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ReFIT Forum

12th January 2015

Welcome – Simon Baxter


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Agenda

10.30 Welcome and introduction Simon Baxter

Caselaw update Terri Bruce Tax risk - SAO James Egert

11.30 Coffee

11.45 Global VAT Update Martyne Pearson

National Minimum Wage update Ian Thomas/ Babatunde Omisakin

Hot Topics Terri Bruce

Open Forum

13:00 Close/Buffet Lunch

EY ReFIT Forum 12th January 2015


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Case Law Update Terri Bruce

12th January 2015


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Agenda

► Inputs ► Idexx Laboratories Italia Srl ► Xpress Telecom Ltd

► Outputs ► Whistl UK Ltd ► Brightsolid Online Technology Limited ► Traum ► Fleming Agri Products Ltd ► Barlin ► Rio Tinto ► ING

► Appeals Update

EY ReFIT Forum 12th January 2015 Page 4

Inputs

Page 5


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Idexx Laboratories Italia Srl - ECJ

► Denial of right to deduct ► Right to deduct Article 17 Sixth VAT Directive/ Article 168

Principal VAT Directive ► Right to deduct fundamental principle of the common

system of VAT ► Neutrality of tax ► Member states may impose obligations deemed

necessary for the correct collection of tax and the prevention of fraud

► Italians require Register of Intra Community transactions



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Idexx Laboratories Italia Srl

► Idexx acquired goods from France and Netherlands ► Failed to maintain register and account for acquisitions

correctly ► Italian Authorities assessed tax and 100% penalties ► “Substantive breach” of national regulations ► ECJ – Right to deduct if substantive conditions applied:

► that the transaction has been effected by a taxable person; ► that goods or services are used for the purposes of taxable

transactions; and ► that VAT is due/paid on the supply

► Domestic measures must not undermine neutrality of tax EY ReFIT Forum 12th January 2015 Page 7


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Idexx Laboratories Italia Srl

► Not all member States operate in the same way as UK ► May provide opportunity to revisit historic assessments

and current delayed claims

Page 8 EY ReFIT Forum 12th January 2015


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Xpress Telecom Ltd - FTT

► Right to deduct ► Alternative evidence for input tax recovery ► Agents acting in their own name ► Xpress Telecom bought and sold mobile phone sim cards

with pre paid credit ► Identified possible to buy iPhones at retail price and sell

wholesale at profit because of reverse charge (anti avoidance)

► Apple would only sell two phones per retail customer ► Xpress used “runners” to buy for them ► Cost of iPhone £510 Page 9 EY ReFIT Forum 12th January 2015


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Xpress Telecom Ltd

► Retail invoices £250 ► No name on invoices/ no employee name ► Alternative evidence Reg 29(2) ► HMRC Statement of Practice March 2007 ► The supply did take place

► There is other evidence to show transaction occurred ► Supply made in course or furtherance of business ► Normal commercial checks undertaken ► Normal commercial arrangements in place



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Xpress Telecom Ltd

► Supply made to runners as undisclosed agents ► Runners not registered for VAT ► VAT blocked with runners ► “A result of the way in which the Appellant had chosen to

conduct its business” ► Perfectly reasonable for HMRC not to accept alternative

evidence ► Worth remembering that alternative evidence can be used


Outputs

Page 12


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Whistl UK Ltd (TNT Post UK Limited)

► High Court dismissed application for Judicial Review ► Downstream services provided by Royal Mail – access

services ► Does UK exemption following CJEU decision go far

enough? ► Universal postal service ► Services provided by Royal Mail as Universal Service

Provider (“USP”) are exempt ► Exemption also applies to services under Universal

Service Obligation (“USO”) ► Whistl argued if not required under Postal Services Act

then not exempt



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Whistl UK Ltd (TNT Post UK Limited)

► Original case concerned regulatory change in 2006 – liberalisation

► Did not initially argue UK law ultra vires the 6th Directive ► Wording or EU legislation extremely broad ► UK changed legislation following ECJ decision ► UK law compatible with EU law ► Application for Judicial Review refused



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Brightsolid Online Technology Limited - FTT

Access to genealogical websites (owned and licenced) ► Subscription or pay as you go (“PAYG”) ► PAYG lump sum paid in return for vouchers/units ► Must be used within certain time ► Brightsolid sought refund of VAT paid on unused

units/unredeemed vouchers 2008-May 2012 ► Law changed 10 May 2012 Schedule 10A para 7A

► VAT due on issue of face value vouchers ► Right to receive goods of one type which are subject to a single

VAT rate



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Brightsolid Online Technology Limited - FTT

► Not “face value voucher” – no ex facie cash value ► Leisure Pass Group – 2007 & 2009 ► Package of pre-paid rights ► Nature of supply is known from outset ► Direct link at time of payment ► Unjust enrichment might have arisen ► Review of vouchers? ► Are you selling what you think you are? Page 16 EY ReFIT Forum 12th January 2015


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Traum Eood ECJ

► Articles 138(1)&139(1) - exemption/zero-rating for dispatches

► Bulgarian law requires: ► supplier to include customer’s VAT number on invoice ► Evidence of shipment ► Confirmation from the customer that the goods were received

► Traum supplied construction materials to Greek customer ► Raised two invoices with VAT number in October 2009 ► Bulgarian authorities checked VAT number on VIES in

November 2009 and authorised refund to Traum ► Greek customer did not account for acquisition ► 2011 Bulgarian authorities undertook VAT inspection Page 17 EY ReFIT Forum 12th January 2015


