What every attorney needs to know about their clients doing business in Europe
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Transcript of What every attorney needs to know about their clients doing business in Europe
WELCOME BLS CPAs Lunch & Learn with
Dr. Mónika Molnár:
What Every Attorney Needs to Know About Their Clients Doing Business in
Europe
Belfint, Lyons & Shuman CPAs
Wilmington, DE / West Chester, PA
www.belfint.com
302.225.0600
Copyright Treureva Ltd, 2015
What Every Attorney Needs to Know About Their Clients Doing
Business in Europe
2015
Dr. Monika Molnár LL.M. (Taxation)
Treureva Ltd, Zurich, Switzerland
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Speaker: Monika Molnár
JD LL.M. (Taxation)
Treureva Ltd
Othmarstrasse 8
CH - 8008 Zurich, Switzerland, Europe
www.treureva.com
VAT exposure and doing business in Europe and in Switzerland
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Introduction
Key issues for VAT in the EU
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Business of your client
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• Doing business in Europe
• political system
• economical regime
– EU Member State
– Non EU Member State
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• Doing business in Europe
• economical regime (taxation)
– EU Member State (28)
– Non EU Member State:
• Switzerland, Liechtenstein
• Norway, Iceland
• Serbia …
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• Doing business in Europe
• economical regime (taxation)
– EU Member State (28)
– Non EU Member State:
• USA
• Russland
• …
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• how to ask?
• options and scenarios?
• the more you ask the more you get
• higher VAT rate -> higher VAT risks (CH: 8%, 2.5%, 3.8% VAT rates)
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• understanding the client‘s business
– business activity
– locations
– volumen of business
– conditions
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• understanding the client‘s needs
– to be in line with local regulations
– costs factor (e.g. compliance, admin, tax costs, tax returns, customs duties, reimbursement)
– understandable supply chain
– responsibilities
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Main question is:
– who provides
– to whom
– what kind of supply
– where ?
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Main question is:
– who provides = supplier
– to whom = recipient
– what kind of supply = supply of goods/services
– where ? = place of taxation, VAT liability
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• Main questions are:
– WHAT kind of supply is involved?
– WHO performs the supply?
– TO WHOM will be supplied?
– WHAT are the main impacts?
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• Please always ask for potential exemption and specifications, if any
– WHAT – is the supply taxable?
– WHO – is the supplier status tax-exempt?
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• Please always ask for potential exemption and specifications, if any
– TO WHOM – does the recipient have a specific tax status, which allows the recipient to purchase supply without tax?
– WHAT – how big is the tax cost (final costs impact)?
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• VAT = value added tax
• GST = good and service tax
• idea is: self assessed tax
• responsibility
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EU legislation on VAT
• EU VAT: „harmonized“ on the basis of „EU VAT Directive“
• EU Directive:
– is addressed to the EU Member States
– must be implemented into national law
– may take reference over national law (direct effect)
– Directive 2006/112/EC of 28 Nov 2006
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Court of Justice of EU (ECJ)
• final interpretation of the Directive
• in framework of infringement actions of the Commission
• in response to preliminary questions from national courts
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• EU Member States
– 28 EU Member States
– Minimum VAT rate 15%, highest is 27% (HU)
– VAT registration (if VAT liability, possible requirement of multiple VAT registrations)
– VAT refund (non VAT liability, reciprocity rules needs to be checked separately, NL: yes)
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• EU Member States
– 28 EU Member States
– Minimum VAT rate 15%, highest is 27%
– VAT registration (if VAT liability, possible requirement of multiple VAT registrations)
– VAT refund (non VAT liability, reciprocity rules needs to be checked separately, NL: yes)
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• Switzerland
– Non EU Member State
– Lowest VAT rate (8% standard, 2.5% reduced rate, 3.8% specific rate for hotel accomodation)
– VAT registration (if VAT liability)
– VAT refund (non VAT liability, however, purchase invoices contain Swiss VAT)
– Reciprocity rules with USA are available !
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• Switzerland
– Non EU Member State
– Lowest VAT rate (8% standard, 2.5% reduced rate, 3.8% specific rate for hotel accomodation)
– VAT registration (if VAT liability)
– VAT refund (non VAT liability, however, purchase invoices contain Swiss VAT)
– Reciprocity rules with USA are available !
