Major Legislative Changes Around the Globe

Transcription

1 Major Legislative Changes Around the Globe Réka Ökrös European VAT Director Dover Corp. Geneve, Switzerland Philippe Stephanny Senior Manager KPMG LLP Washington, DC 2017 IPT s Value Added Tax Symposium

2 Agenda Overview of recent VAT/GST developments India GST reform VAT implementation in the Middle East Potential VAT consequences of Brexit Trends in VAT/GST compliance 2017 IPT s Value Added Tax Symposium 2

3 Overview of Recent VAT/GST Developments 2017 IPT s Value Added Tax Symposium 3

4 Recent VAT/GST developments United Kingdom: - Referendum on leaving the European Union (Jun. 23, 2016) Belarus: - B2C ESS rules effective Jan Russia: - B2C ESS rules effective Jan European Union: - Single Digital Market proposal in Dec Single VAT area proposed in Sep 2017 Spain: - Introduction of real time reporting effective Jul Serbia: - B2C ESS rules effective Jan Thailand: - B2C ESS rules effective May 2017 Costa Rica: - Proposed introduction of 15% VAT GCC: - Plans to introduce VAT by 2018 India: - GST reform effective Jul Taiwan: - B2C ESS rules effective May 2017 Colombia: - B2C ESS rules effective Jul Australia: - B2C ESS effective Jul and low value import rules effective Jul IPT s Value Added Tax Symposium 4

5 India GST Reform 2017 IPT s Value Added Tax Symposium 5

6 India s past indirect tax landscape Indirect Tax Taxing Authority Applicable on Excise duty Federal government Manufacture of goods in India Service tax Federal government Provision of taxable services Central sales tax (CST) Federal government Inter-state sale of goods VAT State governments Sale of goods within the state Entry tax/octroi State governments/local authorities Entry of goods in state / local area for consumption, use or sale Input CENVAT (Service Tax & Excise Duty) Input Credits CENVAT Liability (Service Tax & Excise Duty) Input VAT VAT Liability Input CST Always a Cost CST liability Credit set off possible No set off possible 2017 IPT s Value Added Tax Symposium 6

7 Overview of new indirect tax system New GST Tax on all supplies Subsumed Excise duty, CVD, SAD, Service tax, VAT, CST, Entry tax, Purchase tax, Entertainment Tax, Luxury Tax, Cesses New mechanism Dual GST for Centre (CGST) and states (SGST), IGST on inter-state supplies Credits Full credit of all GST paid, except cross credits between CGST and SGST Streamlined approach State GST laws follow same model law approved in advance by GST Council Rules harmonized between Centre and states Streamlined administration Multiple rates Lower rates: 0%, 0.25%, 3%, 5%, and 12% Standard rate: 18% Higher rate: 28% Sin /demerit rate: 28% + Cess 2017 IPT s Value Added Tax Symposium 7

8 India s dual GST system Past Structure GST Structure Intra-state sale of goods Rate 100 Excise Duty 12.5 % Value Added Tax (VAT) 5% 5.63 Total Invoice Value Intra-state supply of goods Rate 100 CGST 9% 9 SGST 9% 9 Total Invoice Value Inter-state sale of goods Rate 100 Excise Duty 12.5% Central Sales Tax (CST) 2% 2.25 Total Invoice Value Inter-state supply of goods Rate 100 IGST 18% Total Invoice Value * Calculations are made assuming GST of 18% and state and Centre share equally 2017 IPT s Value Added Tax Symposium 8

9 Place of supply relevance Determine the type of taxes applicable on a transaction Supply of goods/services in the course of intra-state trade or commerce subject to CGST and SGST Supply where the location of the vendor and the place of supply are in the same state Supply of goods/service in the course of inter-state trade or commerce subject to IGST Supply where the location of the vendor and the place of supply are in different states Any supply of goods or services imported in India treated as an inter-state sale subject to IGST 2017 IPT s Value Added Tax Symposium 9

