Global Indirect tax

In this issue: Americas Asia Pacific EMEA

Related links: Deloitte Global Indirect Tax GITN Archive

Regional contacts: Global & EMEA Piet Vandendriessche +32 26006660 pvandendriessche@deloitte.com Justin Whitehouse +971 4 439 5768 jmwhitehouse@deloitte.com Customs & Global Trade Fernand Rutten +32 26006606 frutten@deloitte.com Asia Pacific Robert Tsang +65 65305523 robtsang@deloitte.com Canada Robert Demers +1 514 393 5156 rdemers@deloitte.ca Latin America Carlos Iannucci +54 11 43202736

Global Indirect Tax News

Your reference for indirect

tax and global trade matters

February 2011

Country summaries

Americas

Colombia

Colombia has made changes to its indirect tax rules. Click here for the full article.

Uruguay

The requirements for tourists to obtain a reimbursement of VAT paid are more flexible

and the threshold has been decreased. Click here for the full article.

United States

U.S. employers are required to fulfil additional requirements when they bring foreign

workers into the country and the U.S. Foreign Trade Zone (FTZ) Board has published

proposed amendments to the FTZ Regulations to provide more clarity and certainty to

companies wishing to take advantage of FTZ benefits. Click here for the full article.

Asia Pacific

Australia

The low value importation threshold is being reviewed and the Federal government

has released details of several proposed changes to the Goods and Services Tax.

Click here to see the full entry.

China

The Local Education Surcharge will be applied throughout the country. Click here to

see the full entry.

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ciannucci@deloitte.com U.S. Customs & Global Trade Michele McGuire +1 312 486 9845 mimcguire@deloitte.com U.S. VAT Nigel Mellor +1 212 436 7691 nimellor@deloitte.com

India

The benefit of the excise duty exemption available to eligible industrial units has been

extended in the states of Uttarakhand and Himachal Pradesh. The Mumbai Tribunal

has ruled that the date for filing a refund claim in respect of export services is the date

payment for the services is received. Click here to see the full entry.

New Zealand

Several changes to the Goods and Services Tax will be introduced in April 2011. Click

here to see the full entry.

Singapore

The 2011 Budget includes several significant changes to the Goods and Services Tax.

Click here to see the full entry.

EMEA

Belgium

Belgium has introduced a rule that limits the recovery of input VAT for business goods

that also are used for private purposes. Also the Belgian VAT authorities will

implement a special regulation as of 1 April 2011 concerning clinical trials performed

by hospitals and doctors. Click here to see the full entries.

European Union

The EU-Korea Free Trade Agreement provides opportunities for European companies.

Click here to see the full entry.

Germany

The Ministry of Finance has published its interpretation of the ECJ decision in X and

Facet Trading BV, a case involving businesses that have been using their German

VAT number to support intra-Community movements of goods. Click here to see the

full entry.

Italy

The tax authorities have issued guidance on the intra-Community authorization, black

list transaction reporting and the annual VAT return. Click here to see the full entry.

Romania

The new VAT refund procedure in Romania has some drawbacks. Click here to see

the full entry.

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United Kingdom

HMRC has issued a brief on the impact of the ECJ decision in AXA with respect to the

VAT treatment of debt collections. Click here to see the full entry.

Americas

Colombia

Changes made to VAT and other indirect taxes

Law 1430 of 2010 implemented a tax reform that made several changes to Colombia‟s

indirect tax rules.

VAT

Withholding agents: Colombian suppliers are considered withholding agents for VAT

purposes when they sell tangible goods or services to international marketing

companies that subsequently sell the goods/services to Colombian taxpayers who are

subject to the common VAT regime.

Period for VAT refund: The tax administration should issue a refund of VAT after for

compensation and credit balances arising in the income tax and complementary taxes

within 50 days from the date a timely and property completed application is submitted.

Other taxes

Acceptance of tax cost and deductions: The tax authorities will allow the deduction of

Tax costs, deductions and liabilities only if the relevant payments made by the

taxpayer are undertaken through the financial system.

