Tax | KPMG | CA

GLOBAL INDIRECT TAX SERVICES

Global Indirect Tax BriefA roundup of developments in VAT, GST,

trade and customs, and other indirect taxes

Issue No. 27 – November 2012

TAX

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Introduction ........................1

European Union ..................2

Australia ..............................4

Austria ................................5

Belgium ..............................6

Canada ................................7

China ...................................9

Colombia ...........................10

Denmark ........................... 11

France ...............................12

Germany ...........................13

India ..................................14

Indonesia ..........................15

Italy ...................................16

Table of Contents

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

Japan ................................17

Mexico ..............................18

New Zealand .....................19

Norway .............................20

Portugal .............................21

Romania ............................22

Russia ...............................23

Singapore ..........................24

South Africa ......................26

Spain .................................27

Sweden ............................28

UK .....................................29

US .....................................31


iv | Global Indirect Tax Brief

Introduction


Welcome to the November 2012 edition of KPMG’s Global Indirect Tax Brief. In the following pages, we’ve assembled a selection of what we hope you’ll find to be insightful articles exploring some of the most pressing issues and trends affecting the global indirect tax landscape. Changes in the Canadian indirect tax landscape, the EU Commission’s review of VAT on vouchers and the upcoming consumption tax rate increase in Japan are just a few of the topics our experts examine in this issue.

This is my second opportunity to address many of you since my recent appointment as KPMG’s Global Head of Indirect Tax Services this past 4 months. This is an area that I, like many of you, am extremely passionate about. And it was in 2004 that I decided to turn my attention to the indirect tax field, having realized what a massive, complex and economically-significant discipline it was poised to become.

Against that backdrop, if you will kindly indulge me, I’d like to share a few observations about the state of indirect tax today and where we could be headed in the not-too-distant future.

Over the last two decades, we’ve seen a significant increase in the number of countries using indirect tax to fund government. While there are still some outliers (such as the US), it’s clear that indirect tax will be the way of the future.

As many of you can attest, the degree of complexity in the area of indirect tax is also on the rise. For large, multinational organizations, the implications can be significant. In one company I visited recently, there were 40 indirect tax practitioners in their shop in just one country alone. A few years ago, this would have been unheard of. And while big business has addressed some of the issues around managed risk, there are many organizations leaving potential value on the table because of their failure to manage and measure their VAT/GST positions. In 2012, there are too many organizations allowing these indirect tax opportunities to go unrealized.

One of the more controversial developments we’ve seen lately is countries imposing taxes on financial transactions. France introduced such a tax in August. Spain, Italy and Germany are looking to follow suit. And while it’s unlikely we will witness the passage of the Harkin/DeFazio bill in the US any time soon, the fact that such a bill was even proposed in that country illustrates how mainstream these forms of taxation have become.

In conjunction with the Affordable Care Act (“Obamacare”), the US Government also recently enacted a 2.3 percent excise tax on medical devices. The tax continues to generate controversy, with critics claiming it will have a negative impact on jobs and medical innovation. We at KPMG don’t expect the trend toward these types of new taxes to dissipate anytime soon.

Indeed, indirect tax is coming of age. The question now for large corporations is how develop a practical, yet detailed, framework to successfully manage their indirect tax risks and to create value simultaneously.

These are just a few of the issues we will tackle in this and future issues of the Global Indirect Tax Brief. We hope you enjoy this issue.

If you’d like to discuss any indirect tax questions, please contact me or any of the specialists listed in the back of this publication.

Thank you for reading.

Tim Gillis Global Head of Indirect Tax Services T: +1 202 533 3700 E: [email protected]

Global Indirect Tax Brief | 1© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

On 10 May 2012, the European Commission issued its proposal to reform the VAT treatment of vouchers, with the aim of removing uncertainties which are considered harmful for the growth of the EU voucher market.

Commission review of VAT on vouchers1

On 10 May 2012, the European Commission issued its proposal to reform the VAT treatment of vouchers, with the aim of removing uncertainties which are considered harmful for the growth of the EU voucher market.

To put this in context, the Commission estimates the minimum value of the EU voucher market (for 2008) at EUR52 billion, of which pre-paid telecoms cards represent EUR36 billion. The balance comprises a mixture of gift vouchers, loyalty cards and discount vouchers.

The proposal aims to provide certainty on how VAT should be treated when dealing in vouchers. It also seeks to eliminate double or non-taxation. This could arise in a cross-border context, for instance, where the voucher is issued in a country which taxes its sale, but the voucher is redeemed in a country which taxes its redemption.

Why is this proposal needed?

The recast EU VAT Directive (and the Sixth Directive before that) does not contain a definition of a voucher nor rules dealing with transactions in vouchers. The absence of legislation in this area has led Member States to adopt their own rules, an approach described by the Commission as being “inevitably uncoordinated”.

The differences between these rules typically center on three key issues:

• Identifyingwhatthevoucheris–isita payment instrument, a right or an advance payment?

• Thetimingofwhentaxisdue–isittaxed on sale or redemption?

• TheamountonwhichVATisdue–facevalue or amount actually paid?

Further complexity can arise in the treatment of unredeemed vouchers. Should VAT be charged where no supply has taken place, but consideration has been received? There are also complications around the impact of national anti-avoidance measures on vouchers that can be sold or used cross-border.

Collectively, these issues have harmed the growth of the voucher market. In some instances, they have caused tax leakage where, particularly in a cross-border context, transactions fell outside the VAT net.

In tandem with the practical difficulties experienced by taxpayers and Member States, the Court of Justice of the EU has had to step in on a number of occasions to clarify how vouchers should be treated.2 However, the decisions in these cases are narrow as they deal solely with the specific questions and the particular circumstances of the case in question. Moreover, Member States have not uniformly applied the resulting decisions.

What is the impact of this proposal?

The proposal follows a public consultation launched in 2006 which invited views on the practical difficulties faced by operators in the voucher industry. The Commission is to be commended for producing proposals which seek to balance the preferences of all stakeholders (both public and private) who participated in the consultation, in what can be a complex field.

The proposal includes draft amendments to the Recast EU VAT Directive, with the aim that Member States will implement these measures with effect from 1 January 2015. Specifically, the proposal defines vouchers as falling into three distinct categories:

• singlepurposevouchers

• multi-purposevouchers

• discountvouchers.

Single purpose voucher

The proposal defines a single purpose voucher (SPV) as a voucher carrying the right to receive a supply of goods or services where the supplier’s identity, the place of supply and the applicable VAT rate for those goods and services is known at the time the voucher is issued.

The proposal confirms that SPVs are subject to VAT when sold. This is a departure from many countries where vouchers are not subject to VAT on sale, only on redemption. Under the

1 This article includes extracts from an article (Commission Review of VAT on Vouchers) which was first published in Issue 3 of Irish Tax Review (2012). They have been reproduced with kind permission of the Irish Tax Institute.

2 Argos Distributors C-288/94, Elida Gibbs C-317/94, Kuwait Petroleum C-48/97, Societe Thermale C-277/05, Astra Zeneca C-40/09 to name a few.

European Union

2 | Global Indirect Tax Brief



Commission’s proposals, the sale of an SPV is subject to VAT based on the underlying goods or services against which the voucher can be redeemed. In addition, the taxable amount is the consideration paid for the voucher. The proposal further confirms that redemption of an SPV does not trigger a VAT event (as otherwise double taxation could occur).

Multi-purpose vouchers

A multi-purpose voucher (MPV) is any voucher, other than a discount voucher, which is not a SPV. Unlike SPVs, the sale of an MPV is not subject to VAT. Rather, VAT is due on redemption of the voucher, based on the underlying goods or services supplied.

The Commission’s proposal stipulates that the taxable amount on redemption of an MPV is “the nominal value of that voucher”. This is a new concept, referring to the consideration which the issuer of the voucher can earn, and is the amount upon which the issuer must account for VAT when the voucher is ultimately redeemed.

The Commission further proposes that, as MPVs are often sold through an intermediary, it is necessary to tax the margin obtained by the intermediary on the purchase and sale of the MPV. As a result, the Commission proposes that the standard rate of VAT shall apply to a deemed distribution service provided by a party who acquires a voucher for the purposes of onward sale.

Discount voucher

A discount voucher is a voucher carrying a right to receive a price discount or rebate on a supply of goods or services.

The Commission proposes that where a money-off coupon is presented by a

customer to a business supplying goods or services, the money-off coupon will no longer be considered third-party consideration in the hands of the supplier. Rather, the reimbursement of the supplier is viewed as the supply of a redemption service by the retailer to the person that issued the discount voucher. As the supplier is now viewed as supplying a redemption service to the party that issued the discount voucher, the retailer is obliged to charge standard rate VAT on the value of the redemption service.

Comment

These proposals give greater certainty to retailers, telecoms operators and other parties who issue or accept vouchers, but some issues remain. For instance, a clear distinction between what is a MPV and a means of payment. Certainly, the proposal confirms that many types of payment services fall outside the scope of the voucher proposals. It can be difficult, however, to fully reconcile the difference between having purchased a right to acquire unidentified goods and services, and having the means of paying for them. This is an important distinction. Numerous VAT and regulatory issues arise where, for example, a card loaded with value is considered a means of payment rather than an MPV.

Furthermore, there are instances where the VAT cost in dealing with vouchers will increase as a result of these proposals. For instance, it is widely accepted that where a voucher is sold but never redeemed, no VAT arises on the consideration retained by the card issuer. However, with the proposed rules for SPVs, it appears that no facility exists for the vendor of an SPV to reverse VAT accounted for on its sale, if the voucher is never redeemed.

In addition, as a result of the additional cash flow cost arising from having to account for VAT upfront on the sale of an SPV, it is anticipated that many will seek to ensure that the vouchers they sell are classed as MPVs and not SPVs.

It is also interesting to note that one of the initial proposals the Commission suggested in 2007 has not been adopted in this latest proposal. Namely, the introduction of a common threshold for the supply of gifts. Originally, the Commission proposed that a EUR50 limit would be applied to the giving of gifts free of charge by a business. Such a proposal would have been of real benefit in a number of countries, such as Ireland, where the gift threshold is EUR20. It would have been unwelcome in other countries, however, such as the Netherlands, where the gift threshold is EUR227.

Overall, the proposals are welcome but it is clear that some issues remain. It is hoped these issues can be clarified in time for the successful introduction of the new rules in 2015.

If you would like to know more about this subject or any other indirect tax matter concerning the EU, please contact:

Richard Cowley KPMG in Ireland T: +353 1410 2427 E: [email protected]

Ana Roldao KPMG in Portugal T: +351 210110999 E: [email protected]

When a corporate group reorganizes its business structure, stamp duty may arise on the restructure, even if tax does not arise at a federal level.

Getting to grips with Australian stamp duty

Stamp duty is a tax imposed at state and territory level on certain transactions in Australia, such as transfers of business assets or land, and acquisitions of interests in certain companies, partnerships or trusts. It is calculated at rates of up to 7.25 percent on the gross market value of all Australian assets (held directly or indirectly).

