Indirect Tax News 1 - March 2012 - BDO International

MARCH 2012 Issue 1 

www.bdoINTERNATIONAL.COM 

indirect tax NEWS 

BELGIUM 

New VAT regime for non-profit-making 

associations with trade union goals 

READ MORE 2 

MALAYSIA 

GST – Through the looking glass 

READ MORE 8 

NORWAY 

Changes to the VAT Act 

READ MORE 9 

SWEDEN 

DOUBLE TAXATION ON THE SALE OF APPS DUE TO SWEDISH VAT LAW 

Many Swedish app developers have 

recently been subject to double 

taxation, due to the Swedish Tax 

Authority’s interpretation of how electronic 

services ought to be treated for VAT purposes. 

There are currently only a few large digital 

distribution platforms (non-Swedish companies) 

handling the distribution of Smartphone 

applications (for instance App Store located 

in Luxembourg). In order for a Swedish app 

developer to sell his product, he has to 

cooperate with those distribution platforms. 

The potential buyer (often private consumers) 

in turn, downloads the app directly from the 

distribution platform and will be charged with 

local VAT from the EU member state where the 

distribution platforms are established. 

Under Swedish VAT Law, the distribution 

of apps is classified as an electronic service 

and is therefore liable to Swedish taxation, 

provided the turnover arises in Sweden. The 

involvement of the foreign company (digital 

distribution platform) in the transaction is 

crucial in determining in which country the 

turnover actually arises. If the sole purpose 

of the distribution platform is to provide a 

‘marketplace’ for the distribution of apps, 

the foreign company has the role of an 

intermediary between the developer and the 

buyer. 

Under the private consumer‘s purchase 

contract, is the app developer the legitimate 

contracting party? I.e. does he set the purchase 

price and assist with support in case the app is 

malfunctioning? The Swedish VAT Law implies 

that if apps are sold under these circumstances, 

the app developer will have to pay Swedish VAT 

on the turnover. 

The Swedish Tax Authority is well aware of the 

fact that a lot of app developers are located 

in Sweden, and has consequently published 

an ‘applicable statement’ that implies that 

Swedish VAT is not to be charged under certain 

circumstances. This is a necessary measure 

in order to reduce the risk of effective double 

taxation on sales of apps and therefore, in the 

long run, prevent Swedish app development 

companies from going out of business. 

According to the current applicable statement, 

certain prerequisites are required in order to 

avoid Swedish VAT: 

• the Swedish company has to sell apps, 

through a digital distribution platform 

operated by a foreign company, to a private 

consumer located within the EU; and 

• the foreign company has to be taxable for 

that particular sale in the EU member state 

where it is established. 

Unfortunately, the Swedish Tax Authority 

has not given any guidelines on how this is 

supposed to be put into practice! Up to now, it 

is uncertain whether the Authority will obtain 

information from its foreign counterparts 

regarding the fiscal legislation, or whether it 

falls on the app developer to prove that VAT has 

already been paid in another EU member state. 

The obvious cause for potential difficulties in 

this situation is the fact that EU member states 

have different opinions about which entity is 

the real supplier of an app – the developer, or 

both the developer and the digital distribution 

platform. 

The Swedish law is in fact no different to the 

VAT Laws of other EU member states, but 

the way in which it is interpreted by the Tax 

Authority in this particular case is different! 

Currently there is no EU stipulation concerning 

the common application of the VAT treatment 

of electronic services. 

The Swedish Ministry of Finance has been 

pushing this high-priority question at EU 

level, hoping to receive an early reply on 

an applicable common intra-community 

regulation on this matter. 

The relevant ‘applicable statement’ applies 

retrospectively from 1 October 2011. 

ÅSA SPETZ 

Sweden – Stockholm 

asa.spetz@bdo.se 

Contents 

▶▶SWEDEN 

Double taxation on the sale of apps 

due to Swedish VAT Law 1 

▶▶EDITOR’S LETTER 2 

▶▶BELGIUM 

New VAT regime for non-profit-making 

associations that pursue trade union goals 2 

▶▶BRAZIL 

The possibility of offsetting 

accumulated tax credits 3 

▶▶GERMANY 

European Court of Justice rules on 

the transfer of a business 4 

▶▶IRELAND 

Recent VAT developments 5 

▶▶LATVIA 

Domestic reverse charge VAT 6 

▶▶LUXEMBOURG 

A 3% VAT rate for e-books 7 

European Commission challenges the 

independent groups of persons regime 7 

▶▶MALAYSIA 

GST – Through the looking glass 8 

▶▶NAMIBIA 

Changes to the VAT act 

from 1 January 2012 9 

▶▶NORWAY 

Changes to the VAT act effective 

from 1 January 2012 9 

▶▶SPAIN 

Spain referred to the European Court 

over use of the reduced VAT rate 10

2 INDIRECT TAX NEWS 1 

Editor’s 

Letter 

Dear Readers, 

As the new Chair of the BDO 

international VAT Centre of 

Excellence (VCOE), I am pleased to 

introduce the first edition of BDO Indirect 

Tax News for 2012. 

