WELCOME TO OUR WEBINAR VAT: PLACE OF SERVICE …files.dlapiper.com/files/upload/EU_VAT_Nov09.pdf ·...
Transcript of WELCOME TO OUR WEBINAR VAT: PLACE OF SERVICE …files.dlapiper.com/files/upload/EU_VAT_Nov09.pdf ·...
This webinar recording is offered for informational purposes only, and the content should not be construed as legal advice on any matter.
VAT: PLACE OF SERVICE VS. PLACE OF CONSUMPTION
November 4, 2009 | 9:00 – 11:00 a.m. PST
WELCOME TO OUR WEBINAR
November 4, 2009VAT: Place of Service vs. Place of Consumption 2
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Introduction of Panelists
Daan ArendsInternational VAT GroupSenior AssociateCorporateDLA Piper Amsterdam
Moderator
Eric D. RyanPartnerTax GroupDLA Piper USEast Palo Alto
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UK London
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 3
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EU VAT Package
Introduction to EU VAT
What is changing?
Daan ArendsInternational VAT GroupSenior AssociateCorporateDLA Piper Amsterdam
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Introduction to EU VAT
Recent Netherlands research under international tax managers reveals that irrecoverable VAT is the biggest tax burden ahead of all other taxes!
Non-compliance with VAT rules leads to VAT assessments, interest charges and penalties
VAT exposure often "hidden" in organization
VAT is often not recoverable from customers –incorrectly invoiced VAT remains due
29 out of 20 OECD countries have VAT/GST – US"not soon"
EU VAT rates ranging from 15% to 25%
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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Introduction to EU VAT
EU VAT Directives require implementation in local VAT rules but leaves EU Member States some discretionary authority resulting in different rules throughout the EU
Different set of rules apply to supply of goods and provision of services
VAT regime supply of goods:Main rule of taxation: taxed with VAT where goods are at the moment of the supply
In case of transportation of goods: taxed with VAT where transport starts
In case of installation of goods: taxed with VAT where installation takes place
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 6
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Introduction to EU VAT: Supply of Goods
Domestic supplies –within EU country– reverse charge
(Fictitious) intra-community transactions– cross-border EUIC supplies – zero rated
IC acquisitions – standard rated
Export supplies – outbound EU – zero rated
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 7
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Introduction to EU VAT: Supply of Goods
Local VAT registration is generally required for:(Fictitious) IC supplies involving shipment/transport from one EU country to another
(Fictitious) IC acquisitions involving shipment/transport from one EU country to another
Domestic supply (i.e., supply of products within an EU country) or installation supply (unless a reverse charge mechanism applies or the turnover is below the local VAT registration threshold).
Note that the importation of goods into EU is considereda separate taxable event – VAT deferment arrangements available – NL deferment license – UK deferment account
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 8
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Supply of Goods: Case Study – Global Contract –Intra-Community Transactions
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
USSupplier
US Customer (parent)
Global Contract
Customer SubVendor
UK
Delivery of product
NL
US
Sale
Sale Sale
Which sale is intra-community transaction?Which sale is domestic sale?Reverse charge mechanism applicable VAT registration requirement for US based Supplieror Customer
November 4, 2009VAT: Place of Service vs. Place of Consumption 9
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Supply of Goods: Case Study – Global Contract –Importation into EU
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
USSupplier
US Customer (parent)
Global Contract
Customer SubVendor
NL
Delivery of product
US
Sale
Sale Sale
Import of product
Who imports the products into the EU?Which sales are considered domestic NL sales?Reverse charge mechanism applicable?
November 4, 2009VAT: Place of Service vs. Place of Consumption 10
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Introduction to VAT: the Place of Supply of Services – Current Rules
Supply of Services = any transaction that does not constitute a supply of goodsPlace of supply of services = the place where a service is treated as being supplied and where it is liable to VAT (if any):
Current general rule: VAT due in country of the service providing company ( management, administration, intercompany cost recharges)Many exceptions:
Services relating to real estate place where property is situatedEducational, entertainment place where services are physically carried outTransfer of IP, advertising services, services of accountants and lawyers, supply of staff country of taxable customer
Simplification: reverse charge mechanism
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 11
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Introduction to VAT: the Place of Supply of Services as of 2010
New general rule place of supply of cross-border B2B services the place where the customer is established (subject to certain exceptions). The B2B customer must self-assess the VAT due relating to the service under the reverse charge rule
General rule place of supply of cross-border B2C services remains unchanged the place where the service provider is established (subject to certain exceptions)
Aim: modernize and simplify
Result: increased administrative costs
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 12
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Introduction to VAT: the Place of Supply of Services as of 2010
UK Provider
NLUK
NLB2B Customer
Services
Payment
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
What service is being supplied?