Failing to consider stamp duty during, for example, an internal restructure of a corporate group with a physical presence or investment in Australia, risks exposing the group (or its directors) to interest and penalties on outstanding liabilities, or even criminal charges.

What is a corporate reconstruction exemption?

When a corporate group reorganizes its business structure, stamp duty may arise on the restructure, even if tax does not arise at a federal level. Most Australian states offer a corporate reconstruction exemption which removes the stamp duty liability on intra-group transfers if certain conditions are met. Exemptions are not granted automatically, however, they must be applied for.

Why should you consider a corporate reconstruction exemption?

Offshore restructures can also be subject to Australian stamp duty, particularly if they involve companies and trusts that are

Some states also require the transferor and transferee to be part of the same corporate group for certain periods. These could be 3 years before the transaction and 3 years after the transaction, depending on the state involved. Therefore, a corporate restructure which groups particular assets into a ‘package’, with the intention of then selling that package, will not qualify for the exemption.

These are only some examples of the conditions that must be satisfied. When applying for an exemption, the facts and circumstances of each transaction must be analyzed to determine the relevant jurisdiction and whether its particular rules for an exemption are satisfied.

directly or indirectly entitled to Australian real property. In other words, Australian stamp duty can still arise, even if no Australian entity is directly involved in the transaction.

For example, a European corporate group decides to transfer one European subsidiary company under another. As a result of the restructure, one subsidiary will own all the shares and assets of the other, including the shares of a Singaporean company. The Singaporean company owns an Australian company which owns land in Australia. Stamp duty will be payable at rates of up to 7.25 percent on the gross market value of the Australian assets transferred (or deemed to be transferred), even though the Australian company is not a party to the transaction.

An application for a corporate reconstruction exemption should be considered to prevent an Australian stamp duty liability. Subject to certain conditions, the exemption may save the European corporate group from paying stamp duty on the value of the Australian assets.

Conditions to be satisfied

To be eligible for the exemption, the transaction must satisfy certain conditions. These conditions differ between Australian jurisdictions. For example, some states allow transfers between trusts and companies that are held by a common entity, whereas others only allow the exemption for companies.

Australia

If you would like to know more about this subject or any other indirect tax matter concerning Australia, please contact:

Matthew Stutsel T: +61 (2) 9455 9094 E: [email protected]

KPMG in Australia



Austrian VAT law was recently amended as part of a general tax reform. According to the new VAT law, entrepreneurs can immediately deduct VAT incurred on eligible goods and services acquisitions.

VAT revision period extended for real estate sector

Austrian VAT law was recently amended as part of a general tax reform. According to the new VAT law, entrepreneurs can immediately deduct VAT incurred on eligible goods and services acquisitions.

For real estate and other investment goods, however, the VAT law provides for a revision period. During this period, the initial VAT deduction can be revised if the real estate is no longer used for VAT-able activities. The revision period for real estate was recently extended from 10 to 20 years, bringing it into line with the maximum revision period allowed in the EU VAT Directive. The revision period for other investment goods is 5 years.

If, from a VAT perspective, the use of real estate changes within 20 years of its acquisition, construction or refurbishment, an input VAT adjustment for the respective year is needed: one-twentieth, or 5 percent, of the input VAT has to be paid back for each remaining year of the revision period.

For example: Entrepreneur A acquires real estate and uses it for VAT-able business purposes. However, after 10 years he/she begins to use the real estate for private purposes only. So, from year 10 until year 20 (the end of the revision period), he/she must pay back annually one-twentieth of the input VAT initially claimed from the tax authorities. Overall, entrepreneur A is allowed to claim 45 percent of the total input VAT amount.

Changes to VAT status of leased real estate

Another recent change to the VAT Act concerns the option of applying VAT on the rental of real estate. In principle, leasing real estate is VAT exempt (except if leasing real estate for residential purposes). The lessor cannot claim any deduction of VAT incurred in relation to the real estate. However, lessors can opt to apply VAT, with the consequence that input VAT then becomes deductible.

With the recent changes, the option for VAT liability will only be allowed if the lessee uses the leased real estate almost exclusively (at least 95 percent) for taxable supplies that entitle him/her to claim input VAT deduction. The lessor has to prove that the requirements for exercising the option are fulfilled. Practically, opting for VAT will no longer be possible if the property is leased to banks, insurance companies or certain public sector entities.

Electronic invoicing

Currently, only electronic invoices containing an electronic signature, invoices issued via Electronic Data Interchange, or invoices submitted by fax, are valid from a VAT point of view. Only these forms of electronic invoice entitle their recipients to deduct input VAT.

However, under changes brought in by EU Directive 2010/45 which must be implemented by 1 January 2013, any electronic invoice that fulfils the criteria of authenticity, integrity and readability, will be accepted as an invoice for VAT purposes.

Austria

If you would like to know more about this subject or any other indirect tax matter concerning Austria, please contact:

Anna Bauer T: +43 1 31 332 847 E: [email protected]

KPMG in Austria


As part of its economic stimulus plan, the Belgian federal government has decided that the cash deposit required for a VAT import license (ET 14.000 license), will shortly be abolished.

VAT import license will no longer be subject to an upfront cash deposit

As part of its economic stimulus plan, the Belgian federal government has decided that the cash deposit required for a VAT import license (ET 14.000 license), will shortly be abolished.

In principle, when goods are imported into Belgium, import VAT is due. It has to be paid to the Belgian customs authorities at the moment the goods cross the border.

Input VAT can be recovered afterwards through the importer’s Belgian VAT return, but it can take up to 6 months. This constitutes a significant pre-financing of import VAT at a time when cash is paramount for running a business.

Import license avoids cash flow implications

To avoid this adverse cash flow impact, a taxpayer can apply for an import license if certain conditions are met. This license is often used by companies importing larger volumes of goods. It allows the company to pay the import VAT through the periodic VAT return and to immediately report it as deductible VAT in the same return. As a consequence, through this so-called reverse charge mechanism, the importation generates no VAT cash flow effect.

The only disadvantage of the import license is the cash deposit which needs to be paid when applying for it, equal to one-twenty-fourths of the VAT due over one calendar year. The deposit must be revised annually by 20 April, based on the import VAT reported over the previous calendar year.

Deposit condition to be abolished

The government now wants to abolish the cash deposit to mitigate the competitive disadvantage suffered by Belgian harbors. In the Netherlands, for example, no deposit is required to obtain an import license, which makes Dutch harbors more attractive from a VAT perspective.

Although the decision to abolish the cash deposit in the near future has been taken by the Belgian government, the practicalities are still unknown. To date, there is no specific timing on when companies will be able to apply for an import license without needing to pay a cash deposit upfront. Nor are there any details available on whether existing cash deposits will be repaid immediately or gradually over time.

Either way, the new measure will give breathing room for companies importing large volumes of goods into Belgium. Most will agree that in difficult financial times when cash is king, measures like this are more than welcome.

If you would like to know more about this subject or any other indirect tax matter concerning Belgium, please contact:

Peter Ackerman T: +32 (2) 708 3813 E: [email protected]

KPMG in Belgium

Belgium



With 2013 only a few months away, significant indirect tax changes in Canada are fast approaching. Businesses should consider the impact on their 2013 financial budgets.

Doing business in Canada – get ready for more indirect tax changes in 2013

With 2013 only a few months away, significant indirect tax changes in Canada are fast approaching. Businesses should consider the impact on their 2013 financial budgets.

Among these changes, British Columbia proposes to transition from a federal-provincial harmonized VAT regime to a goods and services tax (GST) and provincial sales tax (PST) regime, while Quebec proposes to harmonize more of its provincial tax rules with the federal GST.

Some of these changes will create unrecoverable tax costs and new compliance issues for many businesses. Companies may have to significantly change their accounting systems and processes to accommodate new or modified tax regimes in the provinces where they do business. An early understanding of the impact of these changes could result in more effective management and implementation of these changes.

Quebec

Quebec proposes to harmonize more of its Quebec Sales Tax (QST) rules with the rules for the federal GST, with effect from 1 January 2013. Despite these changes, Quebec will maintain its QST separate from the GST, so businesses will still have to deal with two separate tax regimes in the province.

One of the most significant changes under the modified QST will make financial services QST-exempt, as opposed to QST zero-rated. As a result, businesses providing financial services will generally no longer be entitled to claim input tax refunds for the 9.975 percent QST paid on expenses related to these services, significantly increasing some costs.

Other changes propose to:

• removeGSTfromtheQSTbase(i.e.QST will be calculated on the price before GST) and increase the QST rate to 9.975 percent (from 9.5 percent) as of 1 January 2013

• requiresomenon-residentsofCanadato cancel their optional QST registration.

British Columbia

British Columbia will transition from HST back to GST and a new PST, with effect from 1 April 2013. Businesses that had to revamp their systems when the HST was introduced in 2010 will have to revamp them again to return to GST and PST, as well as making appropriate changes to address the new PST, including:

• increasedcostsduetounrecoverablePST paid

• twodifferentsetsofrules,taxbases,and tax returns

• transitionalissuesformanyitemssuchas credit notes and returned goods.

Manitoba

Manitoba has applied its 7 percent PST to many insurance contracts since 15 July 2012. As taxable insurance contracts are renewed or certain premiums are paid on or after that date, many businesses have to pay or self-assess the 7 percent PST on these contracts or premiums.

Prince Edward Island

Prince Edward Island proposes to harmonize its PST with the GST with effect from 1 April 2013, to create a new 14 percent HST (reduced from the current effective combined GST/PST rate of 15.5 percent).

GST/HST and financial institutions

Complex Federal draft regulations for some financial institutions were released in early 2011. These entities are still waiting for these regulations to be published in their final version to determine whether there will be additional changes.

Canada

(More...)


Elimination of the penny

The federal government recently announced the upcoming elimination of the Canadian penny and a revised transition date of early February 2013 (from fall of 2012). The GST/HST will continue to be calculated on the pre-tax price; only the final total for cash payment will be rounded to the nearest five cents. Electronic payments will not be rounded and will continue to be paid to the nearest cent. As such, the elimination of the penny should not affect the calculation or the remittances of GST/HST. However, some businesses may still need to take steps to adjust their sales procedures.

Now is a good time to consider which of these changes will affect businesses in the coming year. Preparing for changes to systems and processes can help a business avoid costly errors and take advantage of any opportunities to reduce the tax burden.

If you would like to know more about this subject or any other indirect tax matter concerning Canada, please contact:

John Bain T: +1 416 777 3894 E: [email protected]

KPMG in Canada

Canada



China’s State Council recently announced that the VAT pilot program, which has been in force in Shanghai since 1 January 2012, will be expanded progressively to 10 other cities and provinces by the end of 2012.

Major expansion of VAT reforms in China

China’s State Council recently announced that the VAT pilot program, which has been in force in Shanghai since 1 January 2012, will be expanded progressively to 10 other cities and provinces by the end of 2012.

The pilot program expands VAT to the services sector in mainland China, replacing Business Tax (BT).

