Recent developments in the field of VAT: a view from the European Commission

The future of VAT

A view from Brussels

Daan Arends

Emma GreenowDeze presentatie is

beschikbaar op legalbusinessday.nl

08-09-2011DLA Piper - Legal Business Day 2011 - Recent developments in field of VAT 3

Topics

Practical implications of latest EU VAT rules Current issues - case study

Insight in legislative proces: where are we? New VAT rules on financial and insurance services

Future of VAT

How can you participate?


VAT Package 2010 - New place of supply of services

New general rule place of supply of cross-border B2B services as of 2010 Place where the customer is established (subject to certain

exceptions)

EU Council Regulation No 282/2011 applies from July, 1, 2011

Key concepts of new POS rules: VAT status of customer

Supplier and customer location

Who is liable for VAT

New rules coming up in 2013 and 2015


VAT status of customer: B2B or B2C?

"B2B" - Business to Business Customer = “taxable person”

Includes businesses performing taxable and non-taxable activities (eg local governments, "active" holding & financing companies)

Includes businesses trading below registration threshold

Includes wholly non-taxable legal person "identified" for VAT in its jurisdiction

VAT planning opportunities!


B2C vs B2B: VAT planning

Supplier Holding

SupplierHolding

plus

19% NL VAT

NL LUX

15% LUX VAT


New EU Council Regulation - Place of business of a taxable person

May differ from the place from which the activities are carried out!

Factors to be taken into account

Mere presence of postal address may not be taken into account unless it meets the criteria

-> see Planzer Luxembourg

Concept of "fixed establishment" for VAT now in Regulation

Supplier location: the "intervening" fixed establishment


New EU Council Regulation - customer location

Customer location: Where the customer is established in more than one place, the

services are - as a general rule - taxable in the place where the customer has established his business.

If provided to a fixed establishment -> taxable at that place.

EU VAT Committee Customer is responsible for determining at which location service

is received!

List of factors to be taken into account


Case study

GERSupplier

GERCustomer

Global Contract

Which establishment is providing the service?Does the local fixed establishment intervene?Reverse charge mechanism applicable?

CS FESU FE


Dutch Guidelines

Example 1 A software provider contracts with a branch of a multi-national

business customer with branches in various jurisdictions for licensing services, and such branch “distributes” the licensing services to other branches of the customer.

Example 2 A Dutch business customer engages with a German branch office of

a multi-national consultancy firm with branch offices throughout the world for the performance of consultancy services. In rendering the services the German branch office involves employees from its Dutch branch.


"Use and enjoyment" override

Criterion of "effective use and enjoyment"

Changes place of supply to where service is used and enjoyed (consumption principle)

ECoJ case law -> Athesia Druck Srl.

Inbound- and outbound EU

Overrides fallback rule for B2B and B2C

Various EU jurisdiction's have implemented EU&E rules which may lead to potential conflicts and double taxation


Effective use & enjoyment override

Supplier US co

23% Greek VAT

No VAT

transfer of IP


Modernisation of VAT on insurance and financial services - update

2007: Proposal for Directive and implementing Council Regulation

Objectives:

Increase legal certainty and reduce administrative burdens

Consistent application throughout the EU

Allow businesses to manage better the impact of non-deductible VAT on their activities

Measures:

Redefining existing VAT exemptions -> Council Regulation

Introduction option to tax

Introduction industry specific exemption on (cross-border) cost sharing arrangements


Compromise text Directive 13 May 2011: Insurance and reinsurance -> "transfer of insurance and reinsurance

contracts "-> SwissRe

New definition: processing of (re)insurance claims in Directive -> Skandia

-> "means a bundle of services necessary for making a decision on (re)insurance claims"



See also new compromise text of Council Regulation May 13, 2011

New definition of processing of insurance and reinsurance claims shall cover at least:

(a) receipt and handling of insurance or reinsurance claims;

(b) accepting and rejecting claims and making any necessary policy or premium adjustments.