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Traum Eood ECJ

► Checked VIES which showed Greek customer de-registered from January 2006

► Challenged evidence of export and certificate of receipt ► Alleged Traum did not act in good faith ► Raised an assessment for VAT on Greek supplies ► Principles of legal certainty and protection of legitimate

expectations: ► Rule of laws must be clear and precise and application must be

forseeable

► “Additional requirements” required by Authorities unfair ► Irregularities in VIES cannot deprive a trader of right of

exemption EY ReFIT Forum 12th January 2015 Page 18


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Traum Eood ECJ

► If National Court could prove with objective evidence that Traum knew or should have known that transaction was fraudulent then exemption could be denied

► Article 138 has direct effect ► Rise of MTIC? ► HMRC’s approach ► Protect own position ► Due Diligence ► Article 139(1) – exemption does not apply to persons

whose acquisition is not subject to VAT pursuant to Article 3(1) …



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Fleming Agri-Products Ltd - FTT

► Regulation 134(b) – supplies to person taxable in another member state are zero-rated

► Sale of agricultural machinery ► NI to ROI ► “Joe Farrell” aka Tom Cassidy – HMRC did not know ► Petrol filling station – in ROI? ► Cash on delivery ► VAT number of Joe Farrell checked on Europa website ► Regular checks ► Level of trade exceeded VAT threshold ► EC Sales lists submitted ► Trading for 9 years Page 20 EY ReFIT Forum 12th January 2015


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Fleming Agri-Products Ltd - FTT

► Irish Revenue Commissioners deregistered retrospectively

► VAT Number reinstated at some point ► Did Fleming take “reasonable steps”? ► PBN 725 para 4.10 (which has legal effect) ► Yes ► Importance of VAT number again ► Importance of due diligence Page 21 EY ReFIT Forum 12th January 2015


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Barlin Associates Ltd - FTT

► Trademark Attorney ► 2005-2010 supplied services under retainer ► Invoiced £871,896 ► Client did not pay ► Barlin deregistered early 2012 ► Legal Agreement to pay £306k reached late 2012 ► Credit note raised January 2013 ► Barlin sought refund of VAT on credit note of £82k ► No Bad debt as £306k received in full settlement ► Regulation 38 adjustment allowed as reduction in

consideration



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Barlin Associates Ltd - FTT

► HMRC argued that 4 year cap applied ► HMRC could not prevent Barlin from accessing directly

effective EU rights ► Barlin only agreed reduction in consideration more than 4

years after supply ► Confirms principles set out in GMAC survive insolvency or

deregistration ► Rights do not disappear on deregistration



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Rio Tinto London Ltd - FTT

► Investment management and administrative services supplied to group pension fund 1973-2010

► Is a price adjustment a decrease in consideration for Reg 38 purposes (Article 90)?

► Administration costs should not have been subject to VAT 70:30 split – only 70% should have been charged to fund

► Fleming claim ► Credit note raised for £7.15m ► No query in amounts charged for 37 years ► Only over charge relates to VAT ► A vehicle to reclaim VAT ► Claim under s80 not Reg 38



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Rio Tinto London Ltd - FTT

► To be determined by: ► Objective view of facts ► Commercial and economic reality ► Doesn’t matter what you call it

► Accounting treatment cannot be determinative of VAT treatment

► Confusing case ► Get facts straight ► Don’t let the tail wag the dog?



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ING Intermediate Holdings Limited - FTT

► Barter Transactions ► Operated deposit accounts in UK ► Deposits invested ► Costs of attracting and retaining deposits higher than

costs of investment ► Deposits loaned to Spanish branch ► Investments made outside EU ► VAT (Input tax) (Specified Supplies) Order 1999 ► No fees for deposit account ► PESM – invalid

► Makes exempt and specified supplies



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► Voluntary disclosures submitted ► Argument – ING did not make supply to depositors ► Deposits funded business – loans from depositors ► KapHag & Kretztechnik ► Costs attributable to Specified Supplies ► Did ING make supplies to lender or were supplies from

customer to the bank? ► Terms & Conditions

► Accepts cheques from third parties ► Provides statements ► Reserved the right to charge fees ► Facilitates ability to withdraw funds at any time



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► Services were not peripheral ► Barter transactions ► Deposits made in return for interest and banking services ► Non monetary consideration ► Value? ► Input VAT attributable to banking services which are

exempt ► Worth reviewing potential barter transactions – particularly

with business promotion/entertaining



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Appeals Update

► Standard Chartered & MG Rover ► Who has right to make claim ► case management hearing 15 January

► Associated Newspapers ► Output tax on retail vouchers given away to customers under sales

promotion ► HMRC appeal to UTT will be heard 5-7 October 2015

► Iveco ► Reg 38 Bonus payments ► HMRC appeal to UTT 24-16 November 2015



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Appeals Update

► Norseman Gold Plc ► Management services by UK Holding company ► Appeal lodged against FTT

► ZIPVIT ► Royal Mail claims ► Appeal lodged against FTT

► BPP University College ► Time limits for appeal – HMRC missed deadlines ► UTT has allowed HMRC’s appeal and refused application for a

barring order



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Appeals Update

► Leeds City Council ► Capping provisions ► Hearing vacated

► Southern Cross Employment Agency ► Supply of dental nurses – 74% paid erroneously under

compromise agreement ► HMRC has appealed to UTT

► Wilton Park Ltd ► Secrets Money – vouchers – single supply taxable services ► Appealed to UTT



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Appeals Update

► Intelligent Managed Services Ltd ► Virgin – TOGC to VAT group ► UTT hearing 9-11 June 2015


Questions?


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Tax risk; Senior Accounting Officer (SAO); Tax policy and governance James Egert


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Agenda

► Tax Risk ► Why now? – what is prompting greater focus on Tax Inputs

► Where does Tax Risk come from?

