14 November 2018 EU VAT Anticipating the changing indirect tax landscape
14 November 2018
EU VAT Anticipating the changing
indirect tax landscape
© 2018 Baker & McKenzie LLP
Speakers
2
EU VAT: Anticipating the changing indirect tax landscape
Martin Morawski
Senior Associate
Amsterdam
+31 20 5517 198
martin.morawski
@bakermckenzie.com
Mirko Marinc
Partner
Amsterdam
+31 20 5517 825
mirko.marinc
@bakermckenzie.com
Roger van de Berg
Senior Associate
Amsterdam
+31 20 5517 131
roger.vandeberg
@bakermckenzie.com
Ana Royuela
Partner
Barcelona
+34 93 2060 851
ana.royuela
@bakermckenzie.com
Benjamin Bergau
Associate
Frankfurt
+49 69 2990 8252
benjamin.bergau
@bakermckenzie.com
Adam Peacock
Senior Associate
London
+44 20 7919 1868
adam.peacock
@bakermckenzie.com
Agenda
1 Chain transactions 4
2 Intra EU supplies – Application of the 0%-rate 7
3 Call-off stocks 9
4 General reverse charge 13
5 VAT rates 17
6 B2C supplies of goods 19
1 Chain
transactions
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Current regime for chain transactions
5
A B MS A MS B
Physical flow of
goods
C MS B
MS A MS B
0% Intra-Community
supply to either B or C
Current regime:
Uncertainty around which 'leg' of the transaction the 0% VAT-rate applies in case B takes care of the transportation
No uniform approach by EU Member States
Discussions with tax authorities on e.g., 0% VAT rate, VAT registrations, and VAT refunds
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New regime for chain transactions
6
✓ Uniform VAT treatment chain
transactions in all EU MS
More legal certainty
Less VAT registrations and – compliance
Lost reductions
✗ CTP status needed later on (?)
Precise scope of simplification needs to be clarified
? Impact:
• Uniform implementation of this simplification?
• four-party chains
• EU- and non-EU business partners
Who bears the risk if something goes wrong: A, B or C? All?
Impact on Incoterms, Insurances?
Contractual safeguards!
2 Intra EU supplies – Application of
the 0%-rate
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Intra EU supplies – Application of the 0%-rate
8
Intra-Community Supply
A B
Current regime: Purpose of simplification:
0% Intra-Community
supply of goods in MS A
Intra-Community
acquisition by B
No clarity in EU VAT regulations on conditions for application of the 0%-rate for EU supplies
No uniform approach by EU Member States
Discussions with tax authorities Simplification Measures:
MS A MS B
More legal certainty in EU for businesses on application of the 0% VAT-rate for EU supplies
Harmonized rules for proof of transport of goods to other MS
Valid VAT ID number of buyer is required to apply 0% VAT rate
3 Call-off stock
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Old regime call-off stock
10
A B
(2) Local supply by A
Place of supply: MS B
MS A MS B
(1)Deemed Intra-Community
supply of goods by A
Place of supply: MS A
Current regime
(1)Deemed Intra-Community
acquisition by A
Place of acquisition: MS B
(1) (2)
In summary:
VAT compliance obligations A in MS B
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New regime for call-off stock
11
A B
MS A MS B
Intra-Community supply of
goods by A
Place of supply: MS A
Proposed regime
Proposed solution:
A no longer required to be registered for VAT purposes in MS B
CTP status needed later on (?)
Intra-Community acquisition
by B
Place of acquisition: MS B
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New regime for call-off stock
12
✓ Uniform VAT treatment all-off stock
supplies in all EU MS
More legal certainty
Less VAT registrations/ compliance
Cost reductions
✗ Both parties to the call-off
transaction should have CTP status(?)
Compliance obligations
? Is it truly a simplification?
Difference with consignment stock relief?
EU- vs. non-EU business partners?
Who bears the risk if something goes wrong?
Impact on IT-systems / invoicing;
Contractual safeguards!
4 General
reverse charge
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General reverse charge
14
According to the European Commission “Missing Trader Fraud” (“MTF”) still significantly affects VAT revenues of EU MS
Essence of MTF: (i) supplier invoices VAT to purchaser but does not pay the VAT to the tax authorities
(ii) purchaser recovers VAT from tax authorities on the basis of the invoice received from the supplier
Why a reverse charge mechanism? With a reverse charge system the supplier no longer invoices VAT to the purchaser. Instead the purchaser needs to account for VAT itself to the tax authorities
What are the conditions?
• 25% of the total “VAT Gap*” of a EU MS is caused by carousel fraud
• domestic supplies (within a MS) above a threshold of €17 500 per transaction
MS can apply the regime to domestic supplies of goods and services
When does it enter into force? January 1, 2020
Long term?
It is supposed to be a temporary measure, in principle applicable until 30 June 2022
Action Plan on VAT
*VAT Gap: difference between VAT that
a Member State should be able collect
from businesses and the amount that is
actually collected from businesses.
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Pros and cons reverse charge
15
Action Plan on VAT
✓ Mitigation of risk to get unknowingly
involved in VAT fraud
Cash-flow advantages - potentially significant
VAT compliance benefits (e.g. registrations)
✗ Monitor which MS will introduce this temporary regime
Monitor thresholds per transaction - > potentially cumbersome
Requires changes to set-up of ERP systems
? Which MS will apply the reverse charge?