Tax amnesty: Taxpayers that owe national taxes from 2008 or earlier are eligible to

request special payment conditions, such as payment of all debt at a discount of 50%

of penalty interest provided the taxpayer pays within six months of making the request.

Recreational boats: Recreational boats are subject to a 16% rather than a 35% VAT

rate.

Exclusions: Disabled persons who import vehicles for their own use and that have

been donated from abroad are exempt from customs duties.

VAT is not levied on aviation fuel used in the domestic air transport of passengers and

cargo bound for the departments of Guainía, Amazonas and Vaupés.

The supply of internet connection services for certain social groups is exempt from

VAT.

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VAT returns: Entities subject to the common VAT regime are no longer required to file

a nil return if no transactions subject to VAT have been carried out during the reporting

period.

Real estate tax

The real estate tax must be paid with respect to the property, regardless of who owns

it, so that the respective municipality may pursue tax on the property from

whomsoever possesses it.

Financial transactions tax

The 0.4% financial transactions tax will be gradually phased out, as follows: the rate

will be reduced to 0.2% for 2014 and 2015, to 0.1% for 2016 and 2017, and to 0% as

from 2018. However, the scope of the financial transactions tax will be expanded for

its remaining term, with the following transactions subject to the tax:

Payments to third parties for payroll, services, supplies or for the

acquisition of goods or the fulfilment of obligations outside the stock

market, even if they originate from the settlement of securities repurchase

agreements, the repurchase or a temporary transfer of securities;

Payments for the settlement of transactions managed by entities

authorized for that purpose in respect of transactions carried out on the

stock market, derivatives, foreign currency or agricultural commodities;

Loan disbursements paid and/or cancelled on the same day; and

Payments to savings accounts or shared portfolios.

Credit disbursements by payments to savings or checking accounts or by issuing

checks for deposit only or with restricted negotiability will be exempt only if the debtor

uses the credit to be for the acquisition of property (i.e. a residence, vehicle or fixed

assets, or for the payment for goods to be delivered to a third party under a financial

leasing agreement.

Deloitte Colombia Indirect Tax contact

Pedro Sarmiento / Marta Ospina T: (+571) 5461810 / (+571) 5461810 E: psarmiento@deloitte.com / mospina@deloitte.com

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Uruguay

Changes made to VAT refunds for tourists

Since October 2009, non-resident tourists who acquire certain products in Uruguay,

such as leather, knitwear, food, drink or crafts, have been entitled to a refund equal to

85.97% of the VAT paid on the purchase, provided the goods are consumed or used

abroad. Until recently, the refund only applied if the amount invoiced exceeded USD

60 either from one purchase or more than one purchase made during a 30-day period.

This amount has now been changed to UY$ 500 (approximately USD 25).

To obtain the refund, the tourist must indicate his/her intent to use the goods outside

Uruguay at the time the purchase is made. The individual will be given a document to

be submitted to the Tourists‟ Refund Operator. Previously, this document had to be

filed together with the purchase invoice, but it is no longer necessary to submit the

invoice. Penalties will be imposed if a tourist requests a refund for VAT paid on goods

that are not to be consumed or used outside Uruguay.

Scope of zero-rating of certain exports

Exports of goods and services are zero-rated in Uruguay, as a result of which such

transactions do not trigger any output VAT, but the input VAT still may be deducted,

and a refund obtained. The Executive Branch determines which transactions qualify as

exports of services; one example is logistical support services provided to foreign

television and cinematographic companies (that do not operate through a permanent

establishment in Uruguay) if the services are used abroad. The tax authorities have

interpreted such logistical support services to include all support services that make

execution of the production possible. According to a recent opinion issued by the tax

authorities, insurance obtained to cover any damages or destruction of goods

throughout the production process falls within the definition of logistical support

services, given that these are a standard requirement for international co-productions

and thus the production would not be possible without the insurance. Consequently,

the provision of such insurance is considered to be an export of services and will not

be subject to VAT it is destined to be used exclusively abroad.