Does the customer have a VAT number?
Is self-assessed VAT recoverable?
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New Place of Supply Rules
Place of supply B2B as from 1 January 2010
Place where the activities are physically carried out
Services and ancillary services relating to cultural, educational events, including servicesof organizers
Where the transport takesplace, proportionate to the distances covered
Passenger transport
Where the immovable propertyis located
Services connected with immovable property, including services of estate agents and "holiday accommodation"
Where customer is establishedNew general rule
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 14
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New Place of Supply Rules
Place of supply B2B as from 1 January 2010
Where physically carried outOther restaurant andcatering services
Place of departure of the passenger transport operation
Restaurant and catering services physically supplied on board ships, aircraft or trains during partof an intra-Communitypassenger transport
Where it is put actually at the disposal of the customer
Short-term hiring of a meansof transport
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 15
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New Place of Supply Rules
Place of supply B2C as from 1 January 2010
Place of departure
Where the transport takesplace, proportionate to the distances covered
IC transport of goods
Other transport of goods
Where the transport takesplace, proportionate to the distances covered
Passenger transport
Where the immovable propertyis located
Immovable property
Where the supplier is establishedGeneral rule
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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New Place of Supply Rules
Place of supply B2C as from 1 January 2010
Where the customer is residentIntangible services tonon-EU customers
Where the services are physically carried out
Services ancillary to transport –Valuations of and work on movable tangible property
Where the underlying transaction is supplied
Intermediaries
Where it is put actually at the disposal of the customer
Short-term hiring of a meansof transport
Place where the activities are physically carried out
Services and ancillary services relating to cultural, educational events, including servicesof organizers
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 17
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New Place of Supply Rules
Place of supply B2C as from 1 January 2010
Where the services are physically carried out
Other restaurant andcatering services
Place of departure of the passenger transport operation
Restaurant and catering services physically supplied on boardships, aircraft or trains duringpart of an intra-Community passenger transport
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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New Place of Supply Rules
Place of supply B2B as from 1 January 2011
Place of supply B2C as from 1 January 2011
Default ruleEvents – organizationWhere event takes placeEvents – admission
Where event takes placeEvents – organizationWhere event takes placeEvents – admission
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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New Place of Supply Rules
Place of supply B2C as from 1 January 2013
Place of supply B2B as from 1 January 2013
Where customer is residentLong-term rental of vehicles –other vehicles
Place of disposal
Where customer is resident
Long-term rental of vehicles –yachts
Disposal at the supplier's place of business
Disposal elsewhere
Remains default ruleLong-term rental of vehicles
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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New Place of Supply Rules
Place of supply B2C as from 1 January 2015
Place of supply B2B as from 1 January 2015
Where the customer is residentTelecoms, broadcasting and electronic services
Remains default ruleTelecoms, broadcasting and electronic services
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 21
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Status of Customer: B2B or B2C?
"B2B" – Business to BusinessCustomer = "taxable person"
Includes businesses performing taxable and non-taxable activities (e.g. local governments, "active" holding & financing companies)
Includes businesses trading below registration threshold
Includes wholly non-taxable legal person "identified" for VAT in its jurisdiction – VAT planning opportunities!
Includes non-EU established businesses
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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Status of Customer: B2B or B2C?
"B2C" – Business to non-taxable CustomerIndividual not registered for VAT, nor making any business supplies (e.g. holding company)
Business, where supply is received for personal purposes, including for staff – supplier needs to check the reason for the supply! – Dutch guidance: generally received for business purposes
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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Evidencing Status of Customer
Status of customer as "Business" Obtain VAT number of customer before supplyis made
Some EU countries require VAT number of customer otherwise local VAT must be charged
If customer is trading below registration threshold or is established outside EU, obtain alternative evidence of customer being in business
Most authorities will supply business customers with "certificate of status"
Check customer VAT status at Commission website
If in doubt, treat customer as "Consumer" and charge VAT as appropriate
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 24
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Where Are the Supplier and Customer Established?