In a joint circular Cai Shui [2012] No. 71 (Circular 71), dated 31 July 2012, the Ministry of Finance and the State Administration of Taxation announced the implementation dates for each location as follows:

• Beijing(1September2012)

• JiangsuandAnhui(1October2012)

• Fujian(includingXiamen)andGuangdong (including Shenzhen) (1 November 2012)

• Tianjin,ZhejiangandHubei(1 December 2012)

This expansion will mean that the majority of China’s commercial centers will be covered by the VAT reforms. Further expansion to the remaining cities and provinces in China is expected to take place in 2013.

Circular 71 confirms that the same pilot program rules and service industries as Shanghai will be covered in each of the new pilot locations. Namely, the transportation and modern services industries. Financial and insurance services, real estate and construction, telecommunications and postal services, and entertainment services, remain

subject to BT. However, they are expected to be brought within the new VAT regime progressively from 2013.

An underlying theme of the VAT reforms is the extent to which the new VAT rules have attributes which are consistent with international models of VAT applicable in jurisdictions such as Australia, New Zealand and the EU, while still retaining some distinctly Chinese characteristics.

For multinational companies either doing business in China, or doing business with China, there are a number of changes which potentially benefit them, including:

• Cross-border services – services provided from China to overseas, or from overseas to China, can now be structured so there may be no effective VAT cost. Previously, cross-border services were generally subject to a 5 percent BT cost. This benefit can apply to a broad range of services provided cross border, including intercompany service arrangements, transfer pricing arrangements, royalties for intellectual property rights, back office support services, management services and many more.

• Input VAT credits for services – manufacturing companies and other VAT taxpayers currently selling goods in China can now claim input VAT credits for the services they purchase from suppliers subject to the VAT pilot program, whereas previously those services usually incurred a 5 percent BT cost.

• VAT input credits for goods and fixed assets – businesses providing services in China, or granting intellectual property rights, can now claim input VAT credits for the purchase of goods,

fixed assets and services in their business (provided they are registered as a general VAT taxpayer with the tax authorities). Previously, no such credits were available.

Circular 71 gives businesses more certainty to prepare for the VAT reforms, and a clear timetable for doing so. We recommend that businesses take action as soon as possible to prepare for the VAT reforms by preparing a project plan which prioritizes key tasks, including:

• consideringthefinancialimpactofthese changes, and how they will affect pricing

• reviewingandupdatingcontracts

• trainingstaff

• communicatingtheeffectswithcustomers, and negotiating the passing on of tax savings from suppliers

• updatingITsystems

• assessingandapplyingforaccesstoexemptions and other concessions.

If you would like to know more about this subject or any other indirect tax matter concerning China, please contact:

Lachlan Wolfers T: +86 21 2212 3515 E: [email protected]

KPMG in China

China


In a recent ruling, the Council of State, the highest judicial authority in tax matters, indicated that transferring the ownership of movable tangible property does not always trigger VAT.

VAT on the transfer of ownership of movable tangible property


VAT is a national tax levied on, among other things, the sale of movable tangible property within Colombia. ”Sales” are regarded as all acts involving the transfer of the ownership of goods against consideration or for free.

The above ruling was issued to resolve a dispute between the tax authorities and a taxpayer involved in the delivery of goods under an employees’ incentive scheme.

The taxpayer marketed and sold its products via catalogues and a network of promoters that received goods as rewards for achieving their sales objectives. Although there was a transfer of ownership of a movable tangible property, the taxpayer did not charge VAT, which triggered questions from the tax authority. The dispute was ultimately solved by the Council of State.

The Council of State ruled that VAT was not due because the operation was not a sale by the taxpayer, but an incentive structure constituting an expense associated indirectly with the income producing activity. It can be inferred from this ruling that not all deliveries of goods are subject to VAT.

This conclusion was unexpected, given the broad definition of a sale mentioned previously.

Theoretically, the decision is only binding for the parties involved in this case. Taxpayers involved in similar transactions should nevertheless monitor rulings on this topic. If the Council of State follows the same line in other cases, it could generate opportunities to reduce the tax burden.

Colombia

If you would like to know more about this subject or any other indirect tax matter concerning Colombia, please contact:

María Consuelo Torres Lozano T: +57 1 618 8000 E: [email protected]

KPMG in Colombia




New tax on non-life insurance in Denmark

On 1 January 2013, a new tax on non-life insurance will be introduced in Denmark. The new tax replaces the current stamp duty.

In 1657, the Danish King Frederik III introduced a tax on stamped documents (stamp duty) in order to finance the war against Sweden. Even though there has not been war between Denmark and Sweden since 1814, the stamp duty has survived until today, although since 2000 it has only applied on non-life insurance.

With effect from 1 January 2013, the stamp duty will be abolished. Instead, a new tax on non-life insurance will be introduced.

Modernization

First and foremost, the new tax is a modernization of the stamp duty. Stamp duty is charged when an insurance policy is created. It was originally paid when the insurance policy received its official stamp. Today, however, stamp duty is almost exclusively paid via monthly returns. The new tax will be a ‘regular’ tax and will be similar to other Danish excise duties, such as the Danish tax on motor liability insurance and pleasure boat insurance.

Taxable insurances

In general, insurances that are currently subject to stamp duty will be subject to the new tax.

However, there are some changes:

• Thirdpartyliabilityinsuranceformotorvehicles will be exempt from the new tax.

The current exemption for insurances where the sum insured does not exceed DKK12,000 will be abolished. This change means that extended warranty insurances, e.g. for televisions, computers and refrigerators will be taxable from 1 January 2013.

• Themethodforcalculatingthetaxon combined insurances will change. For example, household insurance that includes fire and water damage. The stamp duty on this type of insurances is currently calculated on the insurance with the highest premium. From 1 January 2013, the tax will be calculated on the total premium.

Changes to the tax rate, period and foreign companies

The other changes relate to the tax rate, period, and foreign insurance companies.

The changes are:

• Thetaxrateis1.1percentofthecharged premium.

• Thetaxmustbereportedandpaidno later than the 15th of the month following the tax period (month).

• Insurancecompaniesestablishedinthe EU, Norway, Iceland, Liechtenstein, Greenland and the Faroe Islands can register without appointing a Danish representative. Insurance companies established in other countries must appoint a Danish representative.

• ADanishrepresentativewillbejointlyandseverally liable for payment of the tax.

According to the transition rule, as of 1 January 2013, all charged premiums are liable to the new tax, even if stamp duty has previously been paid for the same insurance policy.

If there is irregular charging of premiums before the new regime comes into effect, the law holds a precautionary measure which implies that these premiums will be liable to the tax.

If you would like to know more about this subject or any other indirect tax matter concerning Denmark, please contact:

Peter K. Svendsen T: +45 73 23 35 45 E: [email protected]

KPMG in Denmark

Denmark


The ‘répondant fiscal’ was a kind of VAT representative status, introduced in 2006 when France decided to implement a general domestic reverse charge mechanism.

The end of the French ‘répondant fiscal’ mechanism

The ‘répondant fiscal’ was a kind of VAT representative status, introduced in 2006 when France decided to implement a general domestic reverse charge mechanism.

It allowed suppliers not established in France, and their French VAT-registered customers, to avoid application of the reverse charge mechanism. Instead, the French VAT owed by the customer a declared and paid in their name and on its behalf by the foreign supplier through a répondant fiscal.

As this procedure instituted a kind of fiscal representative for non-EU as well as EU companies, the Court of Justice of the EU judged that the répondant fiscal mechanism was not in line with the EU VAT Directive.1

The consequences of this decision, although not unexpected, are now very clear: the French tax authorities have recently confirmed that the procedure is no longer applicable from 1 October 2012.

Any foreign operator that has established a répondant procedure will need to follow a specific process to cancel it.

The elimination of the mechanism will deeply impact foreign companies that have been using this procedure up to now, since they could end up with a significant recurring VAT credit in France.

Indeed, once the répondant fiscal is cancelled, foreign companies will then issue invoices to French customers by applying the French domestic reverse charge mechanism. However, the will still be charged with French input VAT by their own (French) suppliers, thus creating a VAT credit position which could become significant.

To avoid an unfavorable cash position, it is advisable to consider implementing specific VAT regimes or to look at potential opportunities to modify the supply chain.

Lastly, the French tax authorities have used the introduction of the new regime to publish new regulations on French Intrastat returns. To simplify formalities for foreign companies, the new regulations have modified the rules aimed at

If you would like to know more about this subject or any other indirect tax issues in France, please contact:

Laurent Chetcuti T: +33 1 55 68 14 47 E: [email protected]

Fidal

determining the person liable for filing the Intrastat return in two distinct cases:

(i) for sales of goods with installation

(ii) where goods are transferred into France from an EU Member State by a company not established in France and then sold to a French company (e.g. consignment stock regime).

This means that foreign companies that are VAT registered in France solely to file Intrastat returns may no longer need to maintain their French VAT registration.

1 Case C-624/10, European Commission v. République Française, December 15, 2011.

Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.

France



Recently, the German Federal Tax Court (BFH) requested a preliminary ruling by the CJEU. It concerns the VAT treatment of discounts granted by an agent to the customers of his client.

Reduction in consideration due to discounts within a supply chain

Recently, the German Federal Tax Court (BFH) requested a preliminary ruling by the Court of Justice of European Union (CJEU). The VAT treatment of discounts granted by an agent to the customers of his client.

In this ruling a limited liability company (GmbH) provided taxable intermediary services to travel companies in Germany. The brokered travel services were subject to the Tour Operators Margin Scheme for VAT (TOMS) and were partly taxable and partly exempt. In return for the intermediary services, the GmbH received agreed-upon commission payments from the travel companies. The GmbH also granted price discounts to the travel customers. The tax authorities rejected the reduction in the taxable basis for the intermediary services, where the price discounts related to tax-exempt travel services.

The starting point for the questions referred is the CJEU ruling of 24 October 1996, C-317/94, Elida Gibbs. It relates to goods which were supplied multiple times within a distribution chain in the same way and under the same tax conditions. The CJEU regarded a discount granted by the first business in the chain to the last buyer as a reduction in the taxable basis of the first business.

Deviating from its previous rulings, the BFH now believes that there are legitimate doubts about extending the Elida Gibbs ruling to cases in which the supply chain includes an agent. Although the BFH accepts in its reference that multiple deliveries of goods are equivalent to multiple supplies of services, it has doubts where the multiple services comprise different types of transactions, each of which is subject to different tax conditions.

Also, the BFH asked the CJEU whether, in the event of tax exemption for the final supply in the distribution chain, the Member States could only refuse application of the Elida Gibbs principles if they had enacted legal provisions allowing them to do so. This is highly relevant in Germany as German law contains no such provision.

The European Commission has now presented draft legislation on consistent VAT treatment of discount vouchers within a supply chain.

Where the end customer redeems a discount voucher provided by the manufacturer or an intermediary with a retailer, the CJEU defines the retailer’s consideration as consisting of the payment from the end customer and the redemption of the discount in the form of a third-party payment. According to the draft, however, the retailer should

invoice the end customer only for the cash price actually paid by that customer, thereby reducing the (potential) input tax deduction for the end customer. The payment received by the retailer from the issuer of the discount voucher when the voucher is redeemed is to be regarded as consideration for a ‘redemption service’ provided by the retailer to the issuer.