► SAO ► Background

► Typical risks and pitfalls

► HMRC’s approach to SAO

► CRMs and certification

► Recent developments

► What to disclosure in the SAO certificate

► Documentation to support SAO

► Tax Policy ► Why Develop a Tax Policy?

► Responding to Fair Tax Debate

► Mandate for change

► Corporate Governance and meeting regulatory requirements

► Benefits of an effective Tax Policy

► What does a Tax Policy look like?


Tax risk


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Tax is a significant risk area for most organisations. The Lloyds Risk Index has identified Tax as the biggest risk faced by business leaders after prolonged public and political exposure and debate. Tax soared up the Lloyds Risk Index ranking from 13th to 1st place in just two years.

We are seeing the Board and NEDs increasingly asking questions about Tax Risk. Why now? There are various trends we are seeing that are increasing both internal and external stakeholders’ focus on tax.

1. Globalisation is increasing tax complexity in areas such as intangibles and international transactions

2. Allegations of tax avoidance are front page news

3. Increasing visibility of tax required by Boards

4. Increased impetus for tax authorities and government to be seen to be acting

5. Multilateral activity growing amongst tax authorities on a global basis

6. Regulatory changes such as OECD BEPS and EU directives on tax

7. External and internal stakeholder management and communication of tax risk increasingly important

What is prompting greater focus on Tax?

Page 37 Page 37 EY ReFIT Forum 12th January 2015


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Internal factors: The activities from operations across the whole business will contribute to tax risk

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Press interest

Regulatory change

Tax activism

Changes in Corporate

Governance

Country by country

reporting

Move to voluntary

disclosures

External factors: External pressures will affect

how tax risk is prioritised, moving it up the Board’s

agenda

Where does Tax Risk come from?


SAO – recent developments


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SAO – who is the person with ‘overall responsibility for the company’s financial arrangements’ (usually the CFO or FD) – to submit an annual certificate stating whether the business had appropriate tax accounting arrangements throughout the financial year and, if not, why not. Failure to properly comply with the legislation can result in a series of personal and company penalties.

► In recent years (from 2013), HMRC has issued new guidance that reconfirms that companies need to undertake detailed reviews of their tax accounting arrangements. These will include risk analyses of the end-to-end processes for all in-scope taxes, from data collection in ERP systems to the submission of tax returns and making tax payments. Where there are deficiencies in processes, leading to identified risk areas, a clear remediation plan needs to be put in place together with a timetable for completion.

A reminder: background



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Typical SAO risks and pitfalls

SAO certification

► Incorrect submissions – missing either the company notification and SAO certificate deadline

► Incorrect omission of dormant companies

► Written certificate to CRM (not electronic)

► Wording of certificate

► Should an issue be disclosed?

► How much should be disclosed?

Corporate tax

► Over reliance on key personnel

► Supporting documentation often only supports ‘tax return’ process rather than full end-to-end process (eg from data collection to completion of initial tax pack)

► Poor level of granularity of data in underlying accounting systems

► Specific tax technical issues require additional support, such as Transfer Pricing

► Asset management systems often not set up with tax in mind

VAT

► VAT determination in the Accounts Payable & Accounts Receivable process

► Complexity due to exempt/partially exempt businesses

► Maintaining customer & supplier master data

► Systems don’t always allow for interrogation of data (eg to separate out inter-company transactions)

► Sheer volume of transactions (often > 1,000 invoices daily to process)

► VAT Groups

Employment taxes

► Lack of clear expenses policy

► International assignees and other mobile employees

► Self-employed contractors

► Termination payments

► Share based remuneration

► Managing the PAYE Settlement Agreement process

► Levels of authority for payments

Customs ► Reliance on agents/freight forwarders to complete declarations

► Lack of clarity over management of authorisation (e.g. IPR)

► Very administrative process



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HMRC’s approach to SAO

An internal review within HMRC identified:

► Inconsistent approach from CRMs

► Very lenient where there had been failures

► Mismatch between risk review and certification

As a result training for all CRMs was undertaken and clearer guidance has now been provided

Further to our discussions with HMRC, the following can be considered ‘best practice’:

► Documentation of tax processes and controls

► Tax risk register / heatmap with assessment of whether ‘appropriate’

► Summary of events during the year

► Sub-sign off by process/control owners (for larger or geographically spread organisations)

► Link to wider risk assessment process

► Engagement with CRM



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CRMs and certification

What guidance has been provided to CRMs on how they should approach SAO certification?

► “There are important responsibilities to be discharged throughout each accounting

year, not just at the year end”

► “Reasonable steps will, in general, involve the SAO having in place mechanisms for identifying, on an ongoing basis, the risks which might result in the tax returns not being accurate in all material respects and ensuring that processes and controls are in place for managing and monitoring these risks”

► “This does not mean that we expect every risk to be managed down to ‘nil’. However, we do expect SAOs to have considered what the potential impact and likelihood of a particular risk is and, on the basis of this, to make a judgement about the extent to which a risk needs to be mitigated.”



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Recent developments

CRMs have been provided with a ‘core script’ of questions and issues to consider as part of their review of SAO compliance.

Key comments include:

► “We expect CRMs to continue to discuss what the SAO is doing to discharge their responsibilities.”

These discussions might include:

► How the business has identified and managed any significant tax risks arising from a particular major business or legislative change;

► The process the business has for ensuring that tax sensitive decisions taken outside the tax function are consistent with the organisation’s tax policy;

► How the tax policy is communicated throughout the organisation and how adherence to this is monitored.



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Disclosure Should an error be disclosed on the SAO certificate?

► “Whether tax accounting arrangements are appropriate will depend on factors such as the size, complexity and nature of the business.”

► “The Senior Accounting Officer (SAO) provisions do not impose a higher standard of accuracy than already existed for preparing returns. Neither do they bring accountancy or audit ‘materiality’ into the legislation.”