Which establishment of supplier and recipient is most directly connected with the supply? Current:
For suppliers, from which establishment are the services actually provided
For recipients, at which establishment are the services actuallyconsumed, effectively used or enjoyed
Which establishment appears on contracts and invoices
Where are directors or others who entered into contracts based
At which establishment decisions are taken and controls are exercised
Normally, it is the establishment actually supplying or receiving the supply of services which is most connected (even if contract is different)
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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Abolition of "Force of Attraction"
Current rule: reverse charge mechanism is applicable when the service provider is ‘not established in the customer's Member State’
Some EU countries have strict interpretation and have implemented "force of attraction" rule: non-resident service providers are established in their customer's Member State if they merely have a fixed establishment (even without involvement of that fixed establishment)
Reverse charge rule does not apply
VAT is due by the non-resident service provider'sfixed establishment
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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Abolition of "Force of Attraction"
As of 2010 abolition of force of attraction rule:
"taxable persons, who have a fixed establishment within the territory of the Member State where the tax is due, must be regarded as taxable persons who are not established within that Member State, when they make a supply of goods or of services within the territory of that Member State and any establishment, which they have within the territory of that Member State, does not intervene in that supply"
New interpretation questions arise: what does "intervene" mean within the context of this provision?
Guidance of the VAT committee is expected
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 27
CURRENTLY SPEAKING
UKSupplier
UK Customer Global Contract
US Supplier Sub
NL
UK
CS FESU FE
GER
Case Study 1: Global Contract
Which establishment is providing the service?
Does the local fixed establishment intervene?
Reverse charge mechanism applicable?
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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"Use and Enjoyment" Override
Changes place of supply to where service is used and enjoyed (consumption principle)
Overrides fallback rule for B2B and B2C
Potentially also overrides hire of means of transport and EU to non-EU B2B and B2C services
Netherlands – no extension of current "use and enjoyment" rules expected
Check other jurisdiction's rules as potential conflict and double tax
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 29
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New Recapitulative Statements
Current position: taxable persons must declare their zero-rated intra-Community supplies of goods only into the periodic recapitulative statement
From 1 January 2010: in addition businesses must declare details of supplies of services subject to VAT in another Member State under the reversecharge mechanism
Service providers and customers involved in cross-border services must have a VAT identification number, or VAT may have to be charged!
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 30
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New Recapitulative Statements
New time of supply! instead of the payment/invoice date, the time of supply will be the earlier of when the service is completed or when payment is made. IMPACT ON INVOICING SYSTEMS
Continuous supplies of services: the time of supply linked to the payment periods: if no payment is made than deemed completion at the end of the calendar year
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 31
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New Recapitulative Statements
Form captures country code of customer, customer's local VAT number, value of supplies and type of serviceOmit from form supplies exempt in customer's Member State (note: financial services exemption differs widely across EU) – so VAT status of supplies in customer's Member State will need to be checked toprevent mismatchExtra administrative burden – no de minimis limitMonthly filings or quarterly depending on threshold for intra-community supplies of goods (or optionfor services) Same form as goods – adapted for servicesPenalties – for inaccuracies are severe!
