Presenting a live 110-minute teleconference with interactive Q&A. Today s faculty features:

Transcription

1 Presenting a live 110-minute teleconference with interactive Q&A European VAT for U.S. Companies: Cost Management and Advanced Strategies Optimizing Your VAT Position, Identifying Billing/Accounting Risks and Opportunities, and Evaluating Costs of Exemptions WEDNESDAY, OCTOBER 2, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Britta Eriksson, President and CEO, Euro VAT Refund, Culver City, Calif. Mark Houtzager, Principal, US VAT, New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 European VAT of U.S. Companies: Cost Management and Advanced Strategies October 2, 2013 Mark Houtzager, US VAT Inc. Daniela Treptow, Euro VAT Refund Inc.

6 Today s Program Introduction [Mark Houtzager] VAT and Online Services [Daniela Treptow] Selling goods online: a VAT guide. [Daniela Treptow] VAT on organizing events [Daniela Treptow] Recovery and credit of VAT paid [Mark Houtzager] Key VAT compliance issues [Mark Houtzager] Slide 8 Slide 14 Slide 15 Slide 18 Slide 19 Slide 26 Slide 27 Slide 32 Slide 33 Slide 36 Slide 37 Slide 49

7 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

8 Mark Houtzager, US VAT, Inc. INTRODUCTION TO VALUE ADDED TAX

9 The basics of Value Added Tax VAT is a tax on the sales of goods or services, supplied by a taxable person (business entity), and on imports of goods Originally a simple tax, now much more complex Nevertheless, VAT is a favorite revenue tool for many governments In the EU: one single jurisdiction, but sometimes differences between EU and local legislation 9

10 Average VAT Rates (2013) Africa 16% Asia Pac 10% European Union 21% Europe (Non-EU) 18% Latin America 14% Average Global Rate 17% Highest Rate 27% Lowest Rate 5% Sales taxes Existing VAT systems EU VAT system Future VAT system General consumption taxes GST system Considering VAT system No GST/VAT System or no consumption taxes Future GST system 10 10

11 The basics of Value Added Tax Principle - VAT at each stage of the sales / supply chain ( output tax ) Tax on almost all business transactions goods services inter-company changes licenses, royalties Collected from buyer on sales, or collected from importer on imports Vendors charge VAT based on the price of the goods or services

12 The basics of Value Added Tax Principle - VAT shown on purchase invoices received from vendors ( input tax ) - credit for business buyer Businesses do not normally have an on-going net VAT cost - all VAT paid is normally reclaimable VAT is finally a cost by the end customer, which is a private person The net balance shown as due to / reclaimable from the tax authorities is a balance sheet item (credit or debit balance) 12

13 Goods sold to distributor for $100+$20 VAT Supplier $20 remitted Distributor Total Government Revenue $60 $20 remitted ($40 VAT - $20 credit) $20 remitted ($60 VAT - $40 credit) Product sold to Retailer $200+$40 VAT Retailer Consumer has the tax burden of $60 VAT Final consumer Product sold to consumer for $300+$60 VAT 13

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15 Daniela Treptow, Euro VAT Refund Inc. VAT ON ONLINE SERVICES

16 VAT on services sold Online Most services sold online qualify as Electronically Supplied Services Samples: Online games, software, music, apps, and telecom services VAT has to be charged when selling to private persons within the EU B2C VAT does not have to be charged when selling to companies B2B 16

17 VAT registration for Online sales When selling to private persons in the EU, the US company can register in one EU country From there, charge VAT according to the local VAT rate. Sample: 20% to British customers, 25% to Swedish customers Declare all the VAT in the UK VAT return if registered in the UK 17

18 VAT return for Online sales of services US company registers for VAT in the UK. Sells to private persons in the EU countries. UK VAT return Sales to the UK: 1,000 VAT 20% 200 Sales to Germany: 1,000 VAT 19% 190 Sales to Sweden: 1,000 VAT 25% 250 VAT due the UK tax authorities

19 Daniela Treptow, Euro VAT Refund Inc. SELLING GOODS ONLINE: A VAT GUIDE

20 VAT on goods sold and shipped from the US Goods and products sold from website, shipped from a US warehouse to customers world-wide Customer has to pay duty and local VAT to customs Duty is always a cost VAT is refundable if the customer is a company VAT is not refundable if the customer is a private person 20

21 VAT on import of goods VAT will be assessed by customs on imports to the VAT countries Sample: Import to the UK Value of shipment $1,000 Duty 3% 30 (Pay to UK customs) Value for VAT $1,030 20% UK VAT*: $206 (Pay to UK customs) 21 * VAT is usually refundable to companies - not refundable to private persons

22 To keep in mind when selling from US warehouse State on website that the customer is responsible for the duty and local sales tax/vat Make sure to prepare shipping documents so that the freight forwarder does not send the invoice for duty and VAT to the US seller/vendor Or, absorb the duty and local taxes/vat, but add into the price Note the difference when selling to a company versus private person 22

23 VAT on goods sold from website shipped from a EU warehouse Goods and products sold from website, shipped from a EU warehouse i.e. Amazon.uk. US company has to register for VAT in the UK US company has to import goods and pay duty and import VAT Must charge VAT to the customers per the EU laws 23

24 VAT return for sales of goods from EU warehouse US company registers for VAT in the UK. Sells to private persons in the EU countries through Amazon.uk UK VAT return Sales to the UK: 1,000 VAT 20% 200 Sales private persons (other EU countries): 1,000 VAT 20% 200 Sales to VAT registered companies (other EU countries): 1,000 VAT 0% 0 Less Import VAT paid to customs VAT 20% 300 VAT due the UK tax authorities 100 VAT is not a cost to the US merchant. It is a cost to private persons within the EU 24