If you would like to know more about this subject or have any other questions about indirect tax issues in Germany, please contact:

Claudia Hillek T: +49 89 9282 1528 E: [email protected]

Kathrin Feil T: +49 89 9282 1555 E: [email protected]

KPMG in Germany

Germany


The transaction tax for services in India is called Service Tax. The Union Budget 2012 (with effect from 1 July 2012), has significantly revamped Service Tax law, including amendments to the rules on zero rating, exports, set offs, credits and the definition of ‘service’.

Expansion of reverse charge mechanism

The transaction tax for services in India is called Service Tax. The Union Budget 2012 (with effect from 1 July 2012), has significantly revamped the Service Tax law, including amendments to the rules on zero rating, exports, set-offs, credits and the definition of ‘service’.

Another change includes expanding the scope of the reverse charge mechanism, making the service recipient liable to pay Service Tax, instead of the service provider. Under the previous regime, the reverse charge mechanism was limited to services such as goods transport agencies, sponsorships or import transactions.

The scope is now also expanded to include services such as legal services by individual lawyers or firms of lawyers, specified support services provided by the government, works contracts services, supplies of manpower and services provided by directors, cab rentals, etc.

In addition to increasing the number and type of services, for certain services such as (a) renting a motor passenger vehicle

to any person who is not in a similar line of business, (b) supplying manpower and (c) the service element of works contracts, both service provider and service recipient are each proportionally liable for Service Tax (referred to as ‘partial reverse charge mechanism’). However, the liability under partial reverse charge mechanism arises only if the service provider is an individual or partnership firm or an association of persons (AOP).

While the apparent intention behind including these services is to reduce payment defaults by such specified persons, many small players in the industry, including traders, will have to bear the additional burden of Service Tax compliance.

There are practical difficulties in tracking day-to-day petty expenses (such as routine maintenance, small repairs, and printing) which could be liable to Service Tax as ‘works contract service’. Nor has the term ‘AOP’ been defined in the Service Tax law. There is therefore uncertainty as to whether it means all types of joint consortiums/ ventures. As regards ongoing vendor contracts for services,

If you would like to know more about this subject or have any other questions about indirect tax issues in India, please contact:

Pratik Jain T: +91 9811141868 E: [email protected]

KPMG in India

there are interpretational challenges in affixing/quantifying liability, in spite of the clarifications issued by the government.

Tax payers will undoubtedly have to update their systems to prepare for the new reverse charge regime, such as tracking vendors in respect of which partial reverse charge mechanism applies, maintaining separate records required to credit the tax, and reviewing vendor contracts.

India



The Minister of Finance recently issued a regulation providing further guidelines for implementing the exemption of employment service set forth by Article 4A of the VAT Law.

Employment services not subject to VAT

The Minister of Finance recently issued a regulation providing further guidelines for implementing the exemption of employment services set forth by Article 4A of the VAT Law. KPMG in Indonesia believes the new regulation may present tax saving opportunities for organizations operating in Indonesia.

The new regulation came into effect on 1 July 2012. It states that certain types of employment services are exempt from VAT. These are:

• laborservices,includinginternships

• employmentserviceswheretheprovider is not responsible for the output of the employees

• employeetrainingservices.

Employment services are defined as providing labor by an employment services provider to a user. This may include recruitment, education, training, internship or outsourcing services.

Further criteria are given for applying the VAT exemption. These are:

• Theserviceprovidersolelyprovidesemployment services, without any connection to other VAT-able services, such as technical, management, consulting, business administration or other services.

• Theserviceproviderdoesnotmakepayments of salary, wage, honorarium, allowance or similar payments to the employees.

• Theserviceproviderdoesnotassumeresponsibility for the outcome of the work performed by the employees for the service user.

• Theemployeesareincludedintheservice user’s employment structure.

If any of these criteria are not met, the employment services will be subject to VAT at 10 percent of the tax base – in this case, the value of the service that the service provider charges or should have charged on the service rendered, including salary, wage, honorarium, allowance or similar payments. However, if the service provider separates service fees from the remuneration paid to the employees, the tax base is only the services fee, not employee remuneration.

The VAT law stipulates that employment services are exempt from VAT. This includes what can be construed as outsourcing services, provided the service provider is not responsible for the work performed by the outsourced employees.

The Ministry of Finance regulation seeks to provide additional restrictions to classify employment services, particularly outsourcing services, as VAT exempt services.

KPMG in Indonesia understands that employment via outsourcing arrangements is an important aspect of many institutions nowadays. For some, notably banks and insurers, the VAT routinely charged by the outsourcing service providers cannot be credited, given the nature of the service users’ business. Moreover, as most outsourcing service providers charge VAT on the service fees, in addition to the remuneration paid to employees, the VAT can represent a major cost for these institutions.

If you would like to know more about this subject or have any other questions about indirect tax issues in Indonesia, please contact:

Erlyn V Tanudihardja T: +62 215 704888 E: [email protected]

KPMG in Indonesia

Indonesia


Resident and non-resident entities that pay VAT are entitled to reclaim input VAT in Italy in any given tax year.

Restriction of VAT recovery rights of taxpayer when the annual return is not filed timely

Resident and non-resident entities that pay VAT are entitled to reclaim input VAT in Italy in any given tax year.

However, non-residents, in particular, often fail to file the annual VAT return necessary to reclaim input Italian VAT. This is usually the VAT return of the second year after the one where input VAT was incurred.

Since the recovery claim is legitimate, it is not unusual for the VAT receivable to then be carried forward to the following year’s annual VAT return, either to be off-set against output tax or for the taxpayer to request a refund.

In such circumstances, Italian tax authorities challenge the VAT recovery right, request repayment of the VAT and apply a 30 percent penalty, with interest.

In Notice no. 34 of 6 August 2012, the tax authorities confirmed the correctness of this approach and instructed tax offices to continue to challenge the recovery right.

However they took the view that, if input VAT was completely lost, the general principle of neutrality would be violated.

In line with Supreme Tax Court and the Court of Justice of European Union (CJEU) jurisprudence, authorities have subsequently taken the view that the taxpayer is entitled to file a separate VAT claim to obtain repayment of input VAT incurred locally.

In particular, the new position states that the taxpayer should first pay back the VAT wrongly claimed in the subsequent year’s tax return, pay the appropriate penalties and also pay interest. They should then file a special off-return VAT claim that the authorities commit to repay, if the right to recovery is found to be legitimate.

The deadline to file the special refund claim is 2 years from the date the VAT is paid. This coincides with the date the taxpayer repays VAT back to the authorities following the audit, or when, if litigation is

If you would like to know more about this subject or any other VAT matter in Italy, please contact:

Eugenio Graziani T: +39 0458114111 E: [email protected]

KPMG in Italy

pending in front of the court, the taxpayer definitely loses the dispute.

Notice no. 34 marks a change in the approach of the Italian authorities since the previous notice (Notice no. 74/2007), which restricted the recovery right even more.

Now, those facing this situation may consider paying back the VAT to the authorities to avoid litigation, notwithstanding the 30 percent penalty.

In fact, by avoiding litigation, taxpayers can benefit from a reduction in the penalty to 10 percent, if payment is made within 30 days from the request. Doing so can also accelerate the repayment of input VAT under the special refund claim.

Italy



On 10 August 2011, the Joint Reform of Social Security and Tax Systems Bill was passed by the Diet. The Bill includes an increase in the consumption tax rate.

Consumption tax rate increase

On 10 August 2011, the Joint Reform of Social Security and Tax Systems Bill was passed by the Diet. The Bill includes an increase in the consumption tax rate.

The changes to the Consumption Tax Law contained in the bill are outlined below. But, the details of some aspects of the changes will not be released until a later date, through cabinet orders and ministerial ordinances.

Two-step tax rate increase

Under the amendments, the consumption tax rate will be increased from the current 5 percent rate to 8 percent on an interim basis, with effect from 1 April 2014, and then to 10 percent with effect from 1 October 2015.

Each new consumption tax rate will be applied to the transfer of assets, the provision of services in Japan, and the importation of taxable goods on or after the respective effective dates. For certain types of asset transfers or service transactions, transition rules have been provided.

There is also a possibility that the proposed tax rate increases may be suspended following comprehensive consideration of the economic environment prior to implementation.

Revision of tax-exempt status for newly established companies

A newly established company having paid-in capital of less than JPY10 million is generally not treated as a consumption taxpayer for fiscal years with no base period1, except in certain cases (e.g. where the company itself chooses taxpayer status).

With the amendment, a newly established company will be treated as a taxpayer in fiscal years with no base period, regardless of the amount of its paid-in capital, if:

(i) A newly established company is controlled by a person (including individuals and companies)2 as of the first day of the fiscal year with no base period.

(ii) The amount of consumption taxable sales of the person controlling the newly established company, or the amount of taxable sales of a company related to such person3, exceeds JPY500 million during the theoretical base period of the fiscal year of the newly established company.

This provision will be applicable to companies established on or after 1 April 2014.

If you would like to know more about this subject or any other indirect tax matter in Japan, please contact:

Masaharu Umetsuji T: +81 (3) 6229 8070 E: [email protected]

KPMG in Japan

Items to be deliberated

The new law specified certain items to be discussed further with regard to the overall tax system, including some issues relating to consumption tax:

• measurestomitigatetheimpactonlow-income earners caused by an increase in the consumption tax rate

• measurestoallowsmallerbusinessestosmoothly and properly pass on the higher consumption tax on product prices

• pricelabelingsystem(tax-exclusiveprice/tax-inclusive price)

• consumptiontaxburdenformedicalinstitutions

• measurestoaddresspotentialproblems with respect to the purchase of homes.

Japan

1 The ‘base period’ is generally the fiscal year two years prior to the fiscal year and ‘a fiscal year with no base period’ generally is the first two fiscal years of a newly established company.

2 The scope of ‘controlled by a person’ includes a company in which the majority of the shares are directly or indirectly held by a person. The scope will be clarified further in a cabinet order.

3 The scope of ‘a company related to the person’ will be defined in a cabinet order.


The International Trade Counter website is a tool which allows the electronic transfer of information, in place of the traditional paper-based scheme. It is a Mexican Government initiative to make international trade operations quicker and more transparent.

International Trade Counter aims to speed up administration for cross-border trade

The International Trade Counter website is a tool which allows the electronic transfer of information, in place of the traditional paper-based scheme. It is a Mexican government initiative to make international trade operations quicker and more transparent.

On 14 January 2011, the Decree establishing the website was published in the Mexican Official Gazette. It was set to be launched on 1 March 2012, but the date was delayed until 1 June 2012. After some initial problems with the speed of information transfer, the website was upgraded and now operates normally.

One of the website’s main impacts on Mexican importers and exporters is the replacement of paper invoices traditionally filed with Mexican Customs, with an ‘Electronic Proof of Value’, or COVE, its acronym in Spanish. The COVE contains all the information relating to invoices, in particular the data related to the value of the goods prior to customs clearance.