► “The focus is on the significance of the transaction, system or tax and the relative size of these items in terms of the business.”

► “We do not normally regard a weakness in the accounting arrangements as a failure to comply with the SAO provisions where, on reviewing information from the SAO, we consider the risks and resultant errors to be insignificant.”

► “For example, we normally regard isolated individual errors in multiple, low value transactions as insignificant in considering whether or not appropriate tax accounting arrangements are in place.”

► “However, an error in the treatment of a high value, one off transaction may well fail the provision.”



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1. Have purpose and be useful, e.g. a working document / instructions that will be regularly referred to and kept up to date and be cautious about creating documentation just for the sake of it;

2. Be appropriate to the needs and skills of the end user;

3. Should be commensurate with the level of risk;

4. Mirror the documentation that is already available, such as existing finance documents. Documentation that looks and feels the same as that used day to day will be more effective;

5. Be easily retrievable or searched in case of audit.

Documentation to support SAO certification Creating a ‘SAO paper file’

► SAOs should maintain an annual paper-based SAO file to support their certification.

In particular this could include:

1. A copy of the final signed SAO certificate for the period;

2. Delegated sign off notes, where internal sub-certification has been used;

3. Tax governance documentation where appropriate (for example a tax strategy or tax risk management framework);

4. An assessment of the tax risks identified by process / business unit. This could take the form of a “risk register” or “heat map” outlining for each risk identified, controls in place to manage the risk, and, if appropriate, further actions.

5. Up to date process documentation for material tax-related processes

6. The results of any tax process reviews or audits conducted during the year and actions taken.


Tax Policy


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Often there is confusion between the terms ‘Tax Policy’ and Tax Strategy’’. 1. What we mean by Tax Policy:

► The Tax Policy is a Board approved document that sets out expected standards of conduct in relation to carrying out tax related activities across all areas of the business globally.

► It defines the scope of tax activities undertaken throughout the company, whether by Tax, the business, or by Finance

2. What we mean by Tax Strategy:

► A Tax Strategy sets out activities to undertake to deliver on specific objectives. For example, this could be ETR management or tax controversy strategy.

3. Many companies seem to have a Tax Code of Conduct. What is this?

► The Tax Policy document should include a set of tax principles that are typically encapsulated within a Mission Statement and Tax Code of Conduct that forms the basis of the Tax Policy document.

► The Tax Code of Conduct needs to align to overall business strategy.

What do we mean by Tax Policy?



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Why develop a Tax Policy? There are three main triggers for why many organisations are developing or refreshing their Tax Policy:

1. Responding to the Fair Tax debate ► The list of those interested in the tax affairs of business is expanding, and now includes

consumers, non-governmental organisations (NGOs), Members of Parliament, international organisations, Government officials and the media.

► Public perception is that big business has too much power and too little responsibility, and that organisations are not paying their ‘fair share’ of tax. At the same time, the CBI and NGOs such as ActionAid are calling for organisations to demonstrate “Tax Responsibility” and to articulate this in their tax principles (see below).

► In response to these pressures, organisations need to be ready to reply to external questions from a range of stakeholders with differing points of view.

Page 49

“CBI proposes tax principles for UK

business”

In May 2013, the CBI proposed seven tax principles [which cover tax planning, transparency and reporting principles] with the aim: • “to enhance co-operation, trust and confidence

between HMRC, UK business taxpayers and the public in regard to the operation of the UK tax system,”

• “to promote the efficient working of the tax system to fund public services and promote sustainable growth.“



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There are three main triggers for why many organisations are developing or refreshing their Tax Policy:

2. Mandate for change: 1. New Tax Directors or more established Tax Directors who are

looking for the mandate to make changes in how tax is managed within the business and in their tax function (such as new resource, renegotiating how they team with the business or setting parameters over tax risk and planning) will use the development of a Tax Policy to enable this.

2. For some of our engagements, the content of the Tax Policy is often ‘aspirational’ in the sense that once approved by the Board, they will have the mandate to make changes in the way tax operates in the business. This could include:

► Changes in reporting lines and responsibilities

► How the tax function partners with the business

► Defining tax risk appetite of the group and ensure this is communicated throughout the business

► Developing a business case for increased tax resource

► Implementing tax risk management procedures

Page 50

Why develop a Tax Policy?



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3. Corporate Governance and regulatory requirements.

In the UK, the move towards greater tax transparency has to a large extent been prompted by regulatory changes such as those to the Corporate Governance Code and Companies Act 2006 (“UKCGC”). This has resulted in a focus by the Board on the extent to which an organisation’s tax policy and practices are disclosed.

What’s changed? Where Issues to consider

Board to confirm annual report and accounts, taken as a whole, is fair, balanced and understandable (FBU). New requirement covers entire ARA, not just narrative front half.

UKCGC Defining what FBU means, including in respect of taxation matters. Has your company canvassed views from stakeholders on whether or how the company’s ARA will need to change to make it FBU? FBU principles should be applied to all corporate communications.

Audit Committee to provide information to shareholders on significant matters it considered in relation to financial statements (including matters communicated by the auditors)

UKCGC How will the board and the audit committee deal with potential implications of increased disclosure of issues that may have arisen from the external audit, including questions from stakeholders?

If this disclosure requirement applied to the last financial period, how would the audit committee have amended its report?

Board to prepare Strategic Report CA2006 Board will be reviewing current reporting content and format. To what extent will the organisation’s tax policy and practices feature in this?

Page 51




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Question Issues to consider

Does the company have a tax policy which governs their approach to taxation?

Companies need to demonstrate they have a tax policy that governs their tax approach, specifically in areas of transfer pricing, responsible taxation and transparency.