Heading into 2012, the good news is that 

the strength of the Indirect Tax advisor 

network within BDO continues to grow, 

and my colleagues and I on the VCOE 

Committee are continually using our best 

endeavours to ensure that the Firm is well 

placed to provide our clients and contacts 

with any assistance they may require with 

future compliance and advisory matters. 

As you are aware, indirect taxes are 

significant generators of revenue for 

governments across the globe, and it 

is interesting to note that the austerity 

measures being introduced in the wake of 

the economic crisis are heavily focused on 

increasing VAT rates, particularly within the 

European Union. 

In the circumstances we need to remain 

mindful of the shift from direct to 

indirect taxation, and the challenges and 

opportunities which this presents. 

I hope you find this publication both useful 

and informative. The VAT specialist of your 

BDO Member Firm will be pleased to advise 

if further information on a specific issue is 

needed. 

Kind regards from Dublin. 

IVOR FEERICK 

Chair of the BDO international VAT Centre 

of Excellence 

Ireland – Dublin 

ifeerick@bdo.ie 

BELGIUM 

NEW VAT REGIME FOR NON-PROFIT-MAKING ASSOCIATIONS 

THAT PURSUE TRADE UNION GOALS 

The Belgian VAT Authorities recently 

issued a circular letter (No. ET 121.844 

of 3 January 2012) that provides 

clarification on the scope of the VAT exemption 

regarding membership fees paid to a nonprofit-making 

association. In accordance 

with European case law (Court of Justice of 

the European Union (CJEU) case C-149/97, 

Institute of the Motor Industry), this exemption 

is applicable to the total amount of the 

membership fees when the main objective of 

the association is the pursuit of trade union 

goals. 

By virtue of article 132, 1, (l) of the Council 

Directive 2006/112/EC, the supply by nonprofit-making 

organisations of services 

consisting of the defence of common interests 

of members, and representation of them 

towards third parties (i.e. trade union/lobbying 

services), in return for a subscription fixed in 

accordance with the articles of association, 

is exempt from VAT. However, it happens 

that these organisations (as part of the 

subscription) render some “individualised” 

services to their members (general 

promotional activities, advice, participation 

in events, etc.) in addition to the trade union/ 

lobbying services. The new circular mainly 

comments on whether the above mentioned 

VAT exemption also applies to these additional 

“individualised” services. 

In the past, the Belgian VAT authorities 

allowed a split of the subscription between 

the part that covers the trade union/lobbying 

services and the one that covers the other 

activities. The first part was VAT-exempt (and 

did not give any entitlement to deduct input 

VAT) whereas the second part was in principle 

subject to VAT (and thus gave an entitlement 

to deduct input VAT). On this basis, the 

organisation had the status of mixed taxable 

person. In some cases, the apportionment was 

fixed by the VAT Authorities through a specific 

decision (which could give organisations with 

a trade union nature an entitlement to input 

VAT deduction of over 80%). 

According to the new circular, there will, in 

principle, be only two possible scenarios: 

• the main objective of the association is of 

a trade union/lobbying nature. In this case, 

the exemption will apply to all activities 

performed in return for a subscription 

fixed in accordance with the articles of 

association (i.e. a membership fee), including 

“individualised” services – they would be 

considered as ancillary to the trade union/ 

lobbying services, but covered by such 

membership fees. In this case, the association 

will be treated as a VAT-exempt taxable 

person without any entitlement to deduct 

input VAT; or 

• the main objective of the association is 

not of a trade union/lobbying nature. In 

this case, VAT will apply to all activities 

covered by the membership fees, including 

trade union/lobbying activities that would 

be considered as ancillary. In this case, the 

association will be treated as a taxable 

person with full entitlement to deduct input 

VAT. 

In other words, it is now a case of ‘all or 

nothing’ with regard to the activities covered 

by membership fees. Either they will be fully 

subject to VAT or they will be fully exempt. 

However, if it is not possible to determine the 

main objective, a split (as in the past) could 

still be affected (in principle 50% lobbying and 

50% other services). 

Supplies made to all or part of the 

membership in return for a charge separate 

from the membership fees should always 

follow their own VAT treatment and are not 

covered by the exemption for trade union/ 

lobbying activities. It is thus still possible that 

an association qualifies as a mixed taxable 

person, with partial entitlement to input VAT 

deduction.

INDIRECT TAX NEWS 1 

BRAZIL 

THE POSSIBILITY OF OFFSETTING ACCUMULATED TAX CREDITS 

3 

In addition, in the event of a change to 

their input VAT deduction entitlement, 

the organisation must/can normally revise 

the input VAT related to investment goods 

acquired within the last 5 years (for movable 

goods or immovable work) or within 15 years 

(immovable goods) with effect for 2012 and 

the remaining years of the applicable revision 

period. 

We note also that, in the event of an 

improvement to the input VAT deduction 

entitlement of an organisation (based on the 

new circular), it could even be argued that 

the organisation would have an entitlement 

to input VAT recovery of all input VAT paid 

since 1 January 2009 (on normal costs 

and investment goods), as the current 

administrative circular is only the confirmation 

of an existing interpretation of the European 

VAT legislation by the CJEU. However, this 

would imply the need for a regularisation 

of invoices issued in the past, which may 

not be beneficial for the organisation (and/ 

or the members). On the other hand, the 

Belgian VAT Authorities have confirmed in the 

aforementioned circular that they would not 

claim any VAT for the past. 