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 32
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Council Directive 2008/9/EC – Mutual Recovery –Replacing Eighth Directive – from 1 January 2010
Claims for refunds of input VAT incurred in Member States where trader not established
New electronic portal
Expenses are coded
No requirement for certificate of taxable status or submission of original invoices
Claim made to Member State of establishment withfull details
Claim passed to Member State of refund
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
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Council Directive 2008/9/EC – Mutual Recovery –Replacing Eighth Directive – from 1 January 2010
30 September deadline for previous calendar year
Payment to be made within four months – and 10 days of approval – otherwise interest (unless more information needed)
Conditions for deduction (e.g. entertainment) are the rules for the Member State of refund
Apply partial exemption status of claimant
13th Directive reclaim procedure is unchanged
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 34
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Advantages of New Regime
Vast majority of cross border B2B services may be invoiced without VATVAT no longer needs to be charged on management, administrative services, record keeping, payroll,and repair and installation services, orintercompany chargesNo longer cash flow cost for business customers No longer need for multiple VAT registrations e.g. for repair and installation of goods2015 extension of One-Stop-Scheme for EU suppliers of telecommunication services will cut down onmultiple registrationsAbolition of force of attraction principle – causesmany disputes
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 35
CURRENTLY SPEAKING
Disadvantages of New Regime
Exempt/partially exempt businesses will now suffer VAT on services outsourced to non-EU businesses
Increased administration – new recapitulative statements – amendments to ERP systems necessary
Increased compliance costs – accounting systems
Risk of double taxation where services received incur local tax/GST
Suppliers and recipients under global contracts should assess the new rules in respect of "establishment"
Disputes likely if EU countries do not agree consistent guidelines on "use and enjoyment" override
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 36
CURRENTLY SPEAKING
Preparations – Accounting Systems Etc
Review and amend ERP systems – VAT numbers of customers crucial – new time of supply in ERP systems
Invoices must be drawn up in accordance with invoicing requirement in customers' EU country
Review and assess scope of exemptions in country of residence and customers' EU country
ERP Systems must make difference between –local supplies – non-EU supplies – and intra-community supplies
Supply VAT number to suppliers, to avoid incurring foreign VAT and time and expense correcting errors
Daan ArendsInternational VAT GroupSenior Associate Corporate DLA Piper Amsterdam
November 4, 2009VAT: Place of Service vs. Place of Consumption 37
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EU VAT Package
Practical Impact for US Businesses
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UK (London)
November 4, 2009VAT: Place of Service vs. Place of Consumption 38
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You Cannot Afford to Ignore VAT
Trend – Corporate taxes reducing (halted 2009)Average EU rate: 23.2%
Average Latin America rate: 26.9%
Urgent need for more revenues: governments raising indirect taxes – more resilient in downturn
VAT/GSTAverage EU rate: 19.5% => 19.8% (2009)
Average Latin America rate: 15.9 => 16.2% (2009)
Over 150 countries have indirect tax systems
No double tax relief for VAT
NOT JUST FLOW-THROUGH. CAN BE A REAL COST
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 39
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EU VAT Package
1 January 2010 – new regime begins whether you are ready or not!
Place of supply of servicesWho pays VAT?
Where is VAT charged?Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 40
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Are You Affected?
US businesses providing services to EU customers
EU subsidiaries of US businesses acquiring services from EU/non-EU service providers
US businesses buying services from EUservice providers
Basically, anyone doing business with EU
US to introduce federal VAT?Follow Michigan and Texas – state forms of VAT
US budget deficit: aging population/recession/health care
Federal deficit estimated at $1 trillion annually overnext decade
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 41
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Overview of Changes in VAT Package
Current main rule for taxation of cross-border servicesVAT is due in supplier's country
Specific exceptions
Introduction of new "general rules" for place of supplyof services
B2B (business to business): where customer is established, reverse charge mechanism applies
B2C (business to non-taxable consumer): where service provider is established
Range of exceptions apply to general rules in B2B and B2C situations
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 42
CURRENTLY SPEAKING
Overview of Changes in VAT Package
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
EUBusiness Customer
input VAT
output VAT
No VAT chargedin jurisdiction of
supplier
Real cost or just accounting entry?Depends on customer's business
Result: Some customers in EU (public sector, schools, universities, banks, insurance companies, hospitals, charities) hard hit by VAT for first time
Non-EUBusiness Customer
No EU VATlocal VAT/GST?
US SupplierEU Supplier
November 4, 2009VAT: Place of Service vs. Place of Consumption 43
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ACTION: You Have Less than 2 Months to Go…
Obtain VAT registration numbers of business customers in other EU jurisdictions and verify (website: ec.europa.eu/taxation_customs/vies)– or other acceptable business status evidence
Amend accounting software
Easy to extract information for ESL
Supply your EU VAT number(s) to your EU overseas suppliers, to avoid incurring foreign VAT and time and expense correcting errors
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 44
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ACTION: You Have Less than 2 Months to Go…
Global contract issues - identify where VAT treatment may change after 1 January 2010
Does contract need amendment?
