VAT News - empcom.gov.in
VAT News - empcom.gov.in
VAT News - empcom.gov.in
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<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