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VAT News Croatia Free inventory goods The tax authorities generally took the view that, where they provide free inventory goods that are necessary for the distribution of their products to retail outlets, for example refrigerators to be used in retail shops and bars to store products that must be chilled, racks for display of their products, etc., the supplier must account for VAT at the standard rate of 22% on the value of the goods. However, the tax authorities have recently taken the position that the suppliers are not liable to account for VAT on the free-of-charge provision of those inventory goods to retailers, provided that the supplier retains ownership and remains responsible for maintenance of the goods, and that the customer cannot dispose of, change or remove them without the supplier’s prior approval. From our correspondent Sanja Stojic Ernst & Young d.o.o., Zagreb Czech Republic Council Decision – Border bridges – Germany See under European Union. Denmark On 2 February 2009, the Tax Commission, which has been established by the government to come up with proposals for substantial amendments of the tax system, published its proposals. As regards VAT, the Commission’s proposals include various measures which are aimed at aligning the VAT system with that laid down by the European VAT Directive. Management of real estate Under Sec. 1 (1)(8) of the VAT Act, management of immovable property is currently exempt from VAT, presumably on the basis of the transitional provisions laid down by Art. 71 of the VAT Directive and item B 2 of Annex X to that Directive (services of liberal professionals). The Tax Commission has proposed to abolish this specific VAT exemption, which will have the effect that, if the government adopts the proposal, management of immovable property will be subject to VAT at the standard rate of 2 %. New buildings and building land Under Sec. 1 (1)(9) of the VAT Act, the supply of immovable property is currently generally exempt from VAT on the basis of the transitional provisions laid down by Art. 71 of the VAT Directive and item B 9 of Annex X to that Directive. Under the general system laid down by Art. 1 (1)(j) and (k) of the VAT Directive, supplies of buildings and land are exempt from VAT; however, the supply of buildings before first occupation and of building land, as referred to in Art. 12(1)(a) and (b) of the Directive are excluded from the Community exemption. The Tax Commission has proposed to align the scope of the national exemption with that of the VAT Directive, which will have the effect that, if the government adopts the Commission’s proposal, the supply of buildings before first occupation and building land will be subject to VAT at the standard rate. Travel agents Under Sec. 1 (1)(1 ) of the VAT Act, services of travel agents are currently exempt from VAT on the basis of the transitional provisions laid down by Art. 71 of the VAT Directive and item B 1 of Annex X to that Directive. The Tax Commission has proposed to amend the legislation to the effect that services of travel agents are taxed. In this context, the Commission has not indicated that the services of travel agents will be subject to the margin scheme laid down by Arts. 0 to 10 of the VAT Directive. It is expected that the final proposal of the government will be more specific as regards the details of the system of taxation, i.e. application of a special margin scheme, which, under the current version of the VAT Directive, is compulsory. Passenger transport Under Sec. 1 (1)(1 ) of the VAT Act, passenger transport is currently exempt from VAT on the basis of the transitional provisions laid down by Art. 71 of the VAT Directive and item B 10 of Annex X to that Directive. The Tax Commission has proposed to abolish that specific exemption in order to align the VAT regime applicable to passenger transport with the general VAT system laid down by the Directive. Newspapers Under Sec. 4(1)(14) of the VAT Act, the supply of newspapers is currently zero rated. The Tax Commission has proposed to abolish this zero rate. If the government follows the Commission’s proposal, newspapers will be subject to the standard rate of VAT. Currently the government supports the first three proposals mentioned above, but not the last two. The government is expected to respond to the Commission’s proposals with formal draft legislation no later than April 2009. From our correspondent Claus B. Jespersen PricewaterhouseCoopers, Copenhagen Djibouti Introduction of VAT VAT was introduced on 1 January 2009. The tax is levied on supplies of goods and services. The standard rate is 7% and the zero rate applies to certain transactions, such as exports and international passenger transport. The following transactions are exempt from VAT: – banking transactions; – unprocessed agricultural products directly supplied to final consumers; – basic food products, etc. 1 8 INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 © IBFD
