Proposed implementation of a VAT regime in Puerto Rico and a GST regime in India in 2016

Transcription

1 VAT News / Issue number 23 European Union p#1 / Europe p#2 / Americas p#4 / Asia Pacific p#4 Proposed implementation of a VAT regime in Puerto Rico and a GST regime in India in 2016 This edition of VAT News highlights the implementation in 2016 of a VAT regime in Puerto Rico and a Goods and Services Tax regime in India, the proposal to lower the Swiss VAT registration threshold for suppliers of e-services to Swiss private individuals, and the Advocate General s opinion regarding the VAT exemption for insurance-based breakdown warranties. European Union Court of Justice of the European Union (CJEU) Advocate General determines that insurancebased breakdown warranties should be VATexempt (Mapfre Warranty SpA: C-584/13) An Italian insurance company, Mapfre Warranty, supplied warranties for second hand cars sold by dealers in France. When a second hand car was sold to a customer, the car dealer offered a warranty covering car repairs over a specified period of time. The dealer charged an additional amount for the warranty or, in certain cases, included the warranty in the car payment amount. The dealers arranged the warranty cover, collected the premium, and forwarded the premium to Mapfre. If a car broke down, or needed repair, the car owner would take it to a garage and have the repair work performed. Mapfre, as the insurer in the arrangement, was responsible for paying the cost of the repairs. Typically, the after-care type services offered by a car dealer are treated as taxable supplies (i.e., subject to VAT). As a result, Mapfre considered that its services should be subject to VAT in France since the services were of a

2 similar nature. Mapfre charged and accounted for VAT on revenue generated on the sale of the warranties. In 2007, the French tax authority (FTA) challenged Mapfre s treatment of these supplies for the period April 1, 2004 to January 31, The FTA considered these supplies VAT exempt insurance transactions