The website can also be used to carry out certain international trade related filings or petitions electronically—such as certificates of origin, import permits

and authorizations to import goods on a temporary basis, among many others. This is carried out by applying through the website and attaching the relevant documents. In addition, documents required for customs clearance can also be uploaded to the website.

The COVE and electronic filings must be submitted using the importer’s or exporter’s Advance Electronic Signature (FIEL—Spanish acronym). This is an identification number and password granted by the government to every taxpayer. However, for COVE purposes the customs broker’s FIEL may also be used. This is a recent change which will likely decrease the time needed for companies to manage import and export documentation.

Even though the website came into effect on 1 June 2012, some government agencies and/or filings are not yet operating under the new system and are being introduced gradually. The Ministry of Economy and the Ministry of Finance and Public Credit were the first agencies to work with the website. The following agencies are still waiting to link in: Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food;

Ministry of Health; Ministry of National Defense; and the Ministry of Environment and Natural Resources, among others.

The main arguments driving the website’s implementation are: less paper and storage costs; reduced customs clearance time; improved competitiveness and transparency. As a consequence, a number of other countries have already adopted a similar system.

Currently, the website only covers Mexican importers, exporters, customs brokers and government bodies. Nevertheless, foreign companies should be aware of its implementation, since the commercial invoice regime or other customs requirements may change in the future.

If you would like to know more about this subject or any other indirect tax matter in Mexico, please contact:

Cesar Buenrostro T: +01 (81) 81 22 18 41 E: [email protected]

KPMG in Mexico

Mexico



Insurance receipts and goods and services tax

Canterbury earthquake damage

The Canterbury region of New Zealand suffered a series of damaging earthquakes between September 2010 and June 2011. The most significant was underneath Christchurch, the third largest city in New Zealand. Thousands of people and businesses have been displaced as rebuilding and repairs were undertaken. Fortunately, most properties were fully insured for earthquakes. However, with the insurance comes the question of how to apply GST.

New Zealand GST

New Zealand has one of the most comprehensive GST regimes in the world. It imposes a 15 percent tax on the supply of most goods and services, including most forms of insurance. The main exclusions from GST are the supply of residential accommodation and some supplies of financial services. Anyone who carries on an activity and makes supplies exceeding NZD60,000 per year is required to register for GST.

Anyone who is registered for GST is entitled to claim GST input tax on the GST charged on their insurance premiums. Conversely, a registered person that receives proceeds under their insurance policy relating to a loss incurred in the

course of their GST activity is required to account for GST output tax on the receipt.

However, there are cases where insurance receipts may not be subject to GST:

1. Insurance on residential accommodation via a registered agent

It is common for multi-storey buildings to be managed by a body corporate that represents individual property owners within the building. some owners are GST registered, as their units are used for commercial purposes, and some are not, as their units are used for residential purposes. The body corporates themselves are normally registered for GST as they supply management services to the building owners.

The body corporate will normally arrange the property insurance. However, there has been confusion over the correct GST treatment of insurance proceeds and, in particular, whether the body corporate is required to account for GST on the insurance proceeds, even though some of its members are not registered for GST.

In most cases, the body corporate will not be receiving the insurance proceeds in its capacity as a GST registered person, but as agent for the property owners. Therefore, the body corporate should pass on the gross insurance proceeds to property owners. GST will only need to be returned to the extent the proceeds are received by GST registered property owners. If you would like to know more about

this subject or any other indirect tax matter in New Zealand, please contact:

Peter Scott T: +64 9 367 5852 E: [email protected]

KPMG in New Zealand

2. Turnover exceeding NZD60,000 per year as a result of the insurance receipt

In some cases, insurance proceeds have been received by a person who carries on an activity, but who hasn’t registered for GST as their annual supplies are below NZD60,000. This has created uncertainty for persons receiving insurance proceeds (whether in a lump sum or over a period of time) that exceed NZD60,000, and whether they are required to register for GST and account for GST output tax on the proceeds. In most cases, however, the answer is no.

This is because, firstly, the insurance proceeds are not received in relation to a GST registered activity (because the person was not registered at the time of the damage). Secondly, a person is not required to register for GST if they exceed the NZD60,0000 threshold merely because a person is ending or reducing their activity, or because the person is replacing a capital asset.

New Zealand

The Canterbury region of New Zealand suffered a series of damaging earthquakes between September 2010 and June 2011. The most significant was underneath Christchurch, the third largest city in New Zealand. Thousands of people and businesses have been displaced as rebuilding and repairs were undertaken. Fortunately, most properties were fully insured for earthquakes. However, with the insurance comes the question of how to apply GST.


Based on the controversy aroused by its initial decision to disallow VAT refunds from foreign carriers , the Directorate of Taxes has now submitted a consultation paper proposing to reinstate the exemption from the liability to register for VAT .

Proposed reintroduction of the exemption for foreign carriers from registering for VAT in Norway

In an article in KPMG International’s Global Indirect Tax Brief issue No. 25 – May 2012, KPMG in Norway discussed the new VAT Act and the Norwegian Directorate of Taxes’ decision that foreign transporters of goods and persons between foreign and Norwegian destinations could no longer apply for a VAT refund from abroad. Such foreign carriers would therefore be obliged to register for VAT in Norway and deduct any incurred VAT through ordinary VAT returns.

It was a controversial policy, the subject of much debate, and it was noted that further changes could not be ruled out.

The Directorate of Taxes has now proposed legal amendments to the VAT Act. This will once again allow foreign carriers to choose not to register for VAT in Norway, but instead apply for VAT refunds from abroad.

Based on the controversy on the initial decision to disallow VAT refunds from foreign carriers, the Directorate of Taxes has now submitted a consultation paper proposing to reinstate the exemption from the liability to register for VAT. It also proposes to reinstate the right to refund VAT through a refund scheme for suppliers of cross-border direct transportation.

The proposed amendments will mean that suppliers of cross-border transportation services to and from Norway will not be obliged to register in Norway. They may choose to register if they want to, or they may apply for VAT refunds through the refund scheme for foreign companies. Any changes will be valid from 1 January 2013.

As a consequence of the proposed amendments, some rules of transition have been suggested in the consultation paper. These include:

• VATrefundapplicationsfor2010filedwithin the due date of 30 June 2011, but have been rejected, will now be granted (provided that the conditions for a VAT refund otherwise are met). It is not possible to submit new applications for 2010.

• TheVATrefundapplicationdeadlinefor2011 is 1 March 2013.

• TheVATrefundapplicationdeadlinefor2012 is 30 June 2013.

In addition the Directorate of Taxes has also clarified the following:

• Ifthenewrulesandregulationsarepassed, the Tax Office for VAT refund matters will reconsider all applications for 2010 and 2011 from suppliers of cross-border transportation that have received rejections due to the liability to register. One does not need to send an additional inquiry.

• Applicationsfor2011and/orpartsof2012 that have been submitted but not processed, will remain unprocessed by the tax office until the contents and date of commencement of the possible new rules are determined.

Conclusion

The tax authorities’ interpretation of the VAT Act and inconsistent attitude regarding foreign carriers’ right to a VAT refund has been complex.

If you would like to know more about this subject or any other indirect tax matter in Norway, please contact:

Oddgeir Kjørsvik T: +47 4063 9157 E: [email protected]

KPMG in Norway

Norway



New rules were recently enacted by the Portuguese government, introducing changes to invoicing and on the place of supply of services.

New invoicing requirements and new rules for the place of hiring of means of transport

New rules were recently enacted by the Portuguese government, introducing changes to invoicing and on the place of supply of services. Published on 24 August 2012, the new legislation:

• determinestheplaceofsupplyforhiringof a means of transport, other than short-term, to a non-taxable person, to be the place where the customer is established, has his permanent address or usually resides (pursuant article 4 of Directive 2008/8/EC)

• revisesinvoicingregulations,implementing Directive 2010/45/EC.

The new invoicing rules confirm the obligation to issue an invoice for all VAT-able activities, regardless of the acquirer’s taxable status, even if the latter does not expressly request to be provided with an invoice.

On the other hand, the new legislation simplify some of the basic invoicing requirements by eliminating part of the previously required content – such as the acquirer’s identification and address, where the acquirer is a non-taxable person and the amount invoiced is up to EUR1,000.

Additionally, the option to issue simplified invoices regarding transactions taxable in Portugal were introduced, regarding

(i) supplies of goods up to EUR1,000 carried out by retailers to non-taxable persons; and (ii) other supplies of goods or services up to EUR100.

At first glance, it seems that simplified invoices will not substantially differ from regular invoices. The main simplifications concern: (i) the possibility to choose between mentioning separately the taxable amount and the applicable VAT rate and amount; or including a global amount with VAT and reference to the applicable rate; and (ii) not mentioning the date when the services were provided or the goods were supplied.

While some simplification was expected for specific activities (Portuguese VAT legislation already allowed the issuing of ‘sales tickets’ with similar requirements than those now imposed to simplified invoices) it is now potentially applicable to all sorts of suppliers falling under the general provision.

Changes on invoicing rules also include (i) reference to standard content to be included on invoices when special VAT regimes apply; and (ii) the possibility to issue electronic invoices through systems other than electronic signatures and EDI, provided their authenticity and integrity are ensured, hence simplifying the requirements for the use of e-invoices. The only other condition regarding the issuing of e-invoices, is that the acquirer fully agrees to its adoption by the supplier.

Another relevant development – which may require a company to introduce stronger internal controls – concerns the obligation to include reference to the underlying invoice on delivery or return notes and other related documents. While this may largely be seen as an attempt to provide a better audit trail for the tax authorities, it also helps to establish a more effective link between a given supply and its supporting evidence.

With regards to intra-EU supplies of services, a specific timeline for invoicing has been introduced, which requires taxable persons to issue invoices for these supplies no later than the 15th of the month following.

The new rules on electronic invoices entered into force on 1 October 2012, while the remaining provisions will apply as of 1 January 2013. Overall, these rules, while not significantly changing the invoicing requirements presently in force, aim to contribute to more effective control by the tax authorities and to increase legal certainty both in domestic and EU trade. However, they will undoubtedly represent an additional administrative burden on the operators’ side.

If you would like to know more about this subject or any other indirect tax matter in Portugal, please contact:

Alexandra Martins T: +351 21 011 0962 E: [email protected]

KPMG in Portugal

Portugal


From 1 January 2013, the cash accounting system will be implemented in Romania, alongside the standard VAT system.

Cash accounting system in Romania

From 1 January 2013, the cash accounting system will be implemented in Romania, alongside the standard VAT system.

The cash accounting system implies that VAT will become chargeable at the date when the full or partial payment of invoices is received for the goods or services supplied. Only taxable persons with their economic headquarters in Romania and a turnover under RON2,250,000 (i.e. EUR500,000) will use the cash accounting system, which will be mandatory for eligible taxable persons.

If the taxable person applying the cash accounting system does not receive full or partial payment for the supply of goods or services within 90 days of the invoice being issued, a VAT charge related to the amount unpaid will occur either on the 90th day from the date the invoice was issued, or on the 90th day from the deadline for the invoice’s issue (if the invoice was not issued by the deadline required by the law).