How / what does the company report in terms of tax? Companies need to explain how much tax data they publish, and how the data provides an analysis of the effective tax rate. Companies need to focus on transparent explanations.

How does the company monitor the tax landscape, and, how does this affect company tax decisions?

Companies need to demonstrate a thorough understanding of the tax landscape before they take decisions regarding their tax structures. This looks beyond the standard financial risks.


3. Corporate Governance and regulatory requirements

The introduction of a tax strategy criterion in the Dow Jones Sustainability Index (“DJSI”) means companies must provide assurances on their tax policies and the sustainability thereof. It will be important to have a coherent and focused tax strategy, especially set against the background of the “fair tax” debate and BEPS.

Page 52




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1. Clarity over role description for Head of Tax and his/her team.

2. A mandate to take action on tax risk management and performance improvement.

3. Visibility of the tax function at the highest organisational level.

4. Clarity over tax function objectives.

5. Drive the right behaviours around tax function objectives.

6. Support the business case for what the tax function wants to achieve.

7. Help the tax function prioritise/reject projects.

8. Builds a platform for better relationships between the tax function and the business. For example, the Tax Policy can set out how tax activities within Accounts Payable, HR functions, or SSC processes are to be owned and managed globally.

What it delivers:

1. Clarity around the business’ tax risk appetite, to facilitate the identification of planning opportunities appropriate to the business’ wider commercial objectives

2. Providing the business with a consistent and efficient review and evaluation process over tax-related matters

3. Raising the profile of tax with key business and finance stakeholders

4. Monitoring and strengthening governance in decentralized and overseas jurisdictions

5. Identifying improvements in tax-related systems, processes and controls

6. Identifying areas where additional tax resources or funding may be required

7. Help you to demonstrate effective tax governance processes during tax authority risk reviews

Page 53

Benefits of an effective Tax Policy



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Typically, contents include:

The Appendices to the Tax Policy are typically the activities that are need to deliver or operationalise the Tax Policy.

27 January 2015 Page 54

What does a Tax Policy look like?

1. Introduction 1.1 Objective of Tax Policy document 1.2 Scope (see Appendix 1) 1.3 Ownership, approval, distribution 1.4 Revision 2. Tax Mission Statement/Tax Code of Conduct

3. Governance 3.1 Tax accountabilities and responsibilities (see Appendices 2-4) 3.2 Delegations of Authority 4. Tax Risk Management 4.1 Tax risk management (see Appendix 5) 4.2 Tax risk evaluation process for decision making (see Appendix 6) 5. Managing relationships with Tax Authorities (see Appendix 7)

6. Business partnering 6.1 Interactions between Tax and the business 7. People and Organisation 7.1 Tax structure 7.2 Measuring tax performance 7.3 Career development and succession planning 7.4 Training (see Appendix 8) 7.5 Use of external advisers (see Appendix 9) 8. Processes and Controls 8.1 Compliance and reporting obligations 8.2 SAO compliance 8.3 Data management and documentation retention (see Appendix 10) 8.4 Use of technology

Typical Appendices in the Tax Policy 1 Entities covered by Tax Policy 2 Tax Team structure 3 Country categorisation for tax purposes 4 Tax accountabilities and responsibilities 5 Management of tax risk 6 Tax risk assessment procedures for decision

making 7 Managing relationships with tax authorities 8 Tax training requirements 9 Use of external advisers 10 Documentation retention policy 11 Glossary of terms


Questions?


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Coffee


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Global VAT Update Martyne Pearson


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Agenda

► EU Updates ► Denmark ► Greece ► Italy ► Spain

► EU Reverse Charge ► Non-EU Updates

► Egypt ► Indonesia ► Japan ► Malaysia ► Russia ► Switzerland ► Uganda


EU Updates

Page 59


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Denmark

A recent survey provided to the tax authorities states that an estimated £300 million of annual VAT is not being accounted for by non-established e-commerce in relation to their business to customer (B2C) supplies of goods to the Danish market. The Danish Tax Authorities (SKAT) has announced that a key focus area in 2015 will be to ensure that non-established e-commerce providers account for Danish VAT on B2C sales of goods to the Danish market. Based on the announcement, it is expected the tax authorities will monitor non-established e-commerce at the beginning of 2015 to ensure that Danish VAT is accounted for on relevant B2C sales.



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Greece

The Greek Ministry of Finance has implemented changes to the reporting requirements for both the annual VAT return and the periodic VAT returns. For tax years ending after 1st January 2014, the submission of annual VAT returns is no longer required. The periodic VAT return has been amended, effective for filing periods after 1st January 2015. To date, the Ministry has not issued specific guidance on how the amended periodic VAT return should be completed, however, the layout of the VAT return has changed.



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Italy

On the 13th December 2014 the following VAT simplifications came into force:

Simplifications to the procedure for claiming a VAT refund, in particular, regarding the requirement to present a guarantee with reference to the VAT credit claimed.

VAT refunds of less than EUR 15,000 will be repaid with no guarantee. VAT credits for amounts exceeding EUR 15,000 will be repaid with no guarantee if

the annual VAT return or quarterly VAT refund claim has obtained the ‘conformity visa’ and the taxpayers self-assess their reliability.

Transmission to the tax authorities of data included in the ‘lettere d’intento’. It will be

the issuer (and no longer the recipient) who will need to file the communication to the tax authorities and provide a copy of the communication receipt to the supplier along with the lettere di intento. The recipient will summarize the lettere d’intento received in its annual VAT return. This provision will apply for supplies carried out from 1st January 2015.



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Italy

Immediate inclusion in the VIES database of taxpayers who request the authorisation to carry out intra-Community transactions.