This new circular came into force on 

1 January 2012. It cancels and replaces all 

previous administrative commentaries. 

International associations should therefore 

review their VAT situation depending on the 

nature of their main objective. 

Finally, we note that a change in the VAT 

status of an organisation does not necessarily 

imply a change in its status for income tax 

purposes. However, an (in-depth) analysis of 

this aspect could be advisable, especially if 

the application of the new rules significantly 

changes the VAT status of the organisation. 

Erwin Boumans 

JEAN-CLAUDE SEMUCYO 

Belgium – Brussels 

erwin.boumans@bdo.be 

jean-claude.semucyo@bdo.be 

In general terms, Brazil’s legal system allows 

the taxation of certain business operations 

when these involve a taxable event which 

creates a tax liability. 

Among the various tax rules established 

by Brazilian law, the principle of noncumulativeness 

stands out. According to this 

principle, it is possible to deduct from the tax 

levied on the shipment of goods, tax amounts 

already paid in previous transactions referring 

to the same goods or to the raw materials 

required for their manufacturing. 

The ICMS (State VAT) is an example of a 

tax subject to this principle. Most Brazilian 

companies encounter this tax. 

Certain companies end up generating an 

accumulated credit as a result of not offsetting 

credits wholly or partly against debts in nontaxable 

shipments. These shipments occur for 

different reasons, among which exports stand 

out. 

In particular, the accumulated credit can 

be used both to settle tax debts with the 

State and to transfer the credit to a different 

establishment of the same company, 

supplier, service provider or other companies 

recognised by the Finance State Department. 

With proper tax planning, it is therefore 

quite possible for companies which are fully 

active in Brazil to offset accumulated tax 

credits, subject to compliance with the legal 

requirements. This would certainly increase 

business profitability and reduce the tax 

burden. 

RAFAEL LEITE 

JIVAGO ALMEIDA 

WAGNER BASTOS 

Brazil – São Paulo 

rafael.leite@bdobrazil.com.br 

jivago.almeida@bdobrazil.com.br 

wagner.bastos@bdobrazil.com.br


GERMANY 

EUROPEAN COURT OF JUSTICE RULES ON THE TRANSFER OF A BUSINESS 

On 10 November 2011, the European 

Court of Justice (CJEU) gave its ruling 

in the Christel Schriever v Finanzamt 

Lüdenscheid case (number C-444-10). The 

question for the Court to decide was whether 

there had been a non-taxable transfer of an 

entire business where the vendor retained 

the business premises and leased them to the 

purchaser. 

Background 

Until 30 June 1996, the complainant Christel 

Schriever had run a retail sports equipment 

business in business premises belonging to her. 

On that date, Ms. Schriever sold the stock and 

shop installations to Sport S. GmbH for a total 

amount of DEM 455,000, with no VAT being 

shown on the related invoice. Ms. Schriever 

then leased the shop premises to Sport S. 

GmbH from 1 August 1996 for an indefinite 

period, subject to a quarterly period of notice 

by either party. Sport S. GmbH continued to 

run the sports shop until 31 May 1998. 

Ms. Schriever treated the sale of the stock 

and fittings as a non-taxable transfer of an 

entire business according to paragraph 1 (1a) 

of the German VAT Act. The German tax 

authorities refused to grant this treatment to 

Ms. Schriever due to the fact that the business 

premises, as an essential element, were not 

sold to Sport S. GmbH. However, the local 

fiscal court confirmed the treatment of a nontaxable 

transfer of an entire business, as the 

totality of assets had been sold to Sport S. 

GmbH, and Sport S. GmbH had actually 

continued to run the business. The mere 

theoretical possibility of being able to give 

notice on the lease agreement at any time was 

of no consequence in this regard. 

This led to the reference for a preliminary 

ruling from the German Federal Fiscal Court. 

Questions referred 

1. Is there a “transfer” of a totality of assets 

within the meaning of the Sixth Directive, 

where a trader transfers the stock and 

fittings of his retail outlet to a purchaser 

and merely leases the premises which he 

owns to the purchaser? 

2. Is it relevant in that regard whether the 

premises were leased on the basis of a 

long-term lease contract, or whether the 

lease contract is for an indefinite period 

and may be terminated by either party at 

short notice? 

CJEU judgment 

According to the CJEU, a non-taxable transfer 

of the totality of business assets for the 

purposes of the Sixth Directive requires that 

the purchaser is able to continue the business 

as an independent economic undertaking. 

However, the mere sale of stock is not 

sufficient to satisfy this requirement. To 

determine whether the transaction at issue 

can be regarded as a transfer of a totality of 

assets, an overall assessment of the factual 

circumstances has to be made, subject to the 

following distinctions: 

(1) If an economic activity does not require 

the use of particular premises or any 

premises with a fixed shop installation 

that would be needed for continuing the 

economic activity, then the totality of the 

assets can be transferred even without the 

transfer of the business premises. 