Agree VAT consequences with other party
Cross-border Intra Group transactions – identify where VAT treatment may change
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 45
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Complicating Rules
Scope of "use and enjoyment" exception
Interpretation of intervening supplier
Customers with 2+ establishments. Where is service used and enjoyed?
No statutory definition of "provided to"
No case law/guidance
Richard WoolichPartner and ChairmanInternational VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 46
CURRENTLY SPEAKING
Case Study 1: Supply of Outsourced Call Centre Services
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
Non-EU Call Centre
Back office services
Non-EUCall Centre
UK branch ofUS Bank(partially exempt
business)
UK branch ofUS Bank(partially exempt
business)
No VAT
Place of supply o/s UK
Place of supply UK
NOW
POST1/1/2010
REVERSE CHARGEIN UK
Also affects insurance companies, financial traders, property business, hospitals, universities and charities
November 4, 2009VAT: Place of Service vs. Place of Consumption 47
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Case Study 1: Supply of Outsourced Call Centre Services
Is UK branch contractually obliged to pay the VAT to the supplier? If yes, estimate extra cost
Bank should review VAT recovery method – ensure the input tax is expressly dealt with and a fair and reasonable recovery achieved
Beware VAT/GST imposed in supplier's jurisdiction –there is no double treaty relief for VAT
Impact on outsourcing decisions yet to be made
Richard WoolichPartner and Chairman International VAT Group Corporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 48
CURRENTLY SPEAKING
Will This Work?
FCE Bank – no supply of management, consultancy, data from London headquarters to Italian branchWhich entity is the recipient of the supply?Use and enjoyment override?Note: outside EU, branch to branch is a supply e.g. Canada, Australia, Singapore
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon Indian
Call Centre
Indianentity of customer
UK Branch of customer entity
recharge of costsservices
November 4, 2009VAT: Place of Service vs. Place of Consumption 49
CURRENTLY SPEAKING
Case Study 2: Management Services: UK to US
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
Management Services
UK Subsidiary
US Parent
CurrentUK VAT
Post 1 January 2010• outside scope of VAT• no VAT implications for US Co• same principles for
outsourcing/advisory
$
November 4, 2009VAT: Place of Service vs. Place of Consumption 50
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Case Study 3: Management Services: US to EU
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
UK Subsidiary
US Co
CurrentNo VAT
Post 1 January 2010• reverse charge in UK - self assess• is this a real cost? depends on whether
UK Subsidiary makes taxable supplies
Management Services
$
November 4, 2009VAT: Place of Service vs. Place of Consumption 51
CURRENTLY SPEAKING
Case Study 4: Management Services to a Pure Holding Company
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UK London
Post 1 January 2010• BV must register and
reverse charge in NL• BV cannot recover VAT• Charge on to group
companies?
Netherlands Holding BV
US Parent
CurrentNo VAT
Management Services
$
November 4, 2009VAT: Place of Service vs. Place of Consumption 52
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Case Study 5: Services to Customer Based in More than One Jurisdiction
Where are services provided and enjoyed?Where is VAT charged?Economic consumption?
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
Washington DC Customer XYZ
US Supplier NY
German BranchXYZ
French BranchXYZ
servicesservicesreverse charge?
$
servicesreverse charge?
$
November 4, 2009VAT: Place of Service vs. Place of Consumption 53
CURRENTLY SPEAKING
Case Study 6: Global Contracts
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
USparent US CustomerFramework
Agreement
Supplier Sub France
CustomerSub France
French VATServices
Supplier Sub Germany
CustomerSub Germany
German VATServices
November 4, 2009VAT: Place of Service vs. Place of Consumption 54
CURRENTLY SPEAKING
Local VATRegistrations?
Local VAT
USSupplier
US Customer (parent)
InternetServices
Supplier EU group entities providing
local support services
Local EU branches of customer
Fee: Cost-Plus
sub-contract
reverse charge VAT?
on-charge
Case Study 7: Global Contracts
Use and enjoyment rules?Review contractsLink to transfer pricing
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 55
CURRENTLY SPEAKING
Case Study 8: One Supply or Two?
