EU VAT...Pros and cons reverse charge 15 Action Plan on VAT Mitigation of risk to get unknowingly...

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


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


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


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


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


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


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


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.


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 ?


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


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


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.


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


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?


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.


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


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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EU VAT...Pros and cons reverse charge 15 Action Plan on VAT Mitigation of risk to get unknowingly...

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