The enterprise sold the management rights and<br />
associated immovable property (reception area, offices,<br />
park<strong>in</strong>g lot) to a hotel management company and leased<br />
several apartments to a company associated with the<br />
hotel operator. The enterprise and the hotel operator<br />
argued that the lease of apartments to the hotel operator<br />
<strong>VAT</strong> Case Notes<br />
© IBFD INTERNATIONAL <strong>VAT</strong> MONITOR MARCH/APRIL 2009<br />
<strong>VAT</strong> <strong>News</strong><br />
Seasonal crops<br />
Persons who are exclusively or predom<strong>in</strong>antly engaged<br />
<strong>in</strong> the production of seasonal crops can file their <strong>VAT</strong><br />
returns on a quarterly basis, <strong>in</strong>stead of monthly.<br />
Storage of records<br />
Suppliers of goods and services are required to ma<strong>in</strong>ta<strong>in</strong><br />
bus<strong>in</strong>ess records <strong>in</strong> the English language and preserve<br />
them for a period of six years (previously, five years).<br />
Refunds<br />
The <strong>VAT</strong> refund period for exploration companies has<br />
been <strong>in</strong>creased to seven years.<br />
Multi-facility economic zones<br />
Supplies made to developers of multi-facility economic<br />
zones and <strong>in</strong>dustrial parks are zero rated and, if they are<br />
made by non-resident suppliers, the supplies are<br />
excluded from the reverse charge mechanism.<br />
was a taxable supply, which would enable the hotel operator<br />
to claim <strong>in</strong>put GST <strong>in</strong> respect of the lease payments<br />
it made. The Commissioner of Taxation argued that the<br />
supply was an exempt supply of residential premises that<br />
were not commercial residential premises.<br />
Subsequently, the enterprise sold several of its apartments<br />
(subject to the leases to the hotel operator) to private<br />
<strong>in</strong>vestors.<br />
For the Commissioner’s argument on the leases to the<br />
hotel operator to succeed, he had to show that a commercial<br />
residential premises means an entire build<strong>in</strong>g –<br />
that is the entire hotel and not simply an apartment <strong>in</strong> a<br />
hotel lease – so the lease to the hotel operator of a s<strong>in</strong>gle<br />
apartment <strong>in</strong> the hotel complex was not a lease of commercial<br />
residential premises. This argument was successful<br />
and the Federal Court found the lease of the apartment<br />
to the hotel operator was an exempt supply of<br />
residential premises that were not commercial residential<br />
premises.<br />
At the same time, the Court held that the supply of a<br />
hotel room to a guest was an ord<strong>in</strong>ary taxable supply, as it<br />
falls <strong>in</strong>to an exception to the def<strong>in</strong>ition of a supply of residential<br />
premises which states that an exempt supply of<br />
residential premises does not <strong>in</strong>clude “a supply of accommodation<br />
<strong>in</strong> commercial residential premises provided<br />
to an <strong>in</strong>dividual by the entity that owns or controls the<br />
commercial residential premises”.<br />
1