Deloitte Uruguay Indirect Tax contact

Mara Salamó / Javier Bugna T: +598 2 916 07 56 E: msalamo@deloitte.com / jbugna@deloitte.com

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United States

Employers to certify foreign workers compliance with “deemed export” rules

Under new U.S. Citizenship and Immigration Services (USCIS) requirements for

employees entering the U.S. under an H-1B, L1, or O-1A visa, effective 20 February

2011, employers must complete the modified Form I-129, Petition for a Non-immigrant

Worker, to certify that they have reviewed the Export Administration Regulations

(EAR) and International Traffic in Arms Regulations (ITAR) and that:

The foreign employee will not have access to information that would

normally require a license to be exported from the U.S; or

There will be no release/access to controlled technology or technical data

to the foreign employee until the required authorization has been received

from the U.S. government.

The U.S. authorities place certain restrictions on “deemed exports,” which occur when

technology or source code subject to the EAR or ITAR is released to certain foreign

nationals, including being viewed, discussed, e-mailed or accessed in the U.S. or

abroad.

Employers are concerned about how to effectively comply with the certification

requirement and their ability to identify controlled data and potential deemed exports.

Controls over information flows in emails/corporate intranets present a significant

compliance challenge. Employers should revisit their IT security features and examine

the information that foreign workers potentially would have access to during

employment in the U.S and set up access controls and/or obtain appropriate licenses.

Foreign Trade Zone Board proposes to revamp FTZ regulations

On 30 December 2010, the U.S. Foreign Trade Zone (FTZ) Board published proposed

amendments to revamp the FTZ Regulations. The amendments aim to provide more

clarity and certainty to companies wishing to take advantage of FTZ benefits of

deferred or reduced duty payments on foreign merchandise in the United States and

they detail how FTZs should be governed and maintained. The most pertinent

proposed amendments to the FTZ Regulations include:

Approval for activities in an FTZ: FTZ Board approval would be required

only in certain cases, including when foreign articles are incorporated into

a different product that results in a reduced tariff.

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Uniform treatment: The FTZ Board would require, among other things,

standard contract provisions, a justification for any differing treatment, no

conflicts of interest, and the ability for review by the Executive Secretary of

the FTZ Board.

Liability caps: A more robust penalty process would apply, including a cap

on penalties of USD 1,000 per day, with more detailed descriptions of

causes for penalties, specific mitigating factors and rules on the prior

disclosure procedure.

The Board has requested comments on the proposed rules by 8 April 2010. The

proposed revisions indicate a broader trend to encourage more trade with the United

States through the use of FTZs.

Deloitte United States Customs & Global Trade contact

Michele E. McGuire T: + 312 486 9845 E: mimcguire@deloitte.com

Asia Pacific

Australia

Low value importation threshold under review

The low value importation threshold (LVIT) for Australian customs and Goods &

Services Tax (GST) purposes is currently AUD 1,000. The LVIT offers an exemption

from customs duty and GST for goods imported into Australia with a value below the

threshold and applies to both postal and non-postal imports. The Board of Taxation

reviewed the level of the LVIT in early 2010, concluding that the current level is

appropriate in view of the administrative difficulties that would arise if the threshold

was lowered.

In late 2010, several major Australian retailers and retailer representative bodies

began calling for the government to review the LVIT, claiming that overseas retailers

are obtaining an unfair commercial advantage when selling goods to Australian

customers, primarily through online transactions.

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Although the government initially ruled out any changes to the LVIT, it has referred the

issue to the Productivity Commission (the government's independent research and

advisory body on a range of economic, social and environmental issues) as part of a

broad public inquiry into the economic structure and performance of the Australian

retail industry and the implications of globalization.

With respect to the LVIT, the Commission has been asked to examine the

“sustainability and appropriateness of current indirect tax arrangements…including the

impact on Commonwealth and State and Territory budgets, and the extent to which

technology could reduce the administrative costs of collecting indirect taxes and duty

on imported goods.”

