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VAT News Unjust enrichment Unjust enrichment can occur in circumstances where a taxable person, who initially overpaid tax because of an error in law, gets a windfall gain if the tax authorities repay that tax to him. Such a windfall gain is considered to be unjust where the burden of the overpaid tax was not borne by the taxable person but, rather, had been passed on to his customer. The Act sets out the method by which a claim for repayment of overpaid VAT must be made and the factors which will be taken into account in determining whether or not a repayment would result in unjust enrichment. Penalties With effect from 24 December 2008, the standard penalty for a VAT compliance breach has been increased from EUR 1, 20 to 4,000. Furthermore, the Act provides for additional penalties of EUR ,000 to ,000 for a variety of careless and deliberate acts or omissions. Tea and coffee Tea and coffee supplied in non-drinkable form are subject to the zero rate, whereas tea and coffee supplied in drinkable form are subject to the reduced rate of 1 . %. From our correspondent Michael O’Connor William Fry Tax Advisers, Dublin Laos Utilities, beer and fuel Following the approval of the VAT Law by the National Assembly in December 200 , 19 it has been reported that, with effect from 1 January 2009, locally produced and imported electricity, water, certain brands of beer and fuel have become subject to VAT at the rate of 10%. Extension of VAT The government has reportedly reconfirmed its intention to ultimately replace the business turnover tax by the newly introduced VAT but, since not all companies are ready for the VAT, it has decided to limit, for the time being, the field of application of VAT to companies whose investments exceed LAK billion (approximately USD 9 ,000). Companies whose investments exceed LAK 400 million are allowed to participate in the VAT system on a voluntary basis after they have proved their ability to comply with the new tax system. The government hopes that the VAT system can be fully implemented in the next fiscal year, i.e. in the period from 1 October 2009 to 0 September 2010. Under the current system, final consumers must request a receipt for every transaction that is subject to VAT. In the absence of a receipt, the government will not be able to trace the transaction. It is expected that the government will encourage final consumers to participate in the VAT system by means of a broad publicity campaign. Latvia Building land On 24 February, the cabinet of ministers approved the draft amendments to the VAT Law. The draft contains a definition of “building land” and provides that its supply is subject to VAT at the standard rate. In order to come into effect, the amendments must be adopted by the parliament. Currently, the supply of immovable property (except for the first sale of new immovable property), including land, is exempt from VAT. This is contrary to the VAT Directive, to the extent the exemption is applied to building land. The draft defines building land as a plot of land in respect of which a permit has been issued for construction, engineering communications 20 or construction of a road. Where such a permit is issued after 1 December 2010, the supply of the building land would be subject to VAT. Liechtenstein Anti-fraud agreement with the European Union – Ecofin See under European Union. Macedonia Deferral of payment A law amending the Tax Procedure Law was published in Official Gazette No. 1 9 of 22 December 2008 and entered into force on 1 January 2009. The amendments reintroduce the procedure for deferral of the payment of tax on demand of the taxpayer, if: – there is serious doubt about the validity of the tax assessment made by the tax administration; or – payment of the tax liability would “endanger” the existence of the taxpayer. The deferral can only be approved by the revenue office, if the payment is secured by mortgage, a security in the form of movable property a bank guarantee, or a personal guarantee provided by a third person. The value of the guarantee must be at least 2 0% of the liability (previously 1 0%). Payment of the tax due can be deferred for a specified period of time or the tax can be paid in not more than monthly instalments. Interest is due for the period of deferral and is calculated as provided in the Law. Antun Belamarik, Skopje 19. See International VAT Monitor (2007), p. 201, and International VAT Monitor 1 (2008), p. . 20. Engineering communications is defined as a device, equipment or an aggregate of devices and equipment intended to supply a structure (building, construction) with raw materials, communications, energy resources and other resources. 148 INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 © IBFD