Exclusion from the VIES would apply where a taxpayer has not submitted Intrastat returns for four consecutive quarters, in which case the tax authorities will send a communication in advance to the taxpayer.

Reduction of the information to be included in service Intrastat returns. Application of penalties for the omission/ inaccuracy of statistical data in Intrastat forms; only for operators who have carried out in the given month dispatches or arrivals for an amount equal to or higher than EUR 750,000 (and only once for each incorrect monthly Intrastat).

An increase from EUR 25.82 to EUR 50 in the value of supplies of free gifts and entertainment costs.

The ability to issue credit notes relevant for VAT purposes for more than one year after the original transaction, in particular for cases of uncollected VAT credits.



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Spain

The tax authorities have announced plans to introduce real-time VAT reporting effective in 2017. Under this new regime, larger taxpayers will be required to provide information on the invoices they issue within four days from the invoice date. The reporting deadline for purchase invoices is four days from the date the invoice is received. These new measures have been introduced to improve fiscal controls in Spain. The new system will initially apply to the following taxpayers:

large taxpayers with a turnover exceeding six million EUR; taxpayers applying the VAT grouping regime; and taxpayers that benefit from the monthly VAT refund facility.



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Spain

Mandatory reporting information includes the date, place and time of the transaction, and the amount of VAT and other details as shown on the invoice. The information must be sent to the tax authorities electronically, by filing the invoices on the tax authorities' web service, thereby allowing the authorities to increase controls and manage information in real time. There will no longer be a requirement to file certain VAT reporting statements (e.g., form 347, form 340 and the annual VAT summary). VAT filing deadlines will also be extended from the 20th day of the following month to the 30th day of the following month.


Reverse Charge

Page 66


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Belgium

A recent case from the Brussels Court of Appeal demonstrates how expensive it can be for businesses that do not apply the reverse charge. The Court of Appeal held that proportional penalties were applicable when the reverse-charged VAT was fully deductible by the company liable for applying the reverse charge. Belgium applies a 200% penalty, automatically reduced to 20% in absence of any fraudulent intent. If the reverse charge VAT is fully deductible, the penalties apply, but the interest is generally waived. In practice, the penalty often applies even when no VAT loss occurred. Courts are now confirming the position taken by the VAT authorities.



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Germany

In Germany, the reverse charge procedure is already in place for supplies of mobile phones and certain integrated circuits if the total consideration for such goods sold in the range of a single economical transaction is at least EUR 5,000. From 1st October 2014, the reverse charge procedure was extended to the supply of tablet computers and game consoles. Initially, no official definition in the German law for ‘tablet computers’ and ‘game consoles’ existed, which created practical difficulties. In response, the Finance Ministry decreed that the reverse charge applies to any mobile device capable of being used as a mobile phone on a public network. Devices which cannot be used as telephones continue to be subject to the normal VAT rules.



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Poland

From 1st January 2015, the reverse charge mechanism applies to the supply of mobile phones (including smartphones), mobile computers (tablets, notebooks, laptops, etc.) and game consoles. This rule applies to transactions exceeding a daily threshold of PLN 20,000 for a particular purchaser, and in some cases PLN 10,000.The manufacturers and distributors of mobile devices are required to: ► monitor the daily value of the supplies to particular purchasers; ► document supplies in a different way than previously; and ► present transactions covered by the reverse charge mechanism in

recapitulative statements submitted on a monthly basis to the tax office.



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Spain

From 1st January 2015 the reverse charge mechanism applies to supplies of mobile phones, video game consoles, laptop computers, and digital tablets.


Non-EU Updates

Page 71


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Egypt

The Minister of Finance has recently announced that a law introducing a VAT system may be published in early 2015 (possibly January or February). However, the implementation of the new system is unlikely to take place until later in the year. In contrast to the current sales tax system, the main features of the new VAT regime include:

application to the majority of goods and services, instead of a small number of services;

ability to deduct input VAT from output VAT; increased registration threshold (EGP 500k or EGP 1 Million); introduction of the reverse charge provisions in certain circumstances; introduction of the arm’s length rule for related party transactions; requirement for fiscal representation for non-residents; and increased penalties and fines for tax evasion.



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Indonesia

According to a recently issued regulation, ‘compliant’ taxpayers that are eligible to seek a preliminary refund of VAT are required to attach a number of documents in hardcopy format to the VAT refund claim, including the following:

export declarations (tangible and intangible goods/services); output VAT invoices and/or cancellation (return) notes; input VAT invoices and/or cancellation (return) notes; and import declarations and/or tax payment slips on the use of offshore

services and intangible goods. An exemption from attaching the above mentioned documents applies to taxpayers with e-invoicing obligations.



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Japan

The Japanese Prime Minister announced in November 2014 that due to economic conditions the JCT rate will not increase to 10% until April 2017 (as opposed to October 2015 as originally planned).



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Malaysia

As part of the 2015 budget, the list of goods and services excluded from GST has been expanded to include:

books of an educational nature and newspapers; Fruit; bread; coffee; and various 'essential medicines'.

The government also agreed to exclude from GST the retail sale of most road fuels (petrol, diesel, etc.).



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Russia

The Russian State Duma is considering a draft bill “On amending Article 165 of the Russian Federation Tax Code.” This draft bill is aimed at simplifying the procedure to apply the zero VAT rate in respect of the export of goods. If the draft bill is adopted, taxpayers will be able to submit the documents required to support the zero VAT rate confirmation electronically. The Russian Ministry of Finance has prepared a draft new Procedure for the issuance and receipt of VAT invoices in electronic form. According to the Procedure, in particular, the customer will not be required to provide to the seller notification of receipt of the VAT invoice in order to consider the VAT invoice to have been issued or received. In addition to this, the customer may claim VAT for recovery on the basis of the VAT invoice issued by the seller in electronic form, provided the VAT invoice is signed by an enhanced encrypted and certified digital signature.