(2) However, if the purchaser can only 

continue the economic activity by using 

the same premises as were used by the 

vendor, then a transfer of the totality of 

assets would at least require the purchaser 

to obtain possession of the business 

premises. 

(3) The possession of the business premises 

does not necessarily require the transfer 

of the premises. A transfer of assets may 

also equally take place if the business 

premises are made available to the 

purchaser by means of a lease contract, or 

if the purchaser has their own appropriate 

premises to which all of the transferred 

goods can be moved and where the 

purchaser can carry on the respective 

economic activity. 

(4) If the continuation of the economic 

activity requires the purchaser to use the 

same premises as the vendor did, the CJEU 

raises no objections if the possession of 

the premises is transferred by means of 

a lease contract. In this connection, it is 

irrelevant whether the lease contract is 

indefinite and can be terminated at short 

notice by either party. It is solely decisive 

whether the lease contract terms are an 

obstacle to the long-term continuation of 

the economic activity of the purchaser. 

Following the above-mentioned 

considerations, the CJEU concluded that a 

non-taxable transfer of the totality of business 

assets had taken place, as Sport S. GmbH 

continued the acquired business for nearly two 

years, and did not just liquidate the business 

activity immediately after the purchase. 

Practical impact of the judgment 

A non-taxable transfer of the totality of 

business assets can apply even in cases where 

substantial parts of the business are retained. 

However, the purchaser must be able to 

continue the business as an independent 

economic undertaking. 

An issue which still remains unexplained 

within the present CJEU judgment is the 

question of whether a non-taxable transfer of 

the totality of business assets applies even if 

the business premises are sold to a third party 

who then enters into a lease contract for the 

business premises with the purchaser. 

ANNETTE POGODDA 

CLAUS WAGNER 

Germany – Berlin 

annette.pogodda@bdo.de 

claus.wagner@bdo.de

IRELAND 

RECENT VAT DEVELOPMENTS 


5 

With effect from 1 January 2012 the 

standard rate of VAT applicable in 

Ireland has increased from 21% to 

23%. 

Whereas the reduced rate of VAT is still 13.5%, 

a temporary reduced VAT rate of 9% was 

introduced with effect from 1 July 2011 with a 

view to stimulating the Irish economy. 

9% Rate 

The 9% rate applies to certain goods and 

services which were previously liable at the 

reduced 13.5% rate, although the 13.5% rate 

continues to apply to other items. The supplies 

liable at the 9% VAT rate include the following: 

• restaurant and catering services; 

• hotel and holiday accommodation; 

• admissions to: 

• cinemas, theatres and certain musical 

performances; 

• museums and art gallery exhibitions; 

• pet farms; and 

• fairgrounds or amusement park services; 

• the provision of facilities for taking part in 

sport; 

• hairdressing services; and 

• printed matter such as brochures, maps, 

programs, leaflets, catalogues and 

newspapers. 

It is intended that the VAT rate applying to 

these goods and services will revert to 13.5% 

with effect from 1 January 2014. 

13.5% Rate 

The following items continue to remain liable 

to Irish VAT at the 13.5% rate: 

• bakery products, excluding bread (bread 

related products qualifying for 0% are 

specially defined); 

• residential property; 

• building services related to residential 

property, including installation; 

• routine cleaning of residential property; 

• minor repairs of bicycles, shoes or leather 

goods, clothing or household linen; 

• non-oral contraceptive products; 

• goods used for the agricultural production 

of bio-fuel; 

• agricultural services; 

• certain nursery or garden centre stock; 

• animal insemination services and livestock 

semen; 

• children’s car safety seats; 

• waste acceptance and disposal services; 

• greyhound feeding stuff and live poultry and 

live ostriches; 

• fuel for power and heating, coal, peat, 

timber, electricity, gas (other than auto 

LPG), heating oil; 

• non-residential property; 

• building services related to non-residential 

property, including installation; 

• routine cleaning of non-residential property; 

• concrete; 

• tour guide services; 

• short-term hiring of cars, boats, caravans, 

mobile homes, tents or trailer tents; 

• repair and maintenance of cars, other 

vehicles, vessels and aircraft; 

• services consisting of the care of the human 

body; 

• jockey services; 

• photographic services including 

photographic prints; 

• car driving instruction; 

• veterinary services; and 

• certain works of art, antiques and literary 

manuscripts. 

VAT on medical services and bakery 

products 

The Irish Revenue have also recently issued 

an information leaflet in respect of the 

VAT treatment of medical services which 

makes a distinction between those services 

that are regarded as exempt from VAT, and 

those liable at the reduced and standard 

VAT rates. A Revenue e-Brief has also been 

issued, clarifying the VAT treatment of bakery 

products and food supplements. 

Both of the above documents were produced 

by the Tax Authorities in response to the 

perception that the VAT exemption and lower 

VAT rates were being incorrectly applied to the 

supplies of certain goods and services. 

IVOR FEERICK 

Ireland – Dublin 

ifeerick@bdo.ie


LATVIA 

DOMESTIC REVERSE CHARGE VAT 

Construction services 

Starting from 1 January 2012, Latvia has introduced a domestic 

reverse charge mechanism for construction services provided 

locally, if both the service provider and the recipient are VATregistered 

persons in Latvia. 