The Commission has until November 2011 to undertake its inquiry and report to the

government. The current situation should prompt retailers to take a close look at online

operations, review their supply chains and consider whether a move to an offshore

delivery model is feasible (or, alternatively, for those already utilizing the LVIT,

consider the likely business implications of possible changes). Our recent publication,

“Australian eCommerce and GST,” provides a context for the debate about the LVIT

and the issues facing Australian retailers. Click here to view Australian eCommerce

and GST.

Public consultation on detail of proposed GST changes

The Federal government recently released for public consultation details of several

proposed changes to the GST law. These proposed changes include:

Harmonizing the self-actuating system for GST and other indirect taxes with

the income tax self-assessment system;

Reforming the GST grouping rules to replace the existing detailed membership

rules with principles-based rules and allowing a GST grouping of non-

operating holding companies and trusts;

Responding to an adverse 2010 court decision to restore the intended policy

outcome for the GST treatment of residential premises;

Replacing the mechanism for exempting Australian taxes, fees and charges

from GST with a principles-based mechanism on legislative exemption;

Allowing (subject to certain requirements) supplies of new Australian-made

recreational boats to be GST-free if exported from Australia within 12 months

of a supply (currently within 60 days); and

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Improving the administration of the GST as it relates to the margin scheme

(applicable to supplies of real property if certain conditions are satisfied).

Deloitte Australia Indirect Tax contact

Jon Graham T: +61 (0) 2 9322 7421 E: JonGraham@deloitte.com.au

China

Nationwide introduction of Local Education Surcharge

Further to the extension of the scope of the City Maintenance and Construction Tax

and the Education Surcharge to foreign investors, the Chinese Ministry of Finance

(MOF) issued a circular on 7 November 2010 (Cai Zong [2010] No. 98 ("Circular 98")),

urging all local governments to impose the Local Education Surcharge, a tax that has

been inconsistently applied in Chinese municipalities. Circular 98 aims to unify the

application of the tax throughout the country.

The Local Education Surcharge will be calculated as a percentage of the VAT

payable, Business Tax and Consumption Tax at a flat rate at 2% and will also apply to

foreign investors. In response to Circular 98, the tax authorities in Shanghai and

Jiangsu have both announced that they will collect the Local Education Surcharge as

from 1 January 2011 (Shanghai) and 1 February 2011 (Jiangsu).

The imposition of the Local Education Surcharge will create an additional tax burden

on taxpayers located in regions that have not yet imposed the surcharge or where the

applicable rate has been lower than 2%.

Deloitte China Indirect Tax contact

Sarah Chin T: + 86 (21) 6141 1218 E: sachin@deloitte.com.cn

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India

Excise duty exemption for eligible industrial units extended

A 10-year exemption from excise duties has been available for goods cleared from

industrial units in the states of Uttarakhand and Himachal Pradesh, as from the date

commercial production commenced. The exemption was available to new units or to

existing units that underwent substantial expansion and commenced commercial

production before the cut-off date of 31 March 2010.

The Indian government recently extended the excise duty exemption to:

New products or new dosage forms produced after the cut-off date using

plant and machinery installed up to 31 March 2010; and

New products manufactured by installing new plant and machinery after 31

March 2010.

It also has been clarified that the exemption period will remain 10 years and will not be

further extended.

Date for filing refund in respect of export services

The Mumbai Tribunal recently ruled that, in the case of the export of services, the

relevant date for filing a refund claim is the date the assessee receives the payment

for the services exported, not the date the services are provided. Therefore, the refund

claim should be submitted within one year from the date of receipt of the payment for

the exported services.

Deloitte India Indirect Tax contact

Prashant Deshpande T: +91 22 6619 8530 E: pradeshpande@deloitte.com

New Zealand

Summary of upcoming GST changes

The following changes to the Goods and Services Tax (GST) are effective as from 1

April 2011:

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When real estate (land) or an interest in real estate is sold by one GST-

registered person to another, the GST rate will be 0% if the purchaser

acquired the property with the intention of using it for making “taxable

supplies”. This rule aims to eliminate “phoenix” fraud schemes, i.e. where

supplies (typically between associated entities) result in a GST refund to

one party with no corresponding payment being made by the vendor

because the vendor deliberately winds up its business before making

payment. It is also designed to reduce cash flow and compliance costs for

commercial transactions involving land. Where a transaction is for the sale

of land and other assets, the GST rules for land will apply to the entire

transaction value and the transaction will be zero-rated.