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Switzerland

From 1st January 2015 all foreign-domiciled entities that supply goods, which are subject to the place of recipient rules, to Swiss-domiciled customers, are liable to register for Swiss VAT if the value of the supplies in Switzerland exceeds the annual threshold of CHF 100,000. There will be further amendments to the VAT legislation in January 2016 & 2017.



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Uganda

The Uganda National Budget has announced the proposal of a number of changes affecting the VAT rate applicable to certain goods and services. VAT exemptions and zero rating have been repealed for a number of goods and services including:

► new computers, desktop printers, computer parts and accessories, software and software licenses;

► liquefied petroleum gas; ► insurance services, exempt life and medical insurance; ► printing services for educational materials; and ► supply of machinery and tools for agriculture.


Questions?


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NMW & Holiday Pay – recent developments Ian Thomas & Babatunde Omisakin


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Contents

National Minimum Wage Introduction The legislation Counter arguments Possible solutions

Holiday Pay Introduction Possible solutions

Questions?


National Minimum Wage


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National Minimum Wage - Introduction

National Minimum Wage (NMW) introduced in April 1999 HMRC governs NMW on behalf of the Department for Business Innovation and Skills

(BIS). HMRC’s NMW team comprises 160 staff across 18 locations HMRC has recently challenged a number of employers, including retailers, on their

policies surrounding the provision of own branded clothing to staff 2014 - any employer who receives a Notice of Underpayment from HMRC will be

considered for ‘naming and shaming’ even if their actions are unintentional Number of high profile employers already been named as a result of HMRC challenges Clear financial and reputational implications Own branded staff clothing – HMRC considers that payments made by employees

should be subtracted from their pay for NMW purposes Perverse argument as many employees (and employers) consider the ability to buy

discounted branded clothing an attraction HMRC relying heavily on the legislation and their interpretation of it



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The legislation

The National Minimum Wage Regulations 1999 Key Regulations – Regulations 30–35

Regulation 30: payments made to workers to be taken into account for NMW includes all money payments paid by the employer to the worker.

Regulation 31: all reductions to be subtracted includes money earned in a previous pay reference period, payments or

allowances made to the worker for work related travelling expenses, tips etc Regulation 32: all deductions to be subtracted Regulation 33: deductions that need not be subtracted



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The legislation continued,

Regulation 34: payments made by or due from a worker to be subtracted in the calculation of NMW

Regulation 34(1)(a) - ‘any payment due from the worker to the employer in the pay reference period on account of the worker's expenditure in connection with his

employment’ Regulation 34(1)(b) - ‘any payment paid in the pay reference period on account of the

worker's expenditure in connection with his employment to the extent that the expenditure consists of a payment to a person other than the employer and is not met, or designed to be met, by a payment paid to him by the employer’

Regulation 34(1)(c) - ‘any other payment due from the worker to the employer in the pay reference period that the employer retains or is entitled to retain for his own use and benefit except for a payment required to be left out of account by regulation 35’

Regulation 35: payments not to be subtracted under regulation 34 (c), including:

Regulation 35 (e) - any payment in respect of the purchase by the worker of any goods or services from the employer, unless the purchase is made in order to comply with a requirement in the worker's contract or any other requirement imposed on him by the employer in connection with his employment.”



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Counter arguments

HMRC’s interpretation of ‘in connection with the employment’ too broad

If HMRC were correct, in theory any payments made by employees to a third party could be required to be deducted from pay This could be impossible for employers to identify and administer

In the context of clothing, the Regulations are intended to catch payments for uniforms

Staff clothing would not be accepted as a uniform by HMRC (for tax deduction purposes) Not a recognisable uniform but is clothing normally worn in the

street



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Possible solutions

Stop charging employees Potential benefit in kind issues If BIK, how to value?

Employees keep the clothing – marginal cost Employer keeps – market value

Consider what payments or deductions made and what requirements exist for these payments to be made

Consider to whom the payments are required to be made ie must they be made to the employer or can the clothes be purchased from a third party eg Ebay? Easier to argue – reduces the exposure

If all else fails, negotiate! Consider the extent of the issue – how long has it prevailed, quantum, number of

pay periods affected etc


Holiday pay


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Holiday pay - introduction

Recent cases – Bear Scotland v Fulton, Amec v Law and Hertel v Wood Considered whether non-guaranteed overtime needs to be taken into

account when calculating holiday pay Held that ‘normal pay’ has to be paid in respect of annual leave Overtime was required by the employers and regularly worked by the

workers The overtime pay, therefore, had to be paid in respect of annual leave Also held that claimants could only claim for holiday pay arising after the

most recent three month gap Judgment does not address the position for holiday that an employee

receives over and above the four weeks paid holiday he is entitled to under European Law

Older case, Lock v British Gas Trading, held that contractual commission should be included in holiday pay



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Possible solutions

Retrospective and ongoing implications Retrospective - consider the likelihood of employees bringing claims

Implications will differ depending on whether the workforce is unionised

Ongoing – consider whether any action necessary Again, implications will differ depending on whether the workforce is unionised Consider existing arrangements Are any changes necessary? Can employees be bought out of ongoing obligations? Consider the reference period to apply to quantify any holiday payments Consider changing the pay structure Consider other areas eg NMW, auto enrolment, equal pay obligations

We have experience of handling these types of arrangements and can offer practical and pragmatic advice



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Questions?