For 2013, the turnover for the period October 2011 – September 2012 will be taken into consideration to establish if the business is eligible to apply the cash accounting scheme. From 2014, the scheme will be applicable from the first

day of the second VAT period of the first year they are eligible to apply the cash accounting system (i.e. February for monthly taxpayers or April for quarterly taxpayers).

Of note is that the cash accounting system only applies to businesses with their place of taxation in Romania, except for: taxable operations for which the client is the person liable for paying VAT, VAT exempt without credit operations, operations subject to special taxation regimes, operations where the beneficiary of the goods/services is a affiliated to the supplier and operations for which the payment is entirely or partially received in cash by the eligible supplier from beneficiaries other than individuals. This category includes associations with no legal status.

Another important aspect refers to the VAT deduction right for acquisitions of goods/services by a taxable person using the cash accounting system, where the reduction right is postponed until the tax related to the goods and services supplied has been paid to the supplier. These provisions do not apply to intra and community supplies of goods, imports and acquisitions of goods/services subject to the reverse charge mechanism.

If you would like to know more about this subject or any other indirect tax matter concerning Romania, please contact:

Ramona Jurubita T: +40 37 237 7795 E: [email protected]

KPMG in Romania

To apply for a VAT deduction on the acquisition of goods or services from a taxable person eligible to apply the cash accounting system, a taxable person (i.e. other than a taxable person eligible for the cash accounting system) must hold an invoice which complies with the provisions of the Romanian Fiscal Code, as well as proof of invoice payment.

In addition, a taxable person not applying the cash accounting system will need to account for the VAT on an invoice issued to a taxable person applying the system, when the tax point occurs, not when the invoice is paid.

In principle, the new provisions follow the rules set by the EU Directive 45/2010 and should bring a cash flow advantage to small companies. However, they will also generate significant changes in returns and IT systems – and the timeframe for addressing these is short.

Romania



Utilization fee: additional costs for automotive businesses

On 22 August 2012, Russia became a full member of the World Trade Organization (WTO). Starting from 23 August 2012, a new Customs Tariff of the Customs Union of Russia, Belarus and Kazakhstan entered into force, establishing import duty rates.

Under the new Customs Tariff, import duties for vehicles were reduced (e.g. import duty for passenger vehicles was reduced from 30 percent, but not less than EUR2.15 per cm3 of the engine capacity, to 25 percent, but not less than EUR1.8 per cm3 of the engine capacity).

At the same time, a new utilization fee for vehicles was introduced from 1 September 2012 (amendments to the Federal Law on Waste of Production and Consumption, and Article 51 of the Budget Code of the Russian Federation, dated 28 July 2012 no128-FZ).

Utilization fee payment procedure

The Russian government has introduced a procedure for calculating and paying utilization fees (Resolution of the Russian government, dated 30 August 2012 # 870).

Under this procedure:

• Autilizationfeeischargedforvehicles(i) produced in Russia, (ii) imported into Russia (both new and used). The utilization fee is not applied to vehicles that are imported into Russia from Kazakhstan or Belarus and have the status of Custom Union goods, provided that certain requirements are met.

• Theamountofutilizationfeeiscalculated by multiplying the established ratio by the base rate The base rate for motor cars is RUB20,000, approximately EUR500.

• Theratiodependsontheenginecapacity, vehicle weight and seat capacity. For example, for new motor cars with an engine capacity over 1,000 cm3 but not more than 2,000 cm3, the ratio is 1.34. Thus, the utilization fee is RUB20,000 x 1.34 = RUB26,800 (approximately EUR650). The maximum fee (for dump trucks weighing over 350 tons) may reach RUB6,000,000 (approximately EUR148,000) per vehicle.

Exemption from utilization fee

Car producers may be exempt from the utilization fee if the producer:

• agreestorecyclethecarwhenitisnolonger in use

• isalegalentityregisteredinRussia

• manufacturescarswithaVehicleIdentification Number (on body components (cabs) and chassis)

• manufacturescarsunderaspecialregime or by applying particular technologies, such as welding or painting

• arrangescollectionpointsthroughoutthe country for cars subject to the utilization fee.

These exemptions are not applicable to car importers.

Impact on businesses

Considering the positive effect of the reduction in the import duty rate, the impact of the utilization fee may be significant, creating additional costs for companies and consumers. Moreover, if the cost of recycling cars after the period of use is higher than the utilization fee, it may not be beneficial for car producers to apply for an exemption.

An accurate estimate of the utilization fee and a review of the possible options for minimizing its negative impact is vital for automotive businesses.

If you would like to know more about this subject or any other indirect tax matter concerning Russia, please contact:

Vitaly Yanovskiy T: +7 495 937 4477 E: [email protected]

KPMG in Russia

On 22 August 2012, Russia became a full member of the World Trade Organization (WTO). Starting from 23 August 2012, a new Customs Tariff of the Customs Union of Russia, Belarus and Kazakhstan entered into force, establishing import duty rates.

Russia


As part of Singapore’s ongoing efforts to be the leading global financial centre, this year’s budget saw proposals for further fine-tuning of the GST treatment of investment gold, silver and platinum.

Changes to GST treatment of precious metals and logistics services

As part of Singapore’s ongoing efforts to be the leading global financial centre, this year’s budget saw proposals for further fine-tuning of the GST treatment of investment gold, silver and platinum (collectively known as ‘investment precious metals’, or IPM). These changes will take effect from 1 October 2012 and have recently been reflected in GST legislation1.

Exemption of IPM

Before 1 October 2012, the importation and supply of all precious metals in Singapore were subject to GST. The GST incurred was recoverable from the Inland Revenue Authority of Singapore (IRAS) as an input tax credit, to the extent that it is related to the provision of taxable supplies.

With its new proposals, the government is recognizing that IPM are essentially tradable financial assets, like stocks and bonds, where supplies are GST exempt. It also looks to facilitate the development of IPM refinery and trading. Therefore, from 1 October 2012 the importation and local supply of IPM, in the form of bars, ingots or coins that meet certain criteria, will be exempt from GST.

Since this would be an exempt supply, any input tax incurred on expenses (e.g. transportation, refining fee) that are directly attributable to the supply of IPM to local customers, cannot be claimed. If the supply of IPM is to an overseas person and the metal is exported, input tax incurred is still claimable, as this kind of supply is zero-rated. Hence, if a business makes both exempt and taxable supplies, only a portion of the residual input tax is recoverable.

For the transitional period where GST has been incurred by businesses on the purchase of IPM before 1 October 2012, for subsequent exempt supply to be made on and after 1 October 2012, a concession is granted for input tax to be claimed in full.

In conjunction with the exemption of IPM, a new scheme (Approved Refiner and Consolidator Scheme) will be introduced concurrently from 1 October 2012. The scheme is intended to ease the cash flow burden and compliance cost of qualifying refiners and consolidators of IPM in their payment of GST on import and purchase of raw materials. It will also relieve input tax incurred in their refining activities. The application of this scheme is subject to meeting certain qualifying criteria and subject to IRAS approval.

Logistics services

The IRAS has recently published an e-Tax Guide entitled GST Guide for the Logistics Service Industry. It provides detailed guidance on the GST treatment of handling, storage and transport services within free trade zones (FTZs) or designated areas, as well as outside FTZs or designated areas. Such clear guidelines are welcomed by the industry. There are, however, a few points which are worth noting for overseas businesses intending to use Singapore as a storage or distribution hub.

Before the e-Tax Guide was published, handling services on imported goods provided to an overseas client outside the FTZs and designated areas, could be zero-rated. Handling services could include: packing, repacking, sorting and quality control according to a client’s specification.

The e-Tax Guide now makes a distinction between these handling services and those which are incidental to the transportation of goods, such as stuffing, loading and unloading of goods. If the services belong to the first category, they can no longer be zero-rated unless the service provider also handles the local transportation from the port to the first place of storage (i.e. first destination), or the handling services are performed on goods which are destined for export.

Singapore

1 The amendments were subject to approval of the Parliament when this publication was under preparation.



If you would like to know more about this subject or any other indirect tax matter in Singapore, please contact:

Kok Shang Lam T: +65 6213 2596 E: [email protected]

KPMG in Singapore

Handling services in the second category are treated as incidental to the local transportation of goods from the port to the first place of storage. They can therefore be zero-rated when provided to an overseas client.

Another point to note is storage services provided to an overseas client for goods immediately imported into Singapore and stored outside the FTZs or designated area. As previously noted, the mere provision to an overseas client of storage services for imported goods outside the FTZs and designated areas can no longer be zero-rated, unless the storage provider also transports the goods from the port to the first destination, or the storage provider is certain the goods will be exported.

Consequently, it is critical for overseas businesses which intend to use Singapore as a storage or distribution hub for their goods to review their service arrangements and agreements with service providers. They should ensure the services provided are eligible for zero-rating, since any GST charged will not be recoverable and can be an additional business cost.


Tax administration changes in South Africa

The Tax Administration Act 2011 was promulgated into law on 4 July 2012. The Act is expected to come into effect in October 2012.

The act creates a single, modern framework for common administrative provisions of the tax acts, which could enhance equity and fairness in tax administration by consolidating administrative provisions into one piece of legislation.

The aim is to enhance transparency, simplify bureaucracy and provide greater coherence in South African tax administration legislation. Furthermore, it is intended to eliminate duplication, remove redundant requirements and align disparate requirements of different South African tax acts.

The Tax Administration Act should also ensure better services and lower compliance costs for compliant taxpayers, although the South African Revenue Service (SARS) will still be obliged to pursue tax evaders to maintain compliant taxpayers’ confidence in the integrity of the tax system.

Changes introduced by the Tax Administration Act include:

• aphasedmovetoasingleregistrationprocess and tax number across taxes, which should reduce red tape and streamline the system

• self-assessmentoftaxesbytaxpayers,so it will not be necessary to wait for a SARS assessment

• increasedaccesstothird-partydata,tounderpin initiatives such as the pre-population of individual tax returns

• providingclearerrulesontheSARSaccess to information, to determine tax liabilities more quickly and accurately

• therightsoftheSARSwhensearchingpremises without a warrant, in narrowly defined situations where the general requirement for a warrant would defeat the object of the search

• clearrequirementsandtimelinesforthe issue of a tax clearance certificate; providing greater certainty and responsiveness to businesses

• rulesinrelationtotheSARSfeedbackon audit progress and findings, to engage with taxpayers and ensure they understand the reasons for any required adjustments

• providingspecifictimeframesfordecisions of the Tax Board and wider reporting of Tax Court decisions, to improve access to justice

• appointingaTaxOmbudtoprovidetaxpayers with a low-cost mechanism to address administrative issues that could not be resolved through normal SARS channels. If you would like to know more about

this subject or any other indirect tax matter in South Africa, please contact:

Ferdie Schneider T: +27 11 647 8686 E: [email protected]

KPMG in South Africa

From an indirect tax perspective, the following provisions are of particular interest:

• apermanentvoluntarydisclosureprogram, which is an extension of the previous temporary program

• therightoftheSARStoissuejeopardyassessments before the date a return is normally due, where the SARS believes it is necessary to secure the collection of tax that would otherwise be in jeopardy

• whereataxpayerisunabletosubmitan accurate return, an amount of tax chargeable may be agreed to with the SARS in writing.