The new rules are applicable to the construction of new buildings and 

the renovation, reconstruction, restoration, preservation or demolition 

of existing buildings. 

Under the Latvian VAT Law ‘construction services’ means: 

• site preparation; 

• construction of temporary building structures and building 

demolition; 

• construction of underground parts of buildings; 

• construction of load-bearing and non-performing components or 

structures (including built-in structures) thereof; 

• installation of the design with or without delivery (including window 

design, window and door fitting, lift installation); 

• installation and assembly of equipment which is an integral part of 

the building (including ventilation and heating systems); 

• external finishing works (including the facade decoration and 

insulation); 

• interior fittings (including wall and ceiling finishes, insulation, floor 

decking, wallpaper gluing, painting or varnishing the surface); 

• construction of utilities (including the building or part of a 

functionally related engineering supply and construction of internal 

engineering networks); 

• conservation or demolition of a building as a whole or part of it; and 

• site clean-up and improvement of the works to be completed before 

the commissioning of the site (other than gardening). 

The taxable value of the services includes the amount of costs directly 

related to a specific service (including construction materials, structures 

or equipment, which is an integral part of the construction). No cashpayments 

are allowed for domestic construction services. 

The reverse charge applies to contracts signed from 1 January 2012, with 

some transitional rules for contracts signed before that date. 

Local supplies of scrap metal 

A domestic reverse charge VAT mechanism was also introduced with 

effect from 1 October 2011 for local supplies of scrap metal, if both 

the supplier and the recipient are VAT-registered persons in Latvia. In 

addition, the recipient must have: 

1. a licence to buy scrap metal waste and scrap in Latvia; or, 

2. permission for an A or B Category polluting activity or waste 

collection, handling, sorting and storage. 

The domestic reverse charge VAT procedure applies to the supply of: 

• ferrous and non-ferrous metals and alloys and scrap, resulting from 

operating activities in the industry, construction, agriculture or other 

fields, as well as in everyday life; 

• metal products or parts that are not intended to be used for breakage, 

cutting up, wear or other reasons; 

• different types of inoperable vehicles or parts thereof, including car 

wrecks; 

• electrical and electronic waste; and 

• batteries and accumulators. 

The reverse charge VAT procedure also applies to the supply of scraprelated 

services such as: 

• segregating ferrous and non-ferrous metals and alloys waste from 

industrial and municipal waste streams; 

• sorting, cutting, crushing, pressing and casting into ingots ferrous and 

non-ferrous metals and alloys and scrap; 

• breaking, cutting, crushing and pressing worn black or non-ferrous 

metal and alloy products and other reusable materials; 

• breaking, splitting and sorting reusable building, engineering or other 

infrastructure objects or parts of a metal structure. 

The supplier must issue an invoice for supplies of scrap metal or scrap 

metal related services without VAT. The VAT must be calculated and 

paid by the recipient of scrap metal or scrap metal related services. 

INITA SKRODERE 

Latvia – Riga 

inita.skrodere@bdolegal.lv

LUXEMBOURG 

A 3% VAT RATE FOR E-BOOKS 


7 

On 12 December 2011, the Luxembourg 

VAT authorities published a new 

administrative circular which aligns 

the VAT rate applicable to books in electronic 

format (e-Books) to their paper version. Until 

now those two types of product, similar in their 

nature and use for customers, were subject to 

two different VAT rates. In its traditional paper 

version, a book is subject to the reduced rate 

of 3% in the Grand Duchy of Luxembourg, 

whereas until now, its electronic version was 

taxed at 15%. 

This circular is to be seen in the context 

of the recent communication of the 

European Commission of 6 December 2011 

(COM 201/851 final) on the future of VAT, 

which states that “Similar goods and services 

should be subject to the same VAT rate, and 

progress in technology should be taken into 

account in this respect, so that the challenge 

of convergence between the on-line and the 

physical environment is addressed.” The French 

government was the first to take a position on 

this issue when it decided to apply a reduced rate 

to e-Books from 1 January 2012, which, with the 

recent decisions on the French Budget, will be 

fixed at 7%. 

The decision of the Ministry of Finance, as 

reflected in this circular of the VAT authorities, 

to apply a 3% VAT rate to e-books confirms 

the strategic positioning of Luxembourg for 

e-commerce activities. It completes the large 

infrastructure investments (data-centres and 

high speed internet access), and the favourable 

legal and tax environment available within the 

country. 

ERWAN LOQUET 

Luxembourg 

erwan.loquet@bdo.lu 

EUROPEAN COMMISSION CHALLENGES THE INDEPENDENT GROUPS OF PERSONS REGIME 

Article 132.1.f of Directive 2006/112/ 

EC provides, under certain conditions, 

a VAT exemption for the supply of 

specific services by an “independent group 

of persons” (IGP) to its members. This Article 

has been implemented in Luxembourg under 

Article 44.1.y of the Luxembourg VAT Law. 