Transactions that involve nominations (e.g. when a party to a contract

nominates another person to “receive” the supply) will have the GST

treatment determined on the basis of economic substance. This change is

to bring clarity and certainty to the GST treatment of supplies involving

nominations.

The meaning of the term “dwelling” and when a dwelling is a “commercial

dwelling” for GST purposes is clarified. In particular, the definition of

commercial dwelling has been extended to include homestays, farmstays,

bed and breakfast establishments, and certain serviced apartments. This

change aims to provide certainty that taxpayers conducting such activities

can be GST-registered.

GST incurred on the purchase of goods or services currently may be

claimed only if the “principal purpose” test is met. If that test is met, GST

generally can be claimed in full. However, to the extent the goods or

services are then applied for some other purpose (e.g. an exempt or

private activity), an output tax adjustment generally will be required. The

new legislation eliminates the “principal purpose” test and places the

burden on the purchaser to estimate how it intends to use the goods or

services. If the goods or services are not to be fully used or available for

use for making “taxable supplies”, the estimated usage will be used to

claim a proportion of the GST incurred on the purchase. The legislation

provides for adjustments to be made when the actual taxable use is

different from the intended taxable use. The new rules apply to goods and

services acquired on or after 1 April 2011; existing goods and services

remain subject to the old rules, but continued adjustments are only

required for certain periods of time if the supply is not of land.

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A new apportionment rule applies where there is a concurrent use of land

(e.g. where a property developer rents out property while the property is for

sale). This change clarifies certain principles established through case law.

Deloitte New Zealand Indirect Tax contact

Jeanne du Buisson T: + 64 (0) 9 303 0805 E: jedubuisson@deloitte.co.nz

Singapore

GST changes in Budget 201

The 2011 Singapore Budget, announced 18 February 2011, includes a number of

GST measures that are summarized below.

GST relief for imported clinical trial materials

To encourage clinical research activities in Singapore, GST relief will be granted up

front on all clinical trial materials imported into the country. This GST relief will apply

irrespective of whether the clinical trial materials are for local testing, re-export or

disposal in Singapore. Currently, local intermediaries who import clinical trial materials

on behalf of overseas persons for testing in Singapore are not able to recover the GST

payable. For clinical trial materials imported for re-export or disposal, there are various

mechanisms where the importing intermediary may either claim back the GST paid or

be relieved of import GST, but this is administratively cumbersome.

The Singapore tax and Customs authorities will issue public guidance on the changes

by 1 September 2011.

Effective date: 1 October 2011

Expansion of GST Approved Contract Manufacturer Trader Scheme

The Approved Contract Manufacturer Trader (ACMT) Scheme, currently available only

to the semi-conductor and printing industries, will be extended to qualifying biomedical

contract manufacturers.

The ACMT Scheme allows an approved contract manufacturer to disregard value-

added services to overseas clients for GST purposes. The Scheme also provides for a

suspension of import GST on the importation of raw materials for use in the contract

manufacturing process. Further enhancements under the expanded ACMT scheme

include the following:

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(a) Value-added services rendered by the approved contract manufacturer on failed

or excess production to overseas clients will be disregarded for GST purposes;

and

(b) GST incurred by overseas clients on local purchases for use in the contract

manufacturing process can be recovered by clients via the approved contract

manufacturer.

The Singapore tax and Customs authorities will issue guidance on the changes by 1

September 2011.

Effective date: 1 October 2011

GST zero-rating scheme for specialized storage and value-added services

GST at 7% currently applies to services performed on goods stored in a warehouse in

Singapore unless supplied to overseas persons and the goods are exported. When

goods are stored in a warehouse for an extended period of time, it is often difficult for a

business to demonstrate that the goods will be exported and, therefore, the business

is unable to zero-rate associated services. In addition, the provision of space for

storing goods is also standard-rated.