One supply to customer or two?
Contracts can be critical
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
US Parent Payment Services
Internet Services
UK Branch:
Netherlands BusinessCustomer
Exempt Financial Service
Internet Services:Reverse Charge?
November 4, 2009VAT: Place of Service vs. Place of Consumption 56
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US Parent (US server andestablishment)
Germany
France
UK
Belgium
Non-Business Customers
DIGITAL SERVICES
Case Study 9: Supply of Digital Services B2C
Non-business customers: place of supply is in customer jurisdictions
Business customer: reverse charge
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
(e.g. music downloads, gaming, gambling, internet-dependent services)
November 4, 2009VAT: Place of Service vs. Place of Consumption 57
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Case Study 9: Supply of Digital Services B2C
Option 1: Register for VAT in each relevant jurisdiction – where exceed threshold – account for VAT locally
Option 2: Register electronically in jurisdiction of choice (One Stop Scheme). VAT is charged at local rates and paid over to each local jurisdiction
Option 3: Set up establishment in e.g. Luxembourg –charge VAT at 15%. Needs substance. Only works until 2015
DON'T IGNORE!
KEY COMMERCIAL DECISION: Should charges vary depending on where customer is established?
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 58
CURRENTLY SPEAKING
New Rules for Digital Services "B2C" toSwiss Customers
VAT Registration obligation where services exceed CHF 100,000
7.6% VAT (2010 8%)
Appointment of Swiss fiscal representative and bank guarantee required
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
US Business "B"
Swiss"C"
Digital Services
November 4, 2009VAT: Place of Service vs. Place of Consumption 59
CURRENTLY SPEAKING
Disputes
Double taxation
Note provision in Article 398 of EC VAT Directive for VAT Committee to consider how EC legislative provisions should be applied and differences in approach taken by Member States resolved. Committee charged by EU Commissioner with delegates from each Member State. Effective??
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 60
CURRENTLY SPEAKING
Main Messages – Less Than Two Months to Go!
Review supply and customer contracts – how will new rules impact? Who bears the risk?
Conduct full economic compact assessment –exempt/partially exempt businesses
Systems/ESL
Training – how to pick up issues – responsible officer?
Obtain and check EU customers' VAT numbers. Give your number to suppliers
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UK London
November 4, 2009VAT: Place of Service vs. Place of Consumption 61
CURRENTLY SPEAKING
Main Messages – Less Than Two Months to Go!
Review impact on overseas VAT registrations and 8th/13th directive refunds
Monitor closely all new regulations, policy developments and guidance
What are you doing about digital services?
DLA Piper VAT Team can help!
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 62
CURRENTLY SPEAKING
Top VAT Tips
Make use of import VAT deferment regime
13th Directive refunds – establishment and time limits
Cash flow – timing of VAT periods, invoicing
VAT grouping – within same jurisdiction
Do not forget bad debt relief when customer does not pay in full
Do not forget other taxes e.g. transfer pricing, corporation tax permanent establishment. Reduced prices – reduces tax and customs duties
Transfer of business (TOGC) – please take care. Different rules in different jurisdictions
DO NOT IGNORE VAT – it will not go away!