The aim of this VAT exemption was to introduce 

a VAT-neutral system allowing (i) persons 

performing non-taxable or exempt activities 

to share (ii) services directly necessary to their 

activities, (iii) given that each person assumes, 

entirely but exclusively, its own part of these 

joint expenses 1 . 

On 26 January 2012, the European Commission 

(EC) 2 formally asked Luxembourg to change its 

rules on VAT applicable to independent groups 

of persons. The Commission considers that the 

following national aspects of the Luxembourg 

IGP regime infringe the strict rules set out in the 

VAT Directive: 

I. Members are allowed to perform taxable 

activities (up to a threshold of 30%), which 

means that, according to the Commission, 

the services of the IGP might benefit 

taxable activities of its members; 

II. Members are allowed to deduct the VAT 

incurred by the IGP on its costs up to their 

VAT deduction right and their part of the 

services received from the IGP; and 

III. Luxembourg’s arrangements do not take 

account of the VAT rules in EU law applicable 

to operations by intermediaries. 

The impact of the adjustment of the 

Luxembourg VAT legislation should be limited 

for pure financing entities (pure holding, private 

equity structures) which, in most cases, do not 

perform any taxable activity, and consequently, 

do not have any right to deduct input VAT. 

However, a change of the Luxembourg VAT Law 

would lead to the exclusion from the IGP regime 

of companies performing both non taxable/ 

exempt and taxable activities, such as banks, and 

mixed holding and insurance companies, which 

would therefore be quite problematic. 

The EC “reasoned opinion” gives Luxembourg 

two months to bring its rules into compliance 

with EU law. Otherwise, the EC may refer the 

matter to the European Court of Justice, but even 

in this eventuality, the outcome of the procedure 

remains uncertain. 

Luxembourg has solid arguments for defending 

its IGP regime and is not likely to amend it on a 

voluntary basis. In that event, the Commission 

would have to refer the matter to the Court, 

which could be a good opportunity to have 

further clarification on this VAT neutral cost 

sharing system. 

AMELIE DASCOTTE 

ALEXANDRE COLE 

Luxembourg 

amelie.dascotte@bdo.lu 

alexandre.cole@bdo.lu 

1 

See amongst others CJUE, Taksatorringen, 20 November 2003, C-8-01, AG conclusions, pt 117-119. 

2 

IP/12/63.


MALAYSIA 

GST – THROUGH THE LOOKING GLASS 

Asia has managed to weather the global 

financial crisis, due to policies in place 

as well as spending patterns in terms 

of appetite for risk and debt. However, there is 

still ongoing debate, both country and region 

specific, in terms of the action plans that need 

to be implemented for continued growth. 

The last decade has seen an increase in 

emerging markets in Asia. Global surveys 

undertaken by professional bodies (such 

as the International Monetary Fund (IMF), 

accounting firms, etc.) indicate that Asia plays 

a significant role in spearheading the “March 

out of the current global economic slowdown”. 

In a recent press briefing (January 2012) on 

the economic outlook for Asian Countries, in 

Washington D.C., IMF officials reported an 

expected growth of between 6 – 6.5% in the 

Asia Pacific Region in 2012 – 2013. 

What is the “growth recovery” plan? 

“Wei Ji” ( 危机 ) means “disaster” in Chinese. 

However, if you interpret each character of the 

word, it also means that there is opportunity 

in disasters or challenging times. A recipe for 

success may include taking the opportunity to 

relook at processes, policies and the best way 

of reinvention for sustainable growth patterns. 

Most countries in the region have undertaken 

reviews of policies, introduced preferential 

tax treatments (such as incentives, credits, 

exemptions, etc.) to facilitate both domestic 

and foreign investment. With regard to trends, 

we note that there has been a global shift from 

corporate to indirect taxes. The Organisation 

for Economic Cooperation and Development 

(OECD) has also indicated that indirect taxes 

are the least economically damaging type of 

tax. 

Is a Goods and Services Tax (GST) part of 

Malaysia’s growth plan? 

Malaysia has also jumped on the bandwagon 

to shift the emphasis from corporate to 

indirect taxes. The GST (akin to VAT) Bill 

was tabled for its first reading in Parliament 

on 16 December 2009. Subsequently, it 

was announced that the implementation of 

GST would be postponed in order to collate 

feedback from “Rakyat” to provide additional 

guidelines on the application of the tax. The 

extension of time or rather deferment of GST 

should be viewed as being practical, in terms 

of enabling more taxpayers to educate and 

better prepare themselves for the impending 

GST environment. These measures are to 

ensure a smooth transition for taxpayers into 

the GST environment. 

The deferment of GST caused ripples in the 

current economic climate. However, as global 

trends unravel, it would appear that this is a 

tax that will have to be considered as part of 

Malaysia’s future plans. The shift from the 

burden of direct taxes to a consumption tax 

system should increase funding capacity from 

both domestic and international investment 

in the country. These should provide adequate 

building blocks for Malaysia to continue 

steadily on its journey towards a higher 

income nation. 

Hidden taxes/“cascading effect” - How does 

the current consumption tax system work? 

At present, consumption taxes are imposed on 

taxable goods and services, as defined by the 

Sales and Service Tax legislations respectively. 