10 General place of supply rules Supplies of goods Where supply involves movement of goods - Location where the goods arrive Where supply does not involve movement of goods - Location where delivery takes place Where goods are assembled or installed at site - Place of installation Where goods are supplied on board of means of transport - Location at which goods are taken on board Supplies of services General rules Made to a registered person (B2B): location of such person Made to a non-registered person (B2C) - Location of the recipient where the address on record exists - Location of the supplier in all other cases Law provides numerous exceptions, including Immovable property related services: where immovable property is located Restaurant, personal, and health services: place of performance Online information and database access or retrieval (OIDAR) services provided by a nonresident: location of recipient of services (2 of 7 conditions must be satisfied to consider a customer located in India) 2017 IPT s Value Added Tax Symposium 10

11 Place of supply of goods example UP Supplier Shipment UP Warehouse Sale State of Uttar Pradesh MH Customer State of Maharashtra Place of supply in UP because goods arrive in UP Intra-state trade (CGST + SGST) because vendor and place of supply are in same state 2017 IPT s Value Added Tax Symposium 11

12 Place of supply of services example UP Supplier Packaging services of goods in transit UP Warehouse Sale State of Uttar Pradesh MH Registered customer State of Maharashtra Place of supply in MH because service is provided to a registered person in MH Inter-state trade (IGST) because vendor state and place of supply are different 2017 IPT s Value Added Tax Symposium 12

13 GST credit mechanism Conditions for allowing credit Possession of a tax invoice, or other tax-paying document issued by a vendor Goods / services, on which tax credit is claimed, have been received Tax charged in respect of said supplies has been actually paid by the vendor to the Government Inward supply return has been submitted by the customer Payment for the invoice has been made to vendor within 180 days of date of invoice Credit not allowed in respect of restricted goods and services Credit to be allowed only upon online matching of transactions of purchase and sale Proportionate credit allowed where a person is also engaged in non-taxable supplies 2017 IPT s Value Added Tax Symposium 13

14 Order of utilization of GST credits Output Liability (GST on sales) Credit available for utilization IGST (1) IGST, (2) CGST, (3) SGST CGST (1)CGST, (2) IGST SGST (1) SGST, (2) IGST 2017 IPT s Value Added Tax Symposium 14

15 Order of utilization GST credits example State A State B Inter-state purchase % = 9 Input Inter-state sale Company credits IGST 22.5 Distributor Local sale CGST = SGST = Local purchase % = 4.5 SGST@ 9% = 4.5 Output IGST 22.5 Less: Input IGST 9 Input CGST 4.5 Input SGST 4.5 Net IGST payable by Company 4.5 Order of utilization CGST Customer SGST Output GST Less: Input IGST 13.5 Input IGST 9 Net CGST payable by Distributor Net SGST payable by Distributor IPT s Value Added Tax Symposium 15

16 GST returns File GSTR-1 Purpose: Related to Outward Supplies (sales) Process: Outward Supplies data to be fed manually Due Date: By 10 th of next month File GSTR-6 Purpose: Related to Input Service Distribution Process: ITC data auto populated from GSTR-1 of the vendors Due Date: By 13 th of next month File GSTR-2 Purpose: Related to Inward Supplies (purchases) Process: ITC data auto populated from GSTR-1 of the Suppliers Due Date: By 15 th of next month File GSTR-7 Purpose: Related to tax deduction at source transactions Process: Data to be fed manually Due Date: By 10 th of next month File GSTR-3 Purpose: Final Return Process: Data to be auto populated from GSTR-1 and GSTR-2 and net tax payment (if any) to be made Due Date: By 20 th of next month File GSTR-9 Purpose: Annual Return to be uploaded along with Financial Statement Process: Data to be fed manually Due Date: By 31 st Dec of next FY 2017 IPT s Value Added Tax Symposium 16