Hot Topics


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Agenda

► VAT gap ► European developments

► EU Proposals for simplified regime ► Standard VAT returns ► BEPS

► HMRC announcements ► Review of Civil Penalties ► Transparent Benchmarking Project

► Prompt Payment Discounts ► MOSS ► Pensions ► Holding companies ► Lok’n’Store



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VAT Gap

► UK VAT Gap estimated to be £12 billion 2013-14 ► Difference between theoretical VAT liability using National

accounts data and actual cash receipts

► 10.3% of theoretical total VAT liability ► EU VAT Gap estimated £177billion or 16%

► 5% Netherlands ► 44% Romania

► OECD has released report of consumption tax trends ► Strong increase in standard VAT rate over last 5 years



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VAT Gap

► OECD standard VAT rate is 19.1% (January 2014) ► Average standard rate for EU Countries 21.7%

► Luxembourg standard rate rise to 17% from 1.1.15 ► Portugal dropped plans to raise rate ► Italy plans to increase VAT rate 2015



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European Commission Options for Simpler More Robust VAT Regime

► EU Published paper which contains ideas how to ensure a simpler, more effective and more fraud proof VAT System

► Aim to create a definitive VAT regime to replace “temporary and outdated VAT system”

► Five Options: ► Keep status quo ► Supplier responsible for charging & paying VAT ► Supplies taxed where delivered or customer established ► Customer accounts for VAT ► VAT due where customer is based

► Now undertaking in depth impact assessment



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Proposal for Standard VAT Return

► Information Note issued Italian Presidency of European Union 31 October 2014 ► Confirmed by ECOFIN November 2014

► Proposal: ► Simplified and uniform set of information ► Standard return will replace national returns ► Standardised deadlines

► Aim ► Reduced administration burden for businesses ► Ease tax compliance ► Make tax administrations more efficient

► Positions of Member States remain “broadly divergent” ► Continued lack of progress reported Page 97 EY ReFIT Forum 12th January 2015


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BEPs – OECD International VAT/GST Guidelines

► Committee on Fiscal Affairs (“CFA”) developing international VAT/GST guidelines

► Double taxation and unintended non-taxation of international trade

► OECD published discussions draft in December ► Recommendations first draft re B2C supplies

► Set of common principles for determining place of supply – destination principle

► “On the spot supplies” – where performed ► Customer’s usual residence ► VAT registration - MOSS



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HMRC Announcements

► Lifespan of Revenue & Customs Briefs ► Website states RCBs have 6 month lifespan ► Will be incorporated into guidance notes ► Programme of work being undertaken

► Update to Manual - Single & Multiple supplies ► There is more than one supplier. ► The view of a typical consumer is that they are buying two or more

distinct and independent supplies. ► The terms of the contract and 'economic reality' ► The intention of the legislation.



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HMRC Announcements

► Retail Export Scheme ► RCB 34/14 ► Revised Notice 704 ► Revised evidence of identification ► Revised form ► Reduced burden on retailers ► Claimants can complete form at own leisure



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Review of Civil Penalties

► Office Tax Simplification Review ► Can penalties be:

► Simplified? ► More consistently applied? ► Drive compliant taxpayer behaviour?

► November 2014 report made 14 recommendations including: ► Default surcharge be abolished and replaced with existing direct

tax penalty provisions ► Non trading businesses removed from VAT register

► Overall penalty regime needs review



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Transparent Benchmarking Project

► HMRC VAT Pilot to: ► “explore the effectiveness of publishing benchmarks on

aiding greater voluntary compliance” ► Focus on two business sectors ► Maintenance and repair of motor vehicles ► Retail furniture sales ► Benchmark – VAT mark up ratio ► Likely to be extended ► New Approach – Old fashioned values?

► Employment taxes – KYC ► VAT – Customer Information Pack (“CIP”)



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Prompt Payment Discounts

► 1 April 2015 VAT on full consideration received ► paragraph 4, Schedule 6, VATA 1994

► RCB 49/2014: ► Invoice VAT on full amount ► Can Issue Credit note or ► Can issue invoice with additional information:

► the discounted price ► the VAT on the discounted price ► the total amount due if the PPD is taken up ► Proof of payment

► Disclosure to customer



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MOSS

► Additional Guidance RCB 46/14 ► Germany ► German Ministry of Finance published opinion that EU

Commission’s publications are non binding ► Might not comply with new place of supply rules or MOSS ► EY Pan-EU Survey – VAT Invoicing requirements for

cross border supplies of electronic services ► Countries in which:

► B2C invoice issued upon request ► Obligation to issue invoice ► No obligation to issue invoice



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Pensions

► RCB 43/14 - PPG ► Occupational pension fund ► Administration and management single supply ► VAT deduction if employer party to contract ► Evidence required ► Claims possible ► 70/30 split to be withdrawn – transitional period 31/12/15

► RCB 44/14 - ATP ► Defined contribution scheme is a SIF ► Management of SIF is exempt



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Holding Companies

► RCB 32/14 ► Direct & immediate link ► Cost component of Holdco taxable supplies

► Meeting with Policy December 2014 ► Guidance not aimed at stewardship costs ► Specific concern re M&A activity ► Guidance to be read in context of BAA Ltd decision

► Further meeting scheduled for January ► Concern – conflict with TP rules – value of recharges ► Skandia defence – VAT group single taxable person ► Laurentia & Minerva hearing 7 January 2015 Page 106 EY ReFIT Forum 12th January 2015


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Lok’n’Store Group Plc

► RCB 35/14 ► UT decision – Floor space PESM more fair and

reasonable than SM ► HMRC will not appeal ► Policy remains floor space method not suitable for

retailers ► Whether Input cost is cost component of an output is fact

specific ► Economic and commercial reality

► Where costs are only slightly used in exempt supplies a method resulting in full recovery might be appropriate


Questions?

Open Forum


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Thank you

EY | Assurance | Tax | Transactions | Advisory

Ernst & Young LLP

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