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UKLondon
November 4, 2009VAT: Place of Service vs. Place of Consumption 63
CURRENTLY SPEAKING
VAT Briefing
Central and Eastern Europe
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 64
CURRENTLY SPEAKING
CEE – Background
EU Accession
12 new member states since May 2004:
Poland, Czech Republic, Slovakia, Slovenia, Hungary, Lithuania, Latvia, Estonia, Cyprus, Malta, with Bulgaria and Rumania joining in January 2007
VAT and excise duty rules should be harmonized with EU Directivesupon accession
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 65
CURRENTLY SPEAKING
CEE – Background
Post EU accession Dramatic rise in foreign direct investment
Key drivers of FDILow labor costs*, qualified workforce, attractive location
Multinational manufacturers opening facilities in CEEGE, GM, Ford, Procter & Gamble, Dell, International Paper, 3M, Phillip Morris
R&D and shared service centers of large global corporations in CEE
Delphi, IBM, Philips, Accenture, Johnson & Johnson
* Average monthly salary in Poland in 2008 (gross) was approximately USD 1200. In EU lower employment costs are only in Ireland, Greece, Italy, Romania
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 66
CURRENTLY SPEAKING
VAT in CEE
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
DLA PIPER: Based on research from CEE EU Members
Taxpayers’ limited experience
with EU VAT
Unpredictable tax authorities
VAT risksVAT risks
Limited introduction of different VAT simplifications
e.g. import VAT relief, call-off stock
Exchange rate risks
Constantly evolvingVAT rules, gaps in
implementation
November 4, 2009VAT: Place of Service vs. Place of Consumption 67
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Case Study 1: Exchange Risk inVAT Settlements
In 2007-2008, American company builds factory in PolandCompany pays USD100m in VAT on its investment
VAT is paid in local currency
Company receives VAT refund in July 2008
USD 24m loss due to exchange rate fluctuationDominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
Exchange rate USD/PLN
0,00000,50001,00001,50002,00002,50003,00003,5000
January 2007 July 2007 January 2008 July 2008 January 2009 July 2009
Data
USD
/PLN
November 4, 2009VAT: Place of Service vs. Place of Consumption 68
CURRENTLY SPEAKING
Main VAT Issues in CEE Today
Setting up a businessVAT on pre-registration costs, determination of VAT consequences of sale and purchase transactions, conditions to claim refunds of VAT on investment purchases
Restructuring into the most popular schemesTolling agreement and commissionaire structure: determination of place of taxation of production services, decision on VAT registration of principal and taxation of exist fee with VAT
Sale of business, sale of on-going concern, in-kind contribution, split-off – VATable or not?
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 69
CURRENTLY SPEAKING
Main VAT Issues in CEE Today
Sale of immovable property – different conditions to apply option to tax
Services of R&D and shared service centers provided abroad – Subject to VAT or not?
…but most cases before European Court of Justice from CEE countries relate to passenger cars
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 70
CURRENTLY SPEAKING
Changes in VAT LawCase Study 2: Work on Goods
CurrentUS business registers for Czech VAT and Czech VAT applies to both contracts
Post 1 January 2010US business deregisters for Czech VAT.
No VAT on Subcontract.
VAT accounted for on main contract by Czech customer under reverse charge
BUT … Impact of use and enjoyment rules?
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
US Business
Subcontract Goods in Czech Republic
Maincontract for
works
Czech subsidiary Czech business customer
November 4, 2009VAT: Place of Service vs. Place of Consumption 71
CURRENTLY SPEAKING
Changes in VAT LawCase Study 3: Scientific Services
CurrentSome tax authorities claim that Polish VAT should be due on services of clinical trials as they qualify as “scientific services“
Post 1 January 2011No VAT should be due irrespective of classification
BUT … Impact of use and enjoyment rules?
Note: the same problems with R&D services
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
US BusinessPharma company
Contract for performingClinical trials
POLISH subsidiary Polish hospital
Clinical trials
November 4, 2009VAT: Place of Service vs. Place of Consumption 72
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VAT in Russia
VAT law based on EU principles
Standard rate 18%, reduced rates 10% and 0%
No VAT refund for non-registered VAT-payers
To register for VAT, need permanent establishment and carry out VAT-able activity
In practice – register before making purchases in order to recover VAT on costs
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 73
CURRENTLY SPEAKING
VAT in Russia
Based on VAT principles, some differences in place of supply rules and VAT administration/reporting
Foreign companies are subject to the same VAT rules as Russian taxpayers
VAT rules strict and formalistic. The tax authorities take "form over substance" approach
Currently no changes for 2010 proposed
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper Poland
November 4, 2009VAT: Place of Service vs. Place of Consumption 74
CURRENTLY SPEAKING
Questions
Moderator
Eric D. RyanPartnerTax GroupDLA Piper USEast Palo [email protected]
Richard WoolichPartner and Chairman International VAT GroupCorporate DLA Piper UK [email protected]
Dominika CabajDirector, DLA Piper PolandSenior AssociateCorporate DLA Piper [email protected]
Daan ArendsInternational VAT GroupSenior AssociateCorporateDLA Piper [email protected]