17 Post-implementation business update India GST Rather peculiar situation even post-gst, relying on «newspaper» communication in the absence of official «notifications» on July 1, 2017 Many mid-size and small businesses were completely unprepared, compliance obligations are expected to be more relaxed for them including quarterly filings etc. Strong post-implemmentation lobbying activity to create special rules for certain sectors or regain tax incentives, - Transport companies are on strike to move diesel under the GST regime from excise - Excise duty exemptions from previous regime will continue; despite that it is non-compliant with GST-system - Special Economic Zones are now eligible for refund but local tax officers have been creating «new local rules» to deny refunds - Changes of GST rates for various products and services GST has replaced the previous tax regime but the underlying non-tax legislation and interpretation has continued Issues with GST refunds for export businesses 2017 IPT s Value Added Tax Symposium 17

18 Post-implementation business update India GST Relief to exporters Refund of IGST paid on goods exported outside India would begin to be paid as follows: - From 10 October, 2017 for exports in July 2017, - From 18 October, 2017 for exports in August, 2017, - Refunds for other months would be handled expeditiously. Refund of IGST paid on supplies made to SEZ and of input taxes on exports made under bond/ LUT would be processed from 18 October, Central and State GST authorities would be suitably empowered so that exporters get refunds from only one authority. Notification no. 37/2017, superseding notification no. 16/2017, extending the facility to export goods under a letter of undertaking to all exporters. This amendment addresses a major issue in respect of a blockage of funds for a number of exporters who were required to submit bonds, and bank guarantees for exports of goods without payment of IGST IPT s Value Added Tax Symposium 18

19 VAT Implementation in the Middle East 2017 IPT s Value Added Tax Symposium 19

20 Overview Gulf Cooperation Council Regional political organization consisting of 6 states in the Gulf - Kingdom of Bahrain - State of Kuwait - Sultanate of Oman - State of Qatar - Kingdom of Saudi Arabia - United Arab Emirates (UAE) Unified Agreement for Valued Added Tax of the Cooperation Council of Arab States of the Gulf Published May 2017 Establishes harmonized 5% VAT throughout the GCC with local country-specific rules Implementation expected in KSA and UAE announced a Jan 1, 2018 date 2017 IPT s Value Added Tax Symposium 20

21 Place of supply rules Place of supply of goods In general: where the goods are physically located at the time when the delivery to the customer begins Intra-GCC supplies business-to-business (B2B): where the goods arrive Exceptions: intra-gcc supplies of goods business-to-customer (B2C) above $100,000 in 12 months; supplies of oil, gas, water, and electricity Place of supply of services B2B: where the customer is resident B2C: where the supplier is established Exceptions: hiring of vehicles; transportation services; real property related services; telecommunications and electronic services; and restaurant, cultural, and educational services 2017 IPT s Value Added Tax Symposium 21

22 Zero-rated supplies The following sales are subject to VAT at 0% (i.e., no VAT is charged and VAT incurred in relation to these supplies remains deductible) International and intra-gcc transportation of goods and passengers Exports of goods, including related supplies Services provided to GCC nonresident that are used outside the GCC, unless a special sourcing rule applies Supply of investment gold, silver, and platinum Member states may zero-rate the following supplies Oil sector and oil & gas derivatives sector Medicines and medical supplies based on a common list that is to be determined by the Committee of Health Ministers Basic food items based on a common list to be ratified across the GCC Supplies of certain vehicles, and related goods services, used for the transportation of goods and passengers 2017 IPT s Value Added Tax Symposium 22

23 Exempt supplies The following supplies are VAT exempt (i.e., no VAT is charged but VAT incurred in relation to these supplies is not deductible) Financial services carried out by authorized banks and financial institutions Member states may opt to exempt supplies (or refund VAT paid) to the following persons Public bodies Charitable organizations Companies hosting international organizations Persons purchasing a residential property for personal use Farmers and fisherman not registered for tax 2017 IPT s Value Added Tax Symposium 23

24 Exempt or zero-rated supplies Member states may opt to exempt or zero-rate the following sectors Education Medical Real estate Local transport 2017 IPT s Value Added Tax Symposium 24