Time-lines?
Impact on relation with business partners?
Will VAT fraud shift to other MS that do not provide for reverse charge ?
How to protect the business against VAT fraud ?
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Current regime
16
Formal requirements i.e. Spanish
example:
Current regime:
Options art. 199, 199b and 199c EU Directive:
• Supply of construction work;
• Supply of immovable property;
• Supply of used material (industrial / non industrial waste);
• Supply of goods provided as security;
• Supply of immovable property sold by a judgment debtor;
• Transfer of allowances to emit greenhouse gases;
• Supplies of cellphones, laptops, tablets and similar;
• Supplies of alterable cereals and industrial crops;
• Supplies of raw and semi-finished metals;
• Quick Reaction Mechanism to apply in specific cases RCM (“QRM”)
RCM communication certificate is mandatory prior or simultaneous with the supply in certain cases.
Anti-splitting threshold on the taxable base may apply.
On line and Immediate Supply of VAT Register Books to the Spanish Tax Authorities (ISI).
No uniform application by EU Member States
It is proposed to extend the option to make use of this provision until June 2022.
The transactions that remain covered by the temporary measures of art. 199 a are therefore limited to those services previously covered in this provision.
5 VAT rates
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VAT rates
18
Short term
Possibility for Member States to apply reduced VAT rate for electronic publications such as e-books.
Long term?
More flexibility for Member States to apply different VAT to different products
• Destination principle
• Allowing a third reduced rate of between 0% and 5%
• Current list of goods and services to which reduced rates can be applied will be replaced by new list of products to which the standard rate of minimum 15% must always be applied
• Member States must ensure that the weighted average of all VAT rates applied is at least 12%
Action Plan on VAT
6 B2C supplies
of goods
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Distance selling: Current rules applicable to B2C supplies of goods
20
A B
Place of supply switches when (a)
distance selling threshold exceeded or
(b) supplier opts to register locally
MS A MS B
Default position: place of
supply in MS A
Place of supply for a supply of goods is the place where the goods are located when dispatch or
transport of goods begins.
The place of supply for a supply of goods will be the place where the goods are located at the time
when dispatch or transport of the goods to the customer ends, where:
• the recipient is a non-taxable person; and
• the goods are subject to excise duty; or
• the total (VAT-exclusive) value of such supplies in MS B exceeds the distance selling threshold
(€35,000 or €100,000 or equivalent in local currency); or
• the supplier opts to switch the place of supply.
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Distance selling: Current rules applicable to B2C supplies of goods
21
Distance selling rules apply to goods dispatched or transported “by or on behalf of the
supplier”.
Goods sold through a platform that provides a separate shipping service therefore remain
subject to VAT in the country in which dispatch or transport begins.
VAT Committee considered that distance selling could also apply where the supplier was
indirectly involved in the transport or dispatch.
MS A MS B
B A
C
Supply of goods
Shipment service Platform / logistics service
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B2C supplies of goods: simplifications
22
Harmonised distance selling threshold of €10,000.
Extension of MOSS to cover (a) distance sales and (b) imports of an intrinsic value not exceeding €150.
Reform of import VAT accounting:
• exemption from import VAT where VAT declared under “import MOSS”
o non-EU importers may be required to appoint an intermediary
• abolition of low value consignment relief and introduction of special accounting scheme for postal packages
• import VAT still payable for shipments exceeding €150 (but subsequent sale may be subject to MOSS)
VAT due in destination country even where supplier only indirectly intervenes in the shipment
Risk of double taxation?
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B2C supplies: postal packages and LVCR
23
Low value consignment relief is a relief under which import VAT is not payable on the import of goods of a value less than €22.
Replaced by OSS for goods of a value not exceeding €150, and a special procedure for such goods where the supplier is not registered for the MOSS.
In such a case, the courier or postal operator presenting the goods to customs on behalf of the customer declares and pays import VAT via a monthly electronic declaration.
Final consumer liable for payment of the VAT; Member States may apply the standard rate.
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Sales through marketplaces: deeming provisions
24
Supply of goods
Platform / logistics
service
B A
C
A B
(2) Deemed supply
of goods by C
(1)Deemed supply of
goods by A
(1) (2) C
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Sales through marketplaces: deeming provisions
25
✓ Helps to reduce compliance for
sellers
Less VAT registrations
Reduces the risk of fraud
Cost reductions
✗ Introduces complexity for
marketplaces and sellers
Requires a B2B supply by sellers
Relies on compliance of non-EU marketplaces
Risk of fraud upon import remains
? Which marketplaces are
caught? Will law be rendered obsolete by alternative business models and technological developments?
How will seller compliance with B2B reporting be ensured?
Liability for customs debt.
Product liability and regulatory requirements.
What is changing?
Online marketplaces facilitating
the sale of goods in particular
scenarios will be deemed to
have received and supplied
those goods themselves.
The deeming provision applies
to:
• the B2C sale of goods
located in the EU by a
supplier established
outside the EU; and
• the B2C sale of
imported goods of an
intrinsic value not
exceeding EUR150.
Questions
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