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TAX Rates
VAT in the EU
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• EU Member States
– Tax rates
– http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf
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• EU VAT rates
– Austria (AUT), 20% Estonia (EE), 20%
– Belgium (BE), 21% Finland (FI), 24%
– Bulgaria (BG), 20% France (FR), 20%
– Croatia (HR), 25% Germany (DE), 19%
– Czech Rep. (CZ) , 21% Greece (EL), 23%
– Cyprus (CY), 19% Hungary (HU), 27%
– Denmark (DK), 25% Italy (IT), 22%
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• EU VAT rates
– Ireland (IE), 23% Portugal (PT), 23%
– Latvia (LV), 21% Romania (RO), 24%
– Lithuania (LT), 21% Slovakia (SI), 20%
– Luxembourg (LU), 17% Slovenia (SK), 22%
– Malta (MT), 18% Spain (ES), 21%
– Netherlands (NL), 21% Sweden (SE), 25%
– Poland (PL), 23% United Kingd. (UK), 20%
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Choosing a country to register for VAT
VAT in the EU
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• tax rates
• transaction volume
• language of the local tax authority
• business development of the client
(focussed EU country, if any, end customer)
• political, economical country regime
• potential increasing of the VAT rates
potential key elements
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• IT system
• accounting system
• invoicing, contract, liabilities
• admin work (filing VAT returns
(monthly, annual, quarterly), deadlines
• VAT registration procedure,
fiscal rep, deposit, thresholds, time
• attitude of the local VAT Authority
potential key elements
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• Potential risks (formal aspects)
penalties for late VAT registration, submitting VAT retuns (monthly), ESL (quarterly), Intrastat (monthly)
late payment interests
no allowance to deduct VAT costs incurred:
missing of proofs for tax free transactions (e.g export papers)
missing of invoices ( e.g. import papers, purchase, sales)
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• Potential risks (material aspects)
not in line with the tax law (contract, monitoring)
incorrect qualification of the business for VAT purposes
liabilities of seller
liabilities of purchaser
joint liability (e.g. declaration of specific transactions)
How to solve the (past) situation ?
Your own liability ?
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• pro-active handling
due diligence for VAT issues (buyer, seller, client‘s perspective), to qualify and to quantify the potential risks, if any
understanding of the business: „Who provides to whom what, where?“ mapping, flow of invoice, flow of supply, flow of payment, business structure
contract: VAT clause, timeline, retroactive impact, statue of limitation
Always Ask Before Handling !
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Always Ask Before Closing !
Multiple VAT registrations
Multiple VAT risks
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Transactions exposed to VAT
VAT in the EU
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nature of the supply Flow of goods from ->into
VAT impact in Europe
additional remarks
importation of goods US -> Europe import VAT customs, licence,…
supply of own goods US -> Europe import VAT purpose?, customs procedure
supply of goods Europe Country A-> Europe Country A Europe Country A->Europe Counry B
local, intracommunity supply of goods
taxable event, tax-free, once the proof of intracommunity supply is available
exportation Europe -> non Europe export tax-free, once the proofs are available
exportation of own goods Europe –> non Europe export tax-free, once the proofs are available
VAT due (output)
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nature of the supply flow of goods from ->into
VAT impact in Europe
additional remarks
local purchase of goods Europe Country A -> Europe Country A
local VAT reimbursement, if the conditions are met
intracommunity acquisition of goods
Europe Country A-> Europe Country B
acqusition VAT, intracommunity purchase of goods
taxable event, reimbursement, if the requirements are met
importation non EU -> Europe import VAT deductible, reimbursement, if the requirements are met
VAT costs (input)
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nature of the supply service potential VAT impact in Europe
additional remarks
Clarification of service: nature of the service
Immovable property construction of real estate, engineering
taxable at the place of the real estate
VAT reg, permanent establishment, purposes, costs deductibility, additional tax areas
advisory services, consultancy services, management services, intermediary service
taxable at the place of the recipient, acquisition VAT (EU)
potential deductibility, however, if the contractual party = US recipient, no VAT is due, (use and enjoyment rules)
digital service to private individuals
taxable at the place of private individuals (where the recipient is established), multiple VAT registration
VAT reg, multiple VAT reigstration, Mini One Stop Shop, MOSS - clarification
VAT on service
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nature of the supply service potential VAT impact in Europe
additional remarks
Clarification of service: nature of the service
transportation of people
taxable at the place of route
VAT reg, costs deductibility, additional tax areas
transportation of goods
taxable at the place of the recipient, acquisition VAT (EU)
Potential deductibility, however, if the contractual party = US recipient, no VAT is due,
restaurant service taxable at the place of the consumption, where the service is carried out
VAT reg
VAT on service
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• EU – general remarks
• B2B – taxable at the place of the recipient, the recipient needs to declare the purchased supply
• B2C – taxable at the place of the recipient, however, the supplier needs to be registered in the country of the recipient !