25 VAT deduction Conditions VAT must be incurred on goods and services used in the economic activity The taxpayer must hold a valid tax invoice or customs document Member states may adopt their own conditions (e.g., deny deduction for certain expenses) In case a taxpayer performs both taxable (i.e., 5% and 0%) and exempt supplies, VAT incurred is only partially deductible based on an apportionment method determined by member states 2017 IPT s Value Added Tax Symposium 25

26 Compliance Registration Required: annual taxable supplies above $100,000 (equivalent in local currency) Voluntary: annual taxable supplies between $50,000 and $100,000 (equivalent in local currency) Possibility to create a VAT group between resident taxpayer No registration threshold applies to nonresidents Returns Minimum period is 1 month, but each member state has discretion to extend it Invoices Taxpayers are required to issue tax invoices for supplies of goods and services (including deemed supplies) Member states determine content of tax invoices and may exempt from requirement to issue tax invoices for VAT exempt supplies Recordkeeping Tax invoices and accounting records must be kept for no less than 5 years For real estate properties, tax invoices and accounting records must be kept for 15 years 2017 IPT s Value Added Tax Symposium 26

27 KSA v. UAE Registration Kingdom of Saudi Arabia & United Arab Emirates Mandatory registration threshold will be approx. $100,000 Voluntary registration threshold will be approx. $50,000 VAT grouping (based on country specific conditions) Businesses making zero-rated supplies are not required to register Kingdom of Saudi Arabia Automatic registration already started for large businesses (deadline is Dec. 20) Small businesses with turnover of less than SAR 1 million ($266,000) can delay registration until January 1, 2019 Nonresidents must appoint a local tax representative United Arab Emirates VAT registration started in September IPT s Value Added Tax Symposium 27

28 KSA v. UAE Zero-rated supplies Kingdom of Saudi Arabia & United Arab Emirates Exports of goods and services International transportation, and related supplies Supplies of medicine and medical equipment Certain investment grade precious metals Kingdom of Saudi Arabia Export services conditions: 1. Services not sourced in GCC 2. Evidence that customer is resident outside GCC 3. Benefit of services is not received in GCC 4. Services not related to tangible goods in GCC 5. Vendor intends that services will be consumed outside GCC United Arab Emirates Newly constructed residential properties (i.e., first time supply within 3 years of their construction) Certain education services, and relevant goods and services Healthcare services, and relevant goods and services Supplies of certain sea, air, and land vehicles 2017 IPT s Value Added Tax Symposium 28

29 KSA v. UAE Exempt supplies Kingdom of Saudi Arabia & United Arab Emirates Financial services (including life insurance and Islamic finance), excluding fee based revenue Residential real properties Kingdom of Saudi Arabia N/A United Arab Emirates Local passenger transport 2017 IPT s Value Added Tax Symposium 29

30 KSA v. UAE Miscellaneous VAT liability on imports In both countries VAT is due before goods are released - Self-assessment under reverse charge mechanism for imports done by taxpayer in UAE - Reverse charge applicable in KSA upon approval by tax authority Compliance Standard VAT return filing period: quarterly - In KSA, monthly for taxpayers with annual supplies above KSA 40,000,000 ($10,665,000) - Other filing periods may be considered by UAE Recordkeeping KSA requires tax invoices and records to be kept in Arabic in Kingdom for 6 years (15 years for immovable capital assets and 11 years for movable goods falling under the capital goods scheme) - Electronic recordkeeping possible, but there must always be an access terminal in Kingdom - Tax invoices must be issues for B2B and B2C supplies (simplified invoices may be issued for supplies below KSA 1,000) - Invoices must be printed in Arabic and maintained in hard copy for 2 months 2017 IPT s Value Added Tax Symposium 30

31 Preparing for VAT in the GCC as a business EU type VAT model as GCC is a common economic zone. However, the EU VAT and GCC`s VAT system are not identical No precedent as no VAT system in place before in GCC GCC level court of justice interpreting the GCC VAT Act and harmonizing the practice is not forseen, while in the EU, the European Court of Jusctice is managing this function The local tax adminisitration may provide its views on various matters in the law but a ruling system is not confirmed at this stage Tax administration staff has very little previous tax experience, recruitment is on-going Go-live Initially, GCC countries had committed to giving businesses 18 months to achieve compliance by However, this time frame has now been compressed to four months or less, due to delays in the ratification of the GCC VAT Framework Agreement. Implementation regulations are not out yet. Penalty regime is expected to be severe 2017 IPT s Value Added Tax Symposium 31