To promote the use of specialized storage facilities for high value goods, such as art

and antiques (and other supporting services such as valuation and conservation), a

new scheme will be introduced, under which specific services supplied to overseas

persons performed on goods kept in approved warehouses in Singapore will be zero-

rated. To qualify for the zero-rating, the following key conditions (amongst others) must

be satisfied:

(a) The specialized warehouse must have mostly overseas customers (i.e. at least

90%); and

(b) The majority of the goods (i.e. at least 90%) removed from the warehouse are

eventually exported.

Further details will be released by the Singapore tax authorities by 1 September 2011.

Effective date: 1 October 2011

Expansion of GST zero-rating for maritime industry

To further promote the growth of the maritime sector, the following changes will be

introduced:

(a) A new GST scheme to allow “approved marine customers” to buy or rent goods

without having to pay GST provided the goods are for use or installation on a

commercial ship that will be used only for international transport.

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The supplier of the goods will not be required to maintain documentation (as is the

case under current rules).

(b) Extension of zero-rating to repair or maintenance services performed on ship

parts or components delivered to shipyards in Singapore or to “approved marine

customers.” Currently, repair and maintenance services performed on a ship and

ship parts or components qualify for zero-rating only if:

(i) The repair and maintenance is carried out on board the ship;

(ii) Any part or component of the ship is removed for repair and reinstalled

on the ship;

(iii) Any part or component of the ship is removed for repair and returned

to the ship as a spare; or

(iv) Any part or component of the ship is removed and replaced by an

identical part or component.

In addition to the extension of zero-rating, an arrangement will be treated as a

single supply of repair services where a supplier provides a reconditioned ship

part or component in exchange for a faulty one. The value of the faulty part

exchanged will be disregarded and not taken into account as part of the value of

the supply for GST purposes.

(c) To ease GST compliance for ships that are in Singapore for a short period of time,

documentation requirements will be eliminated for qualifying ships engaged in

pleasure, recreation, sports or similar events. Import GST relief will be granted

with a waiver of documentation requirements on goods supplied to a qualifying

ship.

A “ship” means any ship (including an oil rig) but does not include a ship:

(i) that is licensed under the Maritime and Port Authority of Singapore Act as a

passenger harbour craft or pleasure craft;

(ii) in respect of which a vessel permit has been granted by the Public Utilities

Board under regulations made under the Public Utilities Act (Cap. 261); or

(iii) that is designed or adapted for recreation or pleasure and is so used within

Singapore (unless the use within Singapore is for such purpose that is

incidental to its use outside Singapore).

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Further details will be released by the Singapore tax authorities and Customs by 1

September 2011.

Effective 1 October 2011

Deloitte Singapore Indirect Tax contact

Robert Tsang / Richard Mackender T: +65 6530 5523/ +65 6216 3270 E: robtsang@deloitte.com / rimackender@deloitte.com

EMEA

Belgium

Input VAT recovery limited under new provision

As from 1 January 2011, Belgium implemented the „anti-Seeling‟ provision of article

168a of the VAT Directive, which limits the recovery of input VAT for business goods

that also are used for private purposes. The scope of the new provision is very broad:

in addition to immovable goods, it also applies to movable goods (allowed by the VAT

Directive) and intangibles that are considered „investment‟ goods (e.g. software). The

broad coverage already has given rise to implementation issues, such as how to

determine the private use of computers, mobile phones, etc., and which expenditure

“related” to investment goods and services falls within the limit on the recovery of input

VAT.

The new rule does not contain any transition provisions from the previous regime for

goods acquired before 1 January 2011.

The Belgian VAT authorities are drafting guidance on the rule.

Special VAT regulation for clinical trials performed by hospitals and doctors

The Belgian VAT authorities will implement a special regulation as of 1 April 2011

concerning clinical trials performed by hospitals and doctors.