Consumption tax rates The budget for 2009 has been enacted as Law No. 41/AN/08/ eme L. Under that Law, which applies from 1 January 2009, the rates of various consumption taxes (taxes intérieures de consummation, TICs) applicable to products that are also subject to VAT have been decreased by 7 percentage points. Free-trade zone Under Law No. 41/AN/08, the scope of application of VAT has been extended, with effect from 1 January 2009, to companies operating in the free-trade zone. European Union Proposed Directive and Communication – VAT invoicing rules On 28 January 2009, the European Commission presented a proposal to amend VAT Directive 200 /112 with respect to the VAT invoicing rules (COM(2009) 21 final). The proposal is based on a Communication on the technological developments in the field of electronic invoicing (COM(2009) 20 final) and supplements the arrangements on the shifting of the time frame for filing recapitulative statements laid down by Directive 2008/117. The proposal is aimed at increasing the use of electronic invoicing, reducing the administrative burdens on businesses, supporting small and medium-sized enterprises (SMEs) and combating VAT fraud. The most important features of the proposal are summarized below and further details can be found in the (marginally edited) FAQs below. Time of chargeability VAT will become chargeable on the date of the chargeable event as determined by the time of supply. Invoices must be issued at the latest by the 1 th day of the month following the chargeable event. Right to deduct As regards the right to deduct, the proposal contains the following measures: – customers will be obliged to hold a valid invoice in order to be entitled to claim a VAT deduction in all cases, including transactions subject to the reverse charge mechanism. Member States may still accept other evidence when a valid invoice is not available; – the optional cash accounting method, which currently allows Member States to provide that certain categories of taxable persons account for VAT on their output transactions when they receive payment from their customers, and deduct input tax when they pay their suppliers, will be extended to all Member States. The scheme should be available for all micro enterprises with an annual turnover that does not exceed EUR 2 million; © IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 VAT News – even if the supplier accounts for output VAT on the basis of cash receipts, the customer should nevertheless be entitled to deduct that VAT immediately; and – the date of chargeability of the tax, which also determines the time the tax can be deducted, must be stated on the invoice. Issue of invoices It is proposed to create a set of harmonized rules for business-to-business (B2B) invoices as a result of which a taxable person issuing an invoice in the country where he is identified for VAT has legal certainty that the invoice is valid throughout the European Union. Consequently, businesses can meet their obligations from the state where they are established. Furthermore, the proposal is also aimed at harmonizing the invoicing rules for exempt supplies, the time limits for issuing invoices, the use of summary invoices and self-billing, and the outsourcing of the invoicing process to third parties. For VAT control purposes and in order to reduce administrative burdens, the proposal also grants Member States the option to require simplified invoices for B2C supplies made by both resident and non-resident businesses. Contents of invoices Full VAT invoices would be required in respect of B2B supplies if – the customer will be exercising the right to deduct VAT; – the supplier has the right to deduct related input VAT; and – the transaction concerns a cross-border supply. With respect to the particulars which must be mentioned on the invoice, the following three changes are proposed: – the customer’s VAT identification number must be mentioned; – the requirement that the invoice must indicate the date on which the goods or services are supplied will be replaced by indication of the date on which the tax becomes chargeable; and – where VAT is due in a Member State where the supplier is not established and the customer must account for that VAT under the reverse charge mechanism, the supplier will no longer be required to mention the VAT rate and the amount of VAT due on the invoice. In respect of B2C supplies, businesses would be allowed to issue simplified invoices because, in these cases, the VAT can normally not be deducted. Businesses would also be allowed to issue to other businesses simplified credit notes and simplified invoices relating to exempt supplies. Finally, simplified invoices may be issued where the amount of the invoice is less than EUR 200. 1 9
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