32 Preparing for VAT in the GCC as a business Pricing and VAT clauses Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT. Uncertainity around the Free Zones VAT position Free zones are special areas within the customs territory of each state generally seen as foreign territories for customs duty purposes. Free zones established by national law and operating within a gated zone are likely to be treated as outside the scope of GCC VAT. Service free zones and special economic zones (SEZs) that are likely to be within the GCC will be subject to VAT IPT s Value Added Tax Symposium 32

33 Potential VAT Consequences of Brexit 2017 IPT s Value Added Tax Symposium 33

34 Brexit Tax Consequences of EU Membership On June 23, 2016 the UK voted to leave the EU Once the UK notifies the EU of its decision to leave, a 2 year exit negotiation period will begin. The outcome of this negotiation will potentially have a significant impact on the UK tax system, as European law impacts UK tax law in two main ways. In a worse case scenario, the UK would cease to be a member of the EU, if no agreement is reached during the 2 year period, 1 Supremacy of EU law (direct taxation) T A Means that UK domestic legislation cannot X conflict with principles of EU law, particularly the four fundamental freedoms Direct taxes are said to be the competence of each EU member state However, UK domestic tax legislation must be in accordance with EU Treaty principles As such, UK direct taxation is subject to a number of EU directives, EU principles and the jurisdiction of the Court of Justice of the European Union ( CJEU ) Four Fundamental freedoms: Free movement of 2 Indirect taxes T A EU legislation & CJEU determinations X are the main sources of UK indirect tax legislation Customs & excise duties as well as VAT are all governed directly by EU legislation Membership of the EU gives UK companies access to the internal market (made up of 28 member states) and to a wide network of preferential trade agreements with third countries People Services Capital Goods 2017 IPT s Value Added Tax Symposium 34

35 Timeline Brexit referendum June Brexit notification March 29, 2017 UK completely removed from EU membership? Immediate impacts GBP value, stock markets, GB S&P rating retrograded (AA), economic uncertainties, doubts about the outcome of the negotiations, etc. Defining the terms of the UK exit Negotiations will start after the notification Implementation of changes once the terms of agreement are clarified Each EU regulated sector would face different regulatory conditions Companies benefiting from EU agreements would see an impact on the conditions applying to their access to the single market 2017 IPT s Value Added Tax Symposium 35

36 Brexit VAT Consequences Issue Explanation Implications Post Brexit uncertainties VAT is a tax regulated by consistent EUwide rules VAT is governed by EU legislation and interpretation Intra-community supplies of goods and services will now be treated as imports and exports between UK and EU UK rules and interpretation may diverge with EU over time UK no longer subject to challenges by European Commission or to the jurisdiction of the CJEU VAT leakage in certain supply chains (import VAT v. intra- Community acquisition) No EU reliefs available e.g. triangulation relief Invoicing and systems requirements would need to change No more Intrastat and EC Sales Lists No more data exchange via VIES UK corporates no longer afforded protection under EU VAT principles or a right to appeal to ECJ Cannot rely on ECJ and EU jurisprudence for VAT matters UK courts decide interpretation of VAT legislation Greater autonomy over VAT rates and reliefs Unknown if UK will retain VAT system in same form and how it will interact with EU counterparts Possible that UK would simply continue to mirror EU interpretations and take into account EU judgments Value of established ECJ case law 2017 IPT s Value Added Tax Symposium 36