Madagascar Refunds of VAT The Budget Bill for 2009 was enacted on 18 December 2009. Under the Budget 2009, refunds of excess input VAT, which were previously limited to export-oriented businesses and businesses established in free zones, are extended to all businesses, provided that the deductible VAT relates to investments in capital goods. Moldova Transnistria – Discriminatory VAT treatment On 17 February 2009, Law No. 1 -XVI of February 2009 amending the VAT legislation was published in the Official Gazette. Before Law 1 -XVI entered into force, the reduced rate of 8% applied to bread and bakery products, milk and dairy products supplied within the territory of Moldova. However, where they were supplied from Transnistria, those goods were subject to 20% VAT. Transnistria is the area located on the west bank of the Dniester river, which has no tax relations with the revenue authorities of Moldova. Under Law No. 1 -XVI, the discriminatory VAT treatment of bread and bakery products, milk and dairy products was ended. Vasile Foltea, Soter & Partners, Chisinau Netherlands Company cars In respect of company passenger cars that the taxable person also uses for private purposes, VAT paid on the purchase and use of the car can initially be deducted in full. That initial deduction must subsequently be adjusted at the end of every year for private use of the car. The annual adjustment is 12% of the expenses that, for the purposes of income tax, are not considered to be deductible business expenses, which are, in principle, set at a flat rate of 22% of the catalogue price of the car. The percentage of 12 is a weighted average of the car expenses (purchase or lease of the car, fuel, maintenance, etc.) that are subject to the standard rate of 19% and the expenses that are not subject to VAT (insurance, taxes). With effect from 1 January 2009, the percentage of 22 has been reduced to 20 in respect of qualifying,“environment-friendly” cars, i.e. cars with a relatively low emission and low fuel consumption. Under Decree No. CPP2009/109M of 9 February 2009, the same reduction applies, with retrospective effect to 1 January 2009, for the purposes of calculating the annual adjustments of the initial input VAT deduction in respect of environment-friendly cars. That reduction has the effect that the annual adjustment for private use of environment-friendly cars is 12% × 20% = 2.4% of the listed price of the car. In respect of other cars, the annual © IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 VAT News adjustment remains 12% × 22% = 2. 4% of the listed price. From our correspondent Marjolein van Delft Shell International BV, The Hague New Zealand Small and medium-sized businesses On 4 February 2009, the government announced various tax changes to assist small and medium-size businesses with their cash flows and to meet their tax obligations. The main changes are: – the rate of interest for underpayments of tax will be reduced from 14.24% to 9.7 %, and the rate for overpayments of tax will decrease from . % to 4.2 %. – The changes have been made by Order in Council and will apply from 1 March 2009; and numerous thresholds will be increased, including the threshold for accounting for GST on the basis of cash receipts, which will be raised from NZD 1. million to NZD 2 million, and the GST registration threshold, which will be increased from NZD 40,000 to NZD 0,000. These changes will also be introduced in the new tax bill. Prof. Dr. Kevin Holmes Victoria University of Wellington Russia Under Federal Laws No. 2 1-FZ of 4 December 2008 and No. 282-FZ of 2 December 2008 the following two amendments, inter alia, were made to the VAT Chapter of the Tax Code. Trade-in sales of vehicles From 1 April 2009, in respect of the sale of vehicles which were purchased from individuals that do not qualify as taxpayers for VAT purposes, the taxable base for VAT purposes is the difference between the purchase and selling price for the vehicles. Transfers between insurers From 1 March 2009, amounts received by an insurer under an agreement concluded with the insurer of the party that caused the damage, for direct compensation for the damage in the framework of the Law on mandatory insurance of legal liability of vehicle owners (OSAGO) will no longer bear VAT. Transfer of creditor’s rights According to the clarifications of the Ministry of Finance, 21 the VAT exemption for the transfer of creditor’s rights resulting from credit or loan agreements in a monetary form only applies to the first transfer of the rights, i.e. the transfer of his rights by the person who granted the credit or loan. Subsequent transfers are sub- 21. Letter of the Ministry of Finance of 12 January 2009, No. 0 -07-11/1. 149
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