The categories are specific. However, due 

to “grey areas of interpretation” and poor 

compliance, not all taxable goods and services 

are under the current regime, resulting in 

leakages. The current regime imposes a single 

stage tax, with no “input tax credit system”. 

Therefore, taxes being paid by vendors in the 

supply chain become “sunk costs”, which are 

embedded as part of the cost of the goods 

or services, which may be taxed more than 

once. This is also known as the “cascading” or 

“hidden tax” effect. 

GST, being a transparent tax, should eliminate 

the cascading effect experienced under 

the existing sales and service tax regime, 

under which ‘hidden taxes’ are borne by the 

consumer. The self-policing mechanism should 

also help to increase compliance. Therefore, 

this tax would level the playing field in 

industries. 

How will GST work? 

GST would be a broad-based consumption 

tax (akin to VAT) to replace the existing 

sales and service taxes. This transactionbased 

tax would require regular submission 

of both tax returns and remittances of the 

taxes collected. Such a mechanism allows 

for refunds to be issued in a more efficient 

manner, as the monies due to taxpayers (when 

the output taxes paid are lower than the input 

taxes paid) will already be held by the Royal 

Malaysian Customs (RMC), due to the regular 

remittances made by GST registered entities. 

In addition, since GST utilises the “user pays” 

principle, as the economy grows, consumption 

will increase, providing additional revenue for 

the Government. This relationship is not as 

direct or clear under the direct tax, or income 

tax mechanisms. The government would 

be able to further improve infrastructure 

and welfare, and increase research and 

development to boost industries/home grown 

products/services, which should benefit the 

“Rakyat” of the country. This improved and 

more transparent means of collecting tax 

could also result in the lowering of direct taxes 

(i.e. personal and corporate income tax). 

How would GST be imposed in Malaysia? 

Goods and services would be subject to GST 

(taxable) or not (non-taxable). For taxable 

goods and services, there would be two rates 

of GST that could be imposed, i.e. standard 

rate (earlier announced to be 4%) and zero 

rate. For non-taxable goods and services, there 

would be two categories, i.e. exempt and ‘out 

of scope’. In both non-taxable categories, 

no GST (i.e. output tax) would be imposed. 

Therefore, no GST (i.e. input tax) could be 

claimed. 

The Government does not expect inflation at 

the GST rate of 4%. However, steps to prevent 

businesses from taking advantage of GST to 

make excessive profits include the tabling in 

Parliament in July 2010 of the Price Control 

and Anti Profiteering Bill 2010 (PCAPB). This 

legislation is aimed at regulating the pricing of 

goods and services, to ensure that businesses 

do not take advantage of the introduction 

of GST, by applying price increases, without 

reasonable bases. In addition, it has been 

proposed that a shoppers’ guide (covering 

approximately 350 items) will be published for 

circulation to the public 3 months prior to the 

GST implementation date. 

GST – Are we there yet? 

The deferred second reading of the GST Bill 

in Parliament should allow more time for the 

“Rakyat” to get ready. Some of the industry 

guidelines have already been released, 

providing the main framework for clarification 

of the application of the tax. Relevant 

legislation such as the PCAPB, and ongoing 

dialogue with taxpayers, are steps in the right 

direction to facilitate a smooth transition into 

the GST environment. 

Malaysia has to broaden its tax base and 

funding capacity to face the challenge of 

competition from emerging economies like 

China, Indonesia and Vietnam (amongst 

others). As with other countries, the shift 

from direct to indirect taxes raises political 

tension. In this regard, an implementation 

date for this tax will probably be announced 

after the next general election, which would 

be by March 2013. The clock has already 

started ticking, and the additional time only 

becomes useful if actions are taken now to 

determine the timelines and the method of 

implementation. 

“… Now, here, you see, it takes all the running 

you can do, to keep in the same place. If you 

want to get somewhere else, you must run at 

least twice as fast as that! …” - The Queen, 

Lewis Carroll’s “Alice through the looking glass”. 

PAULINE LUM 

Malaysia – Kuala Lumpur 

paulinelum@bdo.my

NAMIBIA 

CHANGES TO THE VAT ACT FROM 1 JANUARY 2012 


9 

Medical services, which were zerorated 

as of 1 May 2010, have become 

exempt, as they were before that 

date. The change in legislation led to a change 

in use of certain assets, making it necessary 

to account for a deemed supply. Certain 

taxpayers with a mixed supply will once again 

have to apportion input VAT, as they did before 

1 May 2010, and many taxpayers will have to 

deregister, as they are no longer making taxable 

supplies. One wonders about the rationale 

behind this change, as 20 months is a very 

short timeframe in which to judge whether 

the decision to zero-rate these services was 

effective. 

Taxpayers may now apply to the Minister 

in writing for their VAT period to end on a 

different day. This day must not be more than 

10 days before or after the current last day. 

A tax tribunal has been established to consider 

disputes between the Receiver of Revenue and 

taxpayers. 