37 Specific EU VAT simplification measures no longer apply Brexit VAT Consequences (Cont d) Issue Explanation Implications Post Brexit uncertainties Should no longer apply: MOSS for electronic, telecommunication and broadcasting services Simplified B2C distance selling rules, Simplified crossborder VAT refund procedures Simplified triangulation rules TOMS Any future EU wide simplifications under VAT Action Plan UK MOSS registered businesses would fall under Non-Union Scheme + non UK entities would need to change registration country Use of small value import threshold simplification or new system replacing it UK businesses will be required to follow 13 th Directive refund procedure UK intermediaries likely to register in EU UK tour operators likely be required to register in EU Transition rules for MOSS registered businesses Limitations to UK businesses VAT refund applications under 13 th Directive 2017 IPT s Value Added Tax Symposium 37

38 Preparing for Brexit as a business On time delivery - Customs clearance Non-EU customs clearance number today: 76 million p.a., estimated future transactions with EU countries: million p.a. - Will HMRC`s customs system be capable of handling the number of transactions? Customs clearance system will be upgraded but upgrade was designed to faciliate current transactions flows and not a post-brexit status A bottleneck is expected at the borders of the UK on March 29, 2019 Authorized Economic Operator(AEO) status - UK companies will loose this status in the EU with Brexit. - AEO in the UK? Will I be granted one by March 29, 2019? HS, classification, origin management of goods entering the UK from the EU or leaving for the EU - Is your Intrastat data reliable? - Do you have the resources capable of managing mass customs classification pre/post- Brexit? - Do you have the systems in place to suport HS classification, origin management? 2017 IPT s Value Added Tax Symposium 38

39 Preparing for Brexit as a business Pricing Customs duty is anticipated to be levied at an average customs duty rate of 5% in case of hard Brexit - Who will be responsible to import in the EU; in the UK? - Incoterms agreed needs to be reviewed and renegotiated? Example UK company is selling on DDP EU terms: COGS is expected to increase, margin descrease. How to compensate? Price increase? EU company is sourcing from the EU on DAP EU terms. How to avoid the increase? Alternative sourcing? 2017 IPT s Value Added Tax Symposium 39

40 Preparing for Brexit as a business Supply chain reorganization - Sales are managed through a UK disribution center for the EU - UK based limited risk distributor in a central buy sell model (e.g. Swiss Principal) is also responsible for sales into Ireland - Should a new disribution center in the EU be established? - Should a new LRD in Ireland be established? - Where to centralize import into the EU to avoid multiple VAT registrations? Global VAT representative schemes? - Call of stocks held by EU entities in the UK - VAT registration of EU established companies with call off stocks in the UK? - After market (service and spare parts) - Should a repair and spare parts center be located in the UK? 2017 IPT s Value Added Tax Symposium 40

41 Trends in VAT/GST Compliance 2017 IPT s Value Added Tax Symposium 41

42 Trends in VAT compliance Optional (e.g., EU, Canada, Australia) Mandatory (e.g., Latam, EU public procurement) Tax authority validation of e- invoices (e.g., Latam) E- invoice E-filing Real time reporting E-audit Use of D&A tools by tax authorities Requirement to provide financial data in SAF-T and similar file formats Sistema Público de Escrituração Digital (SPED) in Brazil Immediate Supply of Information ( SII ) in Spain (Jul. 1,2017) Online invoice reporting in Hungary (Ju. 1, 2018) 2017 IPT s Value Added Tax Symposium 42

43 Other ways considered to improve VAT compliance VAT split payment Generalized reverse charge mechanism Additional returns / reports Use of blockchain technology Purchaser pays VAT directly to a dedicated VAT bank account and not to the vendor e.g., Italy for public procurement and companies listed on Italian stock exchange; Romania for Under reverse charge mechanism purchaser self-assesses VAT EU considering extending under certain conditions reverse charge mechanism to all B2B transactions In addition to filing VAT returns, many jurisdictions require filing additional reports that allow a cross-check of information Examples include sales and purchases lists in several EU and Latam jurisdictions Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions, but virtually everything of value * * Don & Alex Tapscott, Blockchain Revolution (2016) 2017 IPT s Value Added Tax Symposium 43

44 Q&A 2017 IPT s Value Added Tax Symposium 44