Clinical trials are not exempt from VAT. Accordingly in principle, the hospitals and

doctors performing the trials need to VAT register. The regulation aims to relieve the

hospitals and doctors concerned from the standard VAT formalities. Although the

hospitals and doctors need to notify the local VAT office of the start of their activities in

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clinical trials, they are relieved from the obligation to lodge periodic VAT returns. In

addition, where the clinical trials are carried out for a Belgian VAT taxpayer a

mandatory reverse charge and self-billing procedure is to be applied. Certain

requirements must be met for self-billing, including upfront agreement between the

parties.

Where the services are rendered for a non-resident company, an invoice is to be

raised (this invoice will not bear VAT due as the service will be deemed subject to VAT

in the recipient‟s country). The hospitals and doctors are required to lodge an annual

client listing and, for services rendered to EU resident businesses, a listing of

Intracommunity transactions. This special regulation is optional so that the hospitals

and doctors concerned can also elect to apply the standard regime with the normal

VAT requirements.

The new regulation will enter into force as of 1 April 2011. The Belgian VAT authorities

will not impose an assessment for the period prior to 1 April 2011.

Deloitte Belgium Indirect Tax contact

Ivan Massin T: + 32 2 600 66 52 E: imassin@deloitte.com

European Union

EU-Korea Free Trade Agreement

The European Commission recently announced that the 2009 Free Trade Agreement

(FTA) between the European Union (EU) and Korea will provisionally enter into force

on 1 July 2011. The FTA is one of the most comprehensive free trade agreements

ever negotiated by the EU. It will eliminate all customs duties and non-tariff barriers,

such as import restrictions, and will liberalize trade in services. The FTA also includes

provisions on investment, intellectual property, competition and sustainable

development.

The machinery and appliance sector in the EU will benefit significantly from the FTA.

Other smaller EU sectors that will benefit are the textile, glass, leather and fur,

footwear, iron and steel and optical instruments sectors. Although customs duties on

both sides will be removed during a transitional period, 98% of such duties will be

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eliminated after several years and all duties on industrial products will be removed

within five years. The transition period for certain agricultural and fishery products will

be longer. Rice and a few other agricultural products will be excluded from duty

elimination.

Businesses active in EU-Korea trade will need to know what benefits will be available

under the FTA. It is expected that this agreement will be the first EU FTA that includes

place of origin provisions, whereby origin documents will no longer be issued by the

authorities, but, instead will be issued by exporters themselves. On the other hand,

exporters will need to obtain “approved exporter” status and will need to ensure they

offer the proper guarantees to comply with the FTA‟s origin provisions.

Deloitte Netherlands Customs & Global Trade contact

Jack Kouwenberg T: +31 (0) 88 288 1915 E: jkouwenberg@deloitte.nl

Germany

MOF issues guidance on deduction of acquisition VAT

The German Ministry of Finance recently published its interpretation of the ECJ

decision in the X and Facet Trading BV cases (C-536/08 und C-539/08).

These cases concerned whether acquisition VAT was deductible by a purchaser

where the customer used an EU VAT number to facilitate an intra-EU supply, but the

goods were sent to an EU country other than the country associated with the VAT

number; e.g. where a German recipient uses its German VAT number to acquire

goods from Italy and the goods are delivered directly to Austria.

According to the Ministry of Finance, acquisition VAT can be temporarily accounted for

as output tax on the German VAT return until a local VAT registration is received in the

country of destination of the goods. A retroactive correction of the output tax will be

possible once the supply has been properly accounted for in that country. However, no

input VAT credit is permitted in Germany in respect of this acquisition VAT.

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This is an important case for any businesses that have been using their German VAT

number to support intra-community movement of goods from and to other EU

countries.

Deloitte Germany Indirect Tax contact

Joanne Luxford T: +49 (0) 89 29036 7630

E: joluxford@deloitte.de

Italy

Intra-Community transactions

On 15 February 2011, the Italian tax authorities pointed out that if a taxpayer is not

issued an actual denial after 30 days of a request to be listed, the taxpayer will be

included in the VAT Information Exchange System (VIES) archive and it may carry out

intra-Community transactions. ]

On 1 February 2011, the tax authorities published a web page

(https://telematici.agenziaentrate.gov.it/VerificaPOI/IVerificaPoi.jsp) where it is

possible to check the list of entities that must be included in the VIES for Italian

purposes. A fully updated archive is available as from March.

