EU VAT Anticipating the changing indirect tax landscape 14 November 2018
EU VAT: Anticipating the changing indirect tax landscape Speakers Martin Morawski Senior Associate Amsterdam Mirko Marinc Partner Amsterdam Roger van de Berg Senior Associate Amsterdam Ana Royuela Partner Barcelona Benjamin Bergau Associate Frankfurt Adam Peacock Senior Associate London +31 20 5517 198 martin.morawski @bakermckenzie.com +31 20 5517 825 mirko.marinc @bakermckenzie.com +31 20 5517 131 roger.vandeberg @bakermckenzie.com +34 93 2060 851 ana.royuela @bakermckenzie.com +49 69 2990 8252 benjamin.bergau @bakermckenzie.com +44 20 7919 1868 adam.peacock @bakermckenzie.com 2
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
Current regime for chain transactions MS A MS B A MS A B MS B C MS B 0% Intra-Community supply to either B or C Physical flow of goods 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 5
New regime for chain transactions 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! 6
2 Intra EU supplies Application of the 0%-rate
Intra EU supplies Application of the 0%-rate Intra-Community Supply MS A MS B A 0% Intra-Community supply of goods in MS A B Intra-Community acquisition by B Current regime: 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 Purpose of simplification: More legal certainty in EU for businesses on application of the 0% VAT-rate for EU supplies Simplification Measures: Harmonized rules for proof of transport of goods to other MS Valid VAT ID number of buyer is required to apply 0% VAT rate 8
3 Call-off stock
Old regime call-off stock Current regime MS A MS B A (1)Deemed Intra-Community supply of goods by A Place of supply: MS A (1) (2) (1)Deemed Intra-Community acquisition by A Place of acquisition: MS B B (2) Local supply by A Place of supply: MS B In summary: VAT compliance obligations A in MS B 10
New regime for call-off stock Proposed regime MS A MS B A Intra-Community supply of goods by A Place of supply: MS A B Intra-Community acquisition by B Place of acquisition: MS B Proposed solution: A no longer required to be registered for VAT purposes in MS B CTP status needed later on (?) 11
New regime for call-off stock 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! 12
4 General reverse charge
Action Plan on VAT General reverse charge 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 *VAT Gap: difference between VAT that a Member State should be able collect from businesses and the amount that is actually collected from businesses. 14
Action Plan on VAT Pros and cons reverse charge 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? 15
Current regime 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 ) 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. Formal requirements i.e. Spanish example: 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). 16
5 VAT rates
Action Plan on VAT VAT rates 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% 18
6 B2C supplies of goods
Distance selling: Current rules applicable to B2C supplies of goods MS A MS B A B Default position: place of supply in MS A Place of supply switches when (a) distance selling threshold exceeded or (b) supplier opts to register locally 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. 20
Distance selling: Current rules applicable to B2C supplies of goods MS A MS B A Supply of goods B Platform / logistics service C Shipment service 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. 21
B2C supplies of goods: simplifications 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? 22
B2C supplies: postal packages and LVCR 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. 23
Sales through marketplaces: deeming provisions A Supply of goods B Platform / logistics service C A (1)Deemed supply of goods by A (1) C (2) B (2) Deemed supply of goods by C 24
Sales through marketplaces: deeming provisions 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. 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. 25
Questions
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