The key objectives of the Tax Administration Act includes providing clear rules which cover the lifecycle of a taxpayer, protecting tax revenue for the government, ensuring that tax payments are made where/when required, facilitating greater and more consistent compliance and modernizing tax processes.

South AfricaThe Tax Administration Act 2011 was promulgated into law on 4 July 2012. The Act is expected to come into operation in October 2012.



The Spanish VAT regime is currently going through a wave of amendments. Some have already come into effect recently. These and other proposals need to be carefully monitored by businesses.

Increased VAT rates and changes to invoicing regulations

The Spanish VAT regime is currently going through a wave of amendments. Some have already come into effect recently. These and other proposals need to be carefully monitored by businesses.

Increase of VAT rates

On 1 September 2012, the general and reduced VAT rates increased to 21 percent and 10 percent respectively. The retailers’ supplementary VAT charge rates and the flat-rate scheme for farmers were also amended.

In addition, some goods and services previously included in the scope of the hyper-reduced or reduced rate, are now subject to the standard VAT rate. Thus now school materials, flowers and ornamental plants, bundled supply of hotel and restaurant services, admission to theatre or circus and other shows, mortuary services, hairdresser services, sport services, certain services rendered by artists, medical and dental care services, digital television services and sales of works of art are now taxed at the general rate of 21 percent.

This latest increase follows another one in July 2010, when the longstanding 16 percent standard rate was increased to 18 percent, and the reduced rate from 6 percent to 8 percent.

New anti-avoidance measures

A new law implementing stricter anti-avoidance measures is currently under discussion.

The draft law introduces certain modifications to Spanish VAT law aimed at avoiding fraudulent behaviors, particularly for operations relating to the transfer of real estate and where one of the parties went bankrupt.

Firstly, a reverse charge mechanism would be implemented when the exemption relating to the transfer of real estate is waived and when the transfer of real estate occurs due to the foreclosure of a guarantee.

Secondly, in bankruptcy situations, new measures would allow the tax authorities to collect any VAT receivables and consequently ensure VAT neutrality.

Finally, failure to submit the appropriate declaration for specific imports-related operations would be subject to penalty regulated by the law.

Modifications on invoicing regulations

Effective 1 January 2013, a Royal Decree approving regulations on invoicing requirements will enter into force. The new regulations will implement EU Directive 2010/45/UE in the domestic legislation.

These modifications are largely intended to simplify invoicing requirements and align – as far as possible – procedures for paper and electronic invoices.

Two of the amendments, for example, relate to certain financial and insurance transactions where invoices are no longer required if the counterparties are located outside Spain but within the EU.

Furthermore, the procedures for issuing an invoice and for self-billing will be simplified.

The most important development is the introduction of the so-called ‘simplified invoice’, which will replace tickets and short invoices in certain situations.

Lastly, the deadline for issuing invoices will be modified to the 16th of the month following the month where VAT was due.

If you would like to know more about this subject or any other indirect tax matter in Spain, please contact:

Natalia Pastor Caballero T: +34 914 563 400 E: [email protected]

KPMG in Spain

Spain


The Tax Agency suggests that to successfully abolish the registration procedure first requires a fuller simplification of the existing system.

VAT rules on letting real estate – an equation without a solution?

In recent years there has been an ongoing discussion on the need to revise current VAT rules on the letting of real estate in Sweden.

The current rules have been criticized for being complex and rigid, as well as a significant administrative burden for both taxpayers and the Swedish Tax Agency.

The general rule is that all letting of real estate is exempt from VAT, with certain exceptions. However, if certain conditions are met, it is possible to tax the letting of business premises for VAT purposes.

Registration is granted by the Tax Agency following a detailed application procedure. This includes listing the tenants, specifying down to the square meter how much of the property is used by each tenant, and whether it is for VAT-able or non-VAT-able purposes. Registration cannot be retroactive, however, which has had severe consequences for the possible recovery of input VAT and the penalties levied.

In 2009, draft legislation was presented by the Ministry of Finance. It proposed mandatory VAT liability for all letting of real estate, except for residential dwellings, with no possibility to opt-out.

However, before the proposals reached Parliament they were subject to public consultation. They received massive criticism from businesses and organizations which faced new restrictions on their ability to recover VAT, such as banks and non-profit organizations. Consequently, the legislation was put on hold indefinitely.

In April 2012, the Ministry of Finance looked at the issue again. It ordered the Tax Agency to analyze the options for simplifying the VAT treatment of letting real estate within the framework of the existing legislation. One possible solution was based on a German model where the owner of the property decides whether or not the letting of the property should be subject to VAT, without any specific registration or involvement of the Tax Agency.

If you would like to know more about this subject or any other indirect tax matter concerning Sweden, please contact:

Susann Lundström T: +46 8 723 96 98 E: [email protected]

KPMG in Sweden

However, the Tax Agency’s report to the Ministry of Finance in June 2012, implies that it does not fully support the proposal. The Tax Agency foresees that the lack of obligation to register premises with the Tax Agency, although reducing administration, could lead to other problems as a result of the complexity of the current regime.

The Tax Agency suggests that to successfully abolish the registration procedure first requires a fuller simplification of the existing system. As an alternative solution, the Tax Agency proposes to make it possible to register premises for VAT purposes with retroactive effect. It is still unclear what the Ministry of Finance’s response will be.

Sweden



The proverb ‘neither a borrower nor a lender be’ may work well when it comes to personal relationships, but business is built on credit. And where there is credit, there are inevitably bad debts that cannot be collected.

UK approach to bad debt relief raises implications across the EU

The proverb ‘neither a borrower nor a lender be’ may work well when it comes to personal relationships, but business is built on credit. And where there is credit, there are inevitably bad debts that cannot be collected.

Most suppliers account for VAT at the time the invoice is issued, i.e. before they are paid. But if a supply on which VAT is due and on which VAT has been declared goes wholly or partially unpaid, the EU VAT Directive says that the taxable amount (the amount on which VAT is declared) should be reduced.

This means the VAT that has been declared on it can also be adjusted. Individual EU Member States may determine the relevant conditions, and they may also derogate completely from that rule. So in essence, an EU Member State does not have to allow Bad Debt Relief (BDR), and if it does allow it, it can set the conditions of any BDR claim.

On the face of it, this seems to give an EU Member State the freedom to do as it likes when it comes to BDR. However, this is not the case, as the discretion allowed to an EU Member State to curtail a taxpayer’s EU rights by derogation is restricted by the requirement to adhere to certain fundamental principles.

One of these is that a relief should not be excessively difficult to secure. Another principle is that of equal treatment. So once an EU Member State decides to allow BDR, it cannot, for instance, limit it to supplies where the unpaid consideration is monetary rather than ‘in kind’1 – a Court of Justice of European Union (CJEU) decision which sheds some useful light on the scope of that BDR derogation.

Landmark decision in Upper Tribunal

In August of 2012 the UK Upper Tribunal also concluded that certain other BDR conditions which the UK previously imposed were also outside EU law2.

These conditions were known as the Insolvency Condition and the Retention of Title Condition. Essentially, from 1978 to 1997 the UK refused BDR for unpaid supplies of goods, where title did not pass until full payment was made.

From 1978 to 1990, it also refused BDR unless the customer was formally insolvent and, for part of that period, that the supplier had also proved in the insolvency, by submitting his claim in writing to the liquidator.

The Upper Tribunal decided that it was not proportionate to apply one rule for supplies where title passed and another where it did not. A debt can still be a bad debt in either case, as it may not be possible for the supplier to secure the return of his goods.

Additionally, while it might be reasonable to require proof in insolvency before allowing BDR to be claimed for a large debt, the UK rules imposed the insolvency condition on all supplies, whatever their size. UK law also states that a supplier cannot even seek to make its customer insolvent unless the debts owed by the customer are over a certain minimum size. The UK approach to BDR at that stage effectively made the relief impossible to claim in some cases, and difficult and expensive in others. These conditions were not proportionate and they were discriminatory. They went beyond the discretion envisaged by the Directive.

Although both GMAC and BT are open cases, the conclusions on the UK’s old BDR conditions are acte clair. That is, the Upper Tribunal is content that Community law is sufficiently clear on this issue that a reference to the ECJ is not needed.

UK

1 See the 1997 ECJ decision C-330/95 in Goldsmiths. 2 See HMRC v GMAC UK Plc and BT Plc v HMRC [2012] UKUT 278 and 279.


If you would like to know more about this subject or any other indirect tax matters concerning the UK, please contact:

Gary Harley T: +44 20 7311 2783 E: [email protected]

KPMG in the UK

Implications for other EU Member States

So the question is – which EU Member States allow BDR? If it does, what conditions does it attach to the relief? It is reasonable to make a supplier wait awhile before the debt can be considered bad, (the time limit in the UK is six months), because any non-payment may be temporary, meaning the debt is not bad. It is also reasonable to require certain records of the bad debts to be kept, and to make a customer repay any input tax credit it has taken for the supply they have not and will not pay for. However, conditions that are discriminatory, disproportionate or make the relief excessively difficult to secure will not find favor. If applying the process adopted by the UK Upper Tribunal to the BDR rules in an EU Member State where you are based, do the BDR conditions seem disproportionate, discriminatory, or overly onerous?

Of course, another EU Member State may not be bound by a UK Tribunal decision, even one that sets a precedent in the UK. But they are bound by the EU principles the Upper Tribunal has explored and analyzed. Therefore, the cases of GMAC and BT could well have wider implications than just for UK supplies made years ago, before the UK’s BDR rules became less onerous.

The principles examined in GMAC and BT apply to supplies made in EU Member States, today, and could mean that taxpayers have the right to claim BDR on supplies they previously thought would have to remain unrelieved because of the terms of local VAT law.

Remember that a bad debt is one which has become payable and remains unpaid and which the debtors either cannot pay (because they have no means to do so) or which they simply refuses to pay in circumstances where it is in commercial terms not reasonable for the creditor to enforce. Where the parties simply agree to adjust the consideration downwards, the proportion of the original price that goes unpaid is not a bad debt as it is not a debt at all.

UK



Whether remote sellers should be subject to states’ sales and use tax collection requirements has been the subject of much debate for the past two decades.

Federal remote seller legislation update

Whether remote sellers should be subject to states’ sales and use tax collection requirements has been the subject of much debate for the past two decades.

The debate has heated up in recent years due to states’ attempts to expand the definition of what kinds of business activities and connections constitute ‘nexus’ (the requirement under the US constitution that taxpayers have a sufficient connection or link to a state, to give the state authority to impose tax or a collection or filing responsibility).

As online retailers have expanded their share of the retail market, states have a sense that there is significant revenue that is going un-taxed – and shallow state coffers want their share of the revenue. States’ abilities to require remote sellers to collect sales and use tax are limited by the physical presence requirement set forth in Quill Corp. v. North Dakota. This is a 1992 US Supreme Court decision that examined whether a state could require an out-of-state seller, whose only activity in the state was soliciting sales, to collect use tax on the sales it made to in-state customers.