Authorities clarify reporting of “black list” transactions

The Italian tax authorities have provided some clarification on the reporting of

transactions in “black list” countries, in particular, with respect to transactions covered,

the deadline for reporting, making corrections and communicating these to the

authorities.

Annual VAT return and annual VAT communication

All VAT taxpayers may subject their annual VAT returns by the end of February and, in

this case, they can avoid the annual VAT communication filing (Circular 1/E of January

2011).

Deloitte Italy Indirect Tax contacts

Antonio Piciocchi and Barbara Rossi T: +39 0648990932 / +39 0115542925 E: apiciocchi@deloitte.it / brossi@deloitte.it

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Romania

Practical issues relating to VAT refunds

A new procedure for obtaining a VAT refund in Romania, which was designed to

simplify the procedure, seems to be creating more problems for non-resident

companies.

According to the new procedure, a VAT refund claim must be submitted electronically

to the tax authorities of the Member State in which the applicant is established for VAT

purposes. Those authorities will then direct the application to the Member State in

which the refund is due. Invoices/import documents included in the VAT refund claim

must be attached to the VAT application if the taxable amount on the documents is

equal to or exceeds EUR 1,000 or its equivalent in the national currency (for invoices

relating to the supply of fuel, the threshold is EUR 250 or its equivalent in the national

currency).

In Romania, the tax authorities have four months from the date an application is

submitted to request additional information or notify the applicant of its decision (i.e. to

approve or reject the application). In practice, however, the Romanian tax authorities

do not review or analyse the application; instead, they automatically send a standard

additional information request to any non-resident company that applies for a VAT

refund. That request generally includes the following:

copies of all invoices/import documents related to the VAT refund claim;

payment documents (bank statements or payment orders stamped by the

issuing bank);

agreements or orders for the supply of goods/acquisition of services based on

which the relevant invoices were issued;

documents justifying the transaction flows; and

description of activities carried out in Romania that led to Romanian VAT-able

acquisitions.

If the tax authorities do not receive a response to their request within 30 days, the VAT

refund claim will be denied. Since the tax authorities‟ request is generally sent

electronically (by email), there may be instances where company firewalls prevent the

email from reaching the intended recipients. Further, there is no portal for applicants to

verify the status of their refund requests or to ascertain whether an additional

information request has been sent.

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Because the refund request and the additional information request are in Romanian,

issues can arise for a foreign recipient company. The deadline can be missed if no one

in the company understands Romanian and the gathering and submitting of the above

documents is administratively burdensome. Affected non-resident companies should

careful monitor the status of their VAT refund applications and seek professional

assistance to substantiate their cases.

Deloitte Romania Indirect Tax contact

Pieter Wessel T: +40 (21) 207 52 42 E: PWessel@deloittece.com

United Kingdom

Debt collection is standard-rated

Following the ECJ decision in AXA UK plc, HMRC, the UK tax authorities issued

guidance setting out their position on the extent to which debt collection activities fall

with the VAT exemption in the EU VAT Directive.

HMRC has decided that debt collection does not just apply to the service of chasing

and recovering overdue payments on behalf of the creditor and that all services

principally concerned with collecting payments from a debtor for the benefit of the

entity to which the payments are owed fall within the exception to the exemption and,

thus, are liable to VAT at the standard rate. HMRC‟s announcement confirms that

"supplies which involve the collection of payments as a minor or ancillary function but

which are principally concerned with other payment related transactions ... will

continue to fall within the VAT exemption." HMRC expects businesses supplying

payment-related services falling within the definition of „debt collection‟ as outlined by

the ECJ in the AXA case to account for VAT on such services as from the date of the

brief (i.e. 12 January 2011).

Deloitte UK Indirect Tax contact

Donna Huggard T: +44 20 7303 7914 E: dohuggard@deloitte.co.uk

More

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