However, processing of insurance and reinsurance claims shall not, in particular, cover the following:

(a) claims settlement;

(b) damage assessment.



Compromise text Council Regulation May 13, 2011

financial transfers - included is: "(d) the execution of transfers of monies into other money media allowing temporary storage of the value of these monies and subsequent payment for goods and services, such as smart card based electronic purse systems, telephone cards, and credits for mobile phones:"

Excluded is:"(b) the electronic transport of messages between" financial service providers while ensuring their integrity and security."

Nordea Pankki Suomi Oyj, C-350/10, July 28, 2011:

"SWIFT’s responsibility is limited to technical aspects and does not extend to specific, essential elements of the financial transactions"



Hungarian Presidency identified four major outstanding issues:

1) transfer of insurance and reinsurance contract portfolios;

2) outsourcing;

3) management of investment funds;

4) derivatives.



A VAT View from Brussels

Shift of focus in Brussels Following the financial crisis - generating revenues

A global and EU approach

Modernisation of system

Lisbon Treaty - shift of institutional power

Enhanced powers for the Commission


Measures to generate revenue

Financial Transaction Tax

At the Paris summit today Chancellor Angela Merkel and President Nicolas Sarkozy said they planned to introduce the tax as part of their response to the sovereign debt crisis. Mr Sarkozy said: "The French and German ministers will table a joint proposal at the EU level next September for a tax on financial transactions. This is a priority for us." Telegraph, 17/8/11


Sticking points

Its been a difficult few months for the European Commission


Ongoing work to be finalised

Proposals which still need completion: VAT Package implementation - 1 January 2011

VAT Refund Directive - 1 January 2010

VAT Financial Services and Insurance - ongoing

Forthcoming proposals including: VAT treatment of vouchers


The future of VAT

European Commission want to change VAT in Europe Fundamental reassessment in 2011

New economic realities, technological processes, fraud patterns etc - lead to new challenges in Europe

Issues in recent legislation - limited European Commission power to intervene without more legislation in implementation

Recent consultations are inconclusive of action - level of standard rates in VAT and CCCTB

Often resistance by national governments on VAT - emotive issue to find agreement upon


Green Paper

Green Paper looking at the Future of VAT launched on 1 December 2010

Green Paper designed to gather stakeholder information by asking 32 questions about the whole of VAT in Europe including:

Scope of VAT - including derogations, exemptions and definitions;

System of deductions reform;

VAT accounting; and

Protection from fraud.

System replaced by an origin based system (country of seller)


Green Paper

New, modern system of VAT collection;

Further harmonisation;

Increasing the power of the European Commission;

European Parliament are currently considering their response to the Green Paper;

Following Green Paper feedback Commission will draft a number of proposals.


Feedback from Green Paper

Greater simplification, certainty and fairness;

Exemptions, derogations and exceptions;

Implementation of tax law;

More transparency;

Tax fraud prevention;

Hybrid system.


Input into process

Green Paper is still the initial stage

European Commission seeking input from business and other stakeholders

Process of analysis of feedback to determine what is placed within the proposals

Now is the time if you have concerns to become involved - once the text is drafted it may be too late to radically change!


Case Study

How do we work

Understand the issue of our client

Develop a strategy for engagement at EU level

Draft and develop key messages

Organise contact with key stakeholders

Assist with drafting legislative amendments

Conduct follow up and understand the needs of the stakeholder

Involve the media

National involvement


Case study

Client expressed concern relating to the implementation of EU law

Formed an informal coalition of other companies

Developed helpful, business based information for EC

Conducted stakeholder meetings

Carried out continuous follow up

Positioned the client as a 'business representative'

Worked with the institutions to find a solution

Positive outcomes


Contact

Daan Arends

Emma Greenow

E: [email protected]: 020 5419 315

E: [email protected]

T: + 32 2 500 1623


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Recent developments in the field of VAT: a view from the European Commission

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