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Case study – supply of digital services
VAT in the EU
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US supplier performs digital service to customer located in Germany (1)
The German customer provides with its
German VAT number to the US supplier
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US supplier performs digital service to customer located in Germany (1)
• Assumption:
– US supplier is not established in any EU Member States
– German recipient has a German VAT no. and it has been provided to the US supplier
flow of invoice
Recipient is registered for German VAT
purposes GERMAN VAT number
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US supplier performs digital service to customer located in Germany (1)
• Consequences for the US supplier: – Place of taxation is where the recipient is located =
Germany
– However, no German VAT liability for the US supplier at all
– The invoice of the US supplier to the German recipient: without VAT
invoice without VAT
Recipient is registered for German
VAT purposes GERMAN VAT number
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US supplier performs digital service to customer located in Germany (2)
The German customers are private individuals
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US supplier performs digital service to customer located in Germany (2)
• Assumption:
– US supplier is not established in any EU Member States
– German recipients are private individuals
flow of invoice
Recipient does not have
German VAT number
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US supplier performs digital service to customer located in Germany (2)
• Consequences for the US supplier: – Place of taxation is where the customer is located =
Germany
– German VAT registration of the US supplier is needed
– The invoice of the US supplier to the German recipients: with 19% German VAT
invoice with German VAT (19%)
Recipient does not have
German VAT number
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US supplier performs digital service to customer located in Germany (2)
• Consequences for the US supplier: – German VAT registration for US Cos in Germany
– German VAT Authority Bonn-Innenstadt is responsible
– Official language is the German language
– http://www.finanzamt-bonn-innenstadt.de/steuerzahler/ust_us_unternehmer/index.php
invoice with German VAT (19%)
Recipient does not have
German VAT number
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US supplier performs digital service to customer located in the EU (3)
The customers are private individuals
non VATable person
without VAT numbers
flow of invoices
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Initial Overview – potential business structures and VAT
High Level Overview
LRD (acts its in own name and for its own account) Limited Risk Distributor
Commissionaire (contracts in its own name and for account of the principal)
Commission agent/sales representative (contract in name and for account of principal)
VAT notes: Guidelines, national legislation and interpretation can vary. For VAT purposes needs to be considered the legal and economical ownership (1), who performs the transaction to whom (2); where - place of supply (3); who organises the transport (4); delivery conditions (5).
Legal title of the goods principal to LRD, flash title, LRD to customer
principal directly to customer (possible) commissionaire
principal directly to customer
Inventory/receivable risk principal principal principal
Invoicing to customer in the name of LRD in the name of commissionaire in the name of principal
Remuneration margin between sales and purchase (resale minus)
margin between sales and purchase (% of sales converted to resale minus)
commission; agent % of sales; rep is cost plus
VAT sales from principal to LRD to customer , buy-sell transaction
sales from principal to commissionaire to customer
sales by principal to customer with agent services
Legal title passage principal to local distributor to customer
principal to customer; economical ownership from commissionaire to customer
principal to customer
VAT registration resp. compliance
multiple VAT registration/compliance for the principal
multiple VAT registration/compliance for the principal, deemed transaction; intercompany invoice and customer invoice, tax/VAT coding
easier
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Summary
• mapping of transaction is crucial
• review and consideration of the (planned) EU business (e.g. drafts, contract, initial papers)
• monitoring the current development is essentiel
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Thank you for your attention!
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Contact
Treureva Ltd
Othmarstrasse 8
CH-8024 Zurich, Europe
tel +41 44 267 17 17
fax + 41 44 267 17 11