25 To keep in mind when selling from EU warehouse VAT registration required in the EU country where the warehouse is located Make sure to state the prices on the local websites, i.e. Amazon.uk that includes the VAT Budget for the VAT registration and related filings VAT registration might be required in additional EU countries if sales are above the threshold 25

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27 Daniela Treptow, Euro VAT Refund Inc. VAT ON ORGANIZING EVENTS

28 VAT when organizing events in the EU: Fees are charged General rules: VAT registration is required if there is an attendee fee charged to attend meeting/conference/tradeshow VAT has to be charged to the attendees Refundable to businesses in most cases VAT charged from EU vendors can now be reclaimed 28

29 VAT when organizing events in the EU: No Fees are charged General rules: If no fees will be charged to the attendees, no VAT registration is required VAT incurred on most of the invoices can be reclaimed Generally most of the western EU countries refund VAT to North American companies 29 VAT is generally not refundable from the southern and eastern EU countries

30 To keep in mind when organizing event in the EU Important to research the local VAT rules at the planning stage: Is registration required? Can the VAT be reclaimed? Check if local event planner is beneficial for VAT Budget in the cost for the VAT registration and filings 30

31 VAT on events in the rest of the world VAT incurred on these costs cannot be reclaimed Sometimes not possible to arrange event without contracting with local event planner/partner 31

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33 Mark Houtzager, US VAT Inc. RECOVERY AND CREDIT OF VAT PAID

34 Recovery of VAT Paid Registered taxpayers may reclaim VAT paid (input VAT) on each period s VAT return filing Recovery is subject to formal rules (e.g., correct invoicing, VAT registration verification) Restrictions Most countries have a blocking order identifying expenditures on which input VAT is not recoverable or may be restricted. Examples include: Entertainment expenses Company car charges Hotel bills 34

35 Partially Exempt Businesses Some businesses are partially exempt, meaning they can only reclaim part of their input VAT. Examples include: Banks, insurance companies and other financial institutions Schools and colleges Hospitals and medical facilities Charities Casinos 35

36 Recovery of VAT Paid How For non-resident businesses that are not registered for VAT, input VAT incurred in another country may be claimed using: 8th VAT Directive procedure (if the claimant is an EU company) 13th VAT Directive procedure (if the claimant is a non-eu company) Issues Be aware of time limits Must submit IRS Form 6166 Some countries will not make VAT refunds to US companies 2010 legislative changes Delays 8th and 13th Directive claims usually involve long delays in repayment anything from 6 months to 6 years! Electronic invoicing 36

37 Mark Houtzager, US VAT Inc. KEY VAT COMPLIANCE ISSUES FOR U.S. BUSINESSES

38 (Assume all sales are local) $ million Non-U.S. sales (local) Cost of goods sold Salary costs -10 Expenses Profit 25 Total cash VAT throughput 33 Corporate income tax (30%) 7.5 Net VAT payable 7 VAT affects all non-u.s. sales, purchases and imports. The total VAT amount that must be managed is between 30% and 45% of gross non-u.s. sales. 38

39 VAT reports must be filed by registered businesses. Residency is not always required. The VAT return is the backbone of VAT filings: Monthly Quarterly Yearly Also, in the EU: Filings of sales of goods and services to another EU country Filings of purchases of goods and services to another EU country Statistical filings 39

40 Audit reports, worksheets and business documents on which the VAT filings are based are equally important. They support: The output tax, based on invoices sent The input tax, based on invoices received Reverse charges, on accounts payable and receivable Status of the customer (business/individual) Application of zero-rating of exports Reduced rates Blocked VAT on certain expenses Don t underestimate the impact of VAT on your organization. 40

41 Key compliance issues: Invisibility VAT is invisible in most accounting structures it does not appear in the P&L or Balance Sheet (or even the chart of accounts in many cases!) Lack of Responsibility Lack of responsibility for the company s global VAT position means that nobody is actively managing the tax at a global level 41

42 Weak Coordination Lack of coordinated knowledge about or awareness of the company s VAT position means nobody has the big picture Business Model Changes Changing business models are altering companies VAT footprints and these changes often go unrecognized 42

43 How do businesses respond? Sarbanes-Oxley reviews Work with auditors to improve visibility of VAT Review of duties and responsibilities Develop VAT manuals, procedures, process documents 43

44 VAT compliance automation Bolt-ons like Vertex or Thomson Reuters, Avalara, Taxware etc. Upgrades of ERP functionality For example Oracle e-business tax suite VAT compliance outsourcing 44

45 Examples: Why is my VAT less than expected this month? What are my total sales in a given jurisdiction? Have we applied EU simplifications where possible? What is my VAT on inter-company transactions? PricewaterhouseCoopers LLP 45

46 Examples: When do I need to register in a new country? Establish thresholds, monitor business flows. Set up a system that allows for advance notifications. How much non-recoverable input VAT have I incurred to date? Monitor and identify non-recoverable VAT. As your budgeted amount is reached, and you are alerted to this fact, it may allow you to adjust future budget numbers. PricewaterhouseCoopers LLP 46

47 Track potential VAT costs of new legal entities and new business operations: A merger or acquisition could result in new VAT costs. Set up alerts to track the actual VAT activity on transactions for given entities. Newly developed business or new sales channels may create additional tax challenges (for example, initiating B2C sales in a B2B business). Track significant sales (for example, greater than $100,000) to ensure tax treatment is in the best interest of the business. PricewaterhouseCoopers LLP 47

48 VAT reporting must not only focus on the immediate goal of a correct VAT return. Accessing other reports that are readily available within your organization provides many more tools to manage your global VAT exposure, limit liabilities and improve cash flow. PricewaterhouseCoopers LLP 48

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