As a result of the growth in online sales, states are calling for the end of Quill’s physical presence requirement through a federal legislative solution. Under the

powers granted to it in the Commerce Clause, Congress can decide when and to what extent states can burden interstate commerce and require sellers not physically located within their borders to collect and remit tax.

The Streamlined Sales and Use Tax Agreement (SSUTA) has brought together 24 states to adopt uniform definitions and adhere to streamlined sales and use tax administrative procedures, in exchange for remote sellers’ voluntary collection and remittance of tax. But many argue that the SSUTA’s impact is limited given that none of the ’big’ states (e.g. California, Illinois, New York, and Texas) are members.

Every year since 2001, legislation has been proposed in Congress to get rid of Quill and allow states to require remote sellers to collect and remit sales and use tax but generally the bills have not progressed. In a recent session, Congress considered three bills: Marketplace Fairness Act (S. 1832), Marketplace Equity Act (H.R. 3179) and Main Street Fairness Act (S. 1452). The bills, while similar in purpose, differ regarding an exemption for small businesses, required membership in the SSUTA, vendor compensation and telecommunications taxes.

The matter has received recent attention in the popular press and there is a sense that the legislation is closer to passing in Congress than ever before. In an effort to move the issue forward by the end of the year, the Marketplace Fairness Act (S. 1832) was added as an amendment to a small-business jobs bill in July 2012 and a hearing was held in a Senate subcommittee in August 2012. Similarly, the Marketplace Equity Act was heard in a full committee in July 2012. All the bills are still pending in their houses of origination, and any new developments will continue to be monitored closely.

If you would like to know more about this subject or any indirect tax matters concerning the US, please contact:

Leah Durner T: +1 202 533 5542 E: [email protected]

KPMG in the US

US


Transfer price (TP) adjustments present a number of challenges to importers when declaring the value of goods to US Customs and Border Protection (CBP).

Five factors are crucial to retroactive transfer pricing adjustments and potential customs duties refunds

Transfer price (TP) adjustments present a number of challenges to importers when declaring the value of goods to US Customs and Border Protection (CBP).

Historically, CBP required payment of applicable duties on any increase in the value of imported goods due to upward TP adjustments, but would not consider refunds for downward TP adjustments.

A reason for the difference in treatment has been CBP’s assertion that post-importation decreases in value are to be disregarded, unless based on an objective formula that was previously determined by the parties.

On 30 May 2012, CBP issued an official notice opening the door to potential duty refund opportunities for downward TP adjustments. CBP adopted a broader interpretation of what constitutes an objective formula in this context. If a TP is able to satisfy all of the following five factors, it is more likely to be considered an objective formula, thereby reducing the possibility of price manipulation and

subjectivity in claiming post-importation adjustments:

1. A written Intercompany Transfer Pricing Determination Policy is in place before importation, and the policy takes IRS code section 482 into account.

2. The US taxpayer uses its transfer pricing policy in filing its income tax return. Any adjustments resulting from the transfer pricing policy are reported or used by the taxpayer in filing its income tax return.

3. The company’s transfer pricing policy specifies how the TP and any adjustments are determined, with respect to all products covered by the transfer pricing policy for which the value is to be adjusted.

4. The company maintains and provides accounting details from its books and/or financial statements to support the claimed adjustments in the US.

5. No other conditions exist that may affect the acceptance of the transfer price by CBP (e.g. the adjusted price must be considered ‘arm’s length’ from a CBP perspective).

Implicit in factor five is the additional requirement that the importer shows that its relationship to the other party did not influence the price, as detailed in 19 USC Section 1401a.

CBP has stated that the fact that a TP adjustment is made in line with a formula does not in itself indicate the TP is valid for customs purposes, and that transfer pricing studies undertaken for IRS purposes do not in themselves satisfy CBP’s related party tests.

As such, to increase business certainty, an importer should conduct an analysis of the five factors, including a customs-related party pricing analysis, to determine eligibility for potential duty refunds resulting from downward TP adjustments.

Without such an analysis, the importer risks failing to comply with CBP’s requirements, rendering them ineligible for potential duty refunds and potentially ineligible to use transaction value as the method of appraisement for customs purposes.

If you would like to know more about this subject or any indirect tax matters concerning the US, please contact:

Luis Abad T: +1 212 954 3094 E: [email protected]

KPMG in the US

US



New VAT exemption for financial services effective 1 January 2013.

Russia

FinlandGovernment proposed a 1% increase of standard and reduced VAT rates. If approved, the changes will be effective 1 January 2013.

ArgentinaIncreased VAT charge on imported goods.

CanadaCanada’s federal government released more than 30 pages of new GST/HST regulations related mostly to the upcoming transition by the province of British Columbia from the HST back to the GST on 1 April 2013.

Costa RicaIssue of guidance on application of sales tax to packaging materials.

PeruTax reform includes restrictions to VAT exemption applicable to exports of goods and services.

The NetherlandsStandard VAT rate increased to 21% effective 1st October.

Proposal to increase the Insurance Premium Tax rate to 21% effective 1st January.

SerbiaStandard VAT rate increased to 20% effective 1 October 2012.

TurkeyIncreased consumption tax for cars, fuel, alcoholic beverages

ItalyProposal for standard and reduced rate increases to be limited to 1% from 1 July 2013.

Source: KPMG's Global TaxNewsFlash 2012

AustraliaHigh Court of Australia released decision in Quantas case: GST due on flight booking even if the travel did not occur.



KPMG’s Global Indirect Tax Network member firms’ contacts for VAT/GST and trade and customs

KPMG in Argentina

Vivian E Monti E: [email protected]

Eduardo H Crespo* E: [email protected]

KPMG in Australia

Dermot GaffneyE: [email protected]

KPMG in Austria

Stefan Haslinger E: [email protected]

KPMG in Belgium

Peter Ackerman E: [email protected]

Diederik Bogaerts* E: [email protected]

KPMG in Brazil

Roberto A Cunha E: [email protected]

KPMG in Bulgaria

Ivan Vargoulev E: [email protected]

KPMG in Canada

John Bain E: [email protected]

Angelos Xilinas* E: [email protected]

KPMG in Chile

Mauricio LopezE: [email protected]

KPMG in China

Lachlan Wolfers E: [email protected]

Lilly Li*E: [email protected]

KPMG in Colombia

Maria Consuelo Torres LozanoE: [email protected]

KPMG in Croatia

Paul Suchar E: [email protected]

KPMG in Cyprus

Harry Charalambous E: [email protected]

KPMG in Czech Republic

Marie Konecna E: [email protected]

KPMG in Denmark

Peter K SvendsenE: [email protected]

KPMG in Estonia

Joel Zernask E: [email protected]

KPMG in Finland

Juha SääskilahtiE: [email protected]

Matti Alpua* E: [email protected]

France

Herve-Antoine CoudercE: [email protected]

Philippe BretonE: [email protected]

Pascal Dewavrin* E: [email protected]

(Fidal is an independent legal entity separate from KPMG International and KPMG member firms)

(*denotes trade and customs)



KPMG in Germany

Karsten SchuckE: [email protected]

Kay Masorsky* E: [email protected]

KPMG in Greece

Angela IliadisE: [email protected]

KPMG in Hungary

Michael GloverE: [email protected]

KPMG in Iceland

Soffía Eydís BjörgvinsdóttirE: [email protected]

KPMG in India

Sachin MenonE: [email protected]

KPMG in Indonesia

Erlyn V TanudihardjaE: [email protected]

Sundfitris Marulitua*E: [email protected]

KPMG in Ireland

Niall Campbell E: [email protected]

KPMG in Italy

Eugenio Graziani E: [email protected]

Massimo Fabio* E: [email protected]

KPMG in Japan

Masaharu Umetsuji E: [email protected]

KPMG in Republic of Korea

Dong Suk KangE: [email protected]

Mun Gu Park*E: [email protected]

KPMG in Latvia

Steve Austwick E: [email protected]

KPMG in Lithuania

Vita SumskaiteE: [email protected]

KPMG in Luxembourg

Laurence LhoteE: [email protected]

KPMG in Malta

Anthony Pace E: [email protected]

KPMG in Malaysia

Eng Yew TanE: [email protected]

KPMG in Mexico

Cesar Catalan E: [email protected]

Luis Ricardo Rodriguez* E: [email protected]

KPMG in the Netherlands

Leo Mobach E: [email protected]

Leon Kanters* E: [email protected]

KPMG in New Zealand

Peter Scott E: [email protected]

KPMG in Norway

Oddgeir Kjørsvik E: [email protected]


KPMG in Peru

Javier LuqueE: [email protected]

KPMG in Philippines

Roberto L Tan E: [email protected]

KPMG in Poland

Tomasz Grunwald E: [email protected]

KPMG in Portugal

Alexandra MartinsE: [email protected]

KPMG in Romania

Ramona Jurubita E: [email protected]

Valentin Durigu*E: [email protected]

KPMG in Russia

Vitaly YanovskiyE: [email protected]

KPMG in Singapore

Kok Shang Lam E: [email protected]

KPMG in Slovakia

Tomas Ciran E: [email protected]

KPMG in Slovenia

Nada DrobnicE: [email protected]

KPMG in South Africa

Johan HeydenrychE: [email protected]

Venter Labuschagne* E: [email protected]

KPMG in Spain

Celso Garcia GrandaE: [email protected]

KPMG in Sweden

Susann LundstromE: [email protected]

Leif Kadin* E: [email protected]

KPMG in Switzerland

Patrick ConradyE: [email protected]

Ivo Gut* E: [email protected]

KPMG in Taiwan

Willis YehE: [email protected]

KPMG in Turkey

Yavuz ÖnerE: [email protected]

Murat Palaoglu*E: [email protected]

KPMG in the UK

Gary Harley E: [email protected]

Bob Jones* E: [email protected]

KPMG in the US

Loren ChumleyE: [email protected]

Douglas Zuvich*E: [email protected]

KPMG in Venezuela

Zulay Perez SanchezE: [email protected]

KPMG in Vietnam

Nhan Huynh E: [email protected]



If you have any comments or suggestions in relation to KPMG’s Global Indirect Tax Brief, please contact:

Frederic Raepers Editor and Global Indirect Tax Knowledge Manager KPMG in Turkey T: +90 216 6819 122 E: [email protected]

Maria StriplingGlobal Indirect Tax Practice ManagerKPMG in the United KingdomT: +44 161 246 4075 E: [email protected]

kpmg.com/socialmedia

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

The material contained within draws on the experience of KPMG tax personnel and their knowledge of local tax law in each of the countries covered. While every effort has been made to provide information current at the date of publication, tax laws around the world change constantly. Accordingly, the material should be viewed only as a general guide and should not be relied on without consulting your local KPMG tax adviser for the specific ap-plication of a country’s tax rules to your own situation.

Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Printed in the United Kingdom.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Designed by Evalueserve. Publication name: Global Indirect Tax Brief. Publication number: 121142. Publication date: November 2012.

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