LORNA CELLIERS 

JANA-MARIE DE BRUYN 

Namibia – Windhoek 

lorna@bdo.com.na 

janamarie@bdo.com.na 

NORWAY 

CHANGES TO THE VAT ACT EFFECTIVE FROM 1 JANUARY 2012 

The Norwegian Parliament has made the 

following changes to the VAT Act with 

effect from 1 January 2012: 

Guarantee/warranty repairs performed for 

foreign principals 

The VAT exemption for guarantee/warranty 

repairs for foreign principals, which was 

cancelled on 1 January 2010, has been 

reintroduced. The exemption will include 

repairs related to goods or installations which 

the foreign principal has delivered in Norway. 

Both goods and services supplied in this 

connection will be covered. It is a condition 

that the foreign principal is not registered for 

VAT in Norway. 

Obligation to file VAT returns electronically 

All VAT returns covering VAT periods that 

end after 31 December 2011 should generally 

be filed electronically via the internet portal 

www.altinn.no. This means that persons 

entitled to sign VAT returns must obtain 

PIN-codes from Norwegian authorities in 

order to be able to access the portal. Certain 

procedures regarding this must be followed. 

Please note that it is possible to apply for a 

permission to file paper versions of the VAT 

return. Such applications should be made at 

least three months prior to the deadline for 

filing the VAT return in question. A permission 

to file paper returns will last for a limited 

period of two years. 

Change of VAT rate for food 

The VAT rate for food is increased from 14% 

to 15%. 

JAN KOLBJØRNSEN 

KNUT ANDREASSEN 

Norway – Oslo 

jan.kolbjornsen@bdo.no 

knut.andreassen@bdo.no


SPAIN 

SPAIN REFERRED TO THE EUROPEAN COURT OVER USE OF THE REDUCED VAT RATE 

Brussels has decided to report Spain to 

the European Court of Justice (CJEU) for 

transgressing the scope of the reduced 

VAT rate for medical products. According to the 

Council Directive 2006/112/EC, the reduced 

rate may only apply to “medical equipment, 

aids and other appliances normally intended 

to alleviate or treat disability, for the exclusive 

personal use of the disabled”. 

However, the Spanish VAT Law states that 

the reduced rate applies to “health products, 

materials, equipment or instruments that, 

objectively considered, may only be used to 

prevent, diagnose, treat, alleviate or cure 

diseases or ailments of humans or animals”. 

The EU Executive contends that Spain is 

exceeding its authority when applying the 

reduced tax rate on all medical equipment, 

aids to make up for deficiencies in disabled 

animals, and substances used in the 

manufacture of medicines, which distorts 

competition. 

European regulations allow the use of the 

reduced VAT rate to pharmaceutical products 

for medical purposes, but not to substances 

used in the preparation of such medicines, and 

even include an option that some articles can 

benefit from special exceptions, which was not 

used by Spain. 

Impact in Spain 

If the CJEU decides that Spain is transgressing 

the scope of the reduced VAT rate in this 

area, many products that are currently used 

exclusively for medical purposes, but not for 

disabled people, will become taxable at the 

standard rate. 

ROSARIO ESTELLA 

CARLOS BAUTISTA 

Spain – Madrid 

rosario.estella@bdo.es 

carlos.bautista@bdo.es 

contact persons 

The BDO VAT Centre of Excellence consists of the following persons: 

Ivor Feerick (Chair) Ireland Dublin ifeerick@bdo.ie 

Reinhard Rindler Austria Vienna reinhard.rindler@bdo.at 

Erwin Boumans Belgium Brussels erwin.boumans@bdo.be 

Annette Pogodda Germany Berlin VAT@bdo.de 

Erwan Loquet Luxembourg Luxembourg erwan.loquet@bdo.lu 

Rob Geurtse Netherlands Rotterdam rob.geurtse@bdo.nl 

Tom Kivlehan United Kingdom Reading tom.kivlehan@bdo.co.uk 

This publication has been carefully prepared, but it has been written 

in general terms and should be seen as broad guidance only. The 

publication cannot be relied upon to cover specific situations and you 

should not act, or refrain from acting, upon the information contained 

herein without obtaining specific professional advice. Please contact 

the appropriate BDO Member Firm to discuss these matters in the 

context of your particular circumstances. Neither the BDO network, 

nor the BDO Member Firms or their partners, employees or agents 

accept or assume any liability or duty of care for any loss arising from 

any action taken or not taken by anyone in reliance on the information 

in this publication or for any decision based on it. 

Service provision within the international BDO network of independent 

member firms (‘the BDO network’) is coordinated by Brussels 

Worldwide Services BVBA, a limited-liability company incorporated in 

Belgium with its statutory seat in Brussels. Each of BDO International 

Limited (the governing entity of the BDO network), Brussels Worldwide 

Services BVBA and the member firms is a separate legal entity and has 

no liability for another such entity’s acts or omissions. Nothing in the 

arrangements or rules of the BDO network shall constitute or imply 

an agency relationship or a partnership between BDO International 

Limited, Brussels Worldwide Services BVBA and/or the member firms 

of the BDO network. 

BDO is the brand name for the BDO network and for each of the BDO 

Member Firms. 

© Brussels Worldwide Services BVBA, March 2012 1203-01

Indirect Tax News 1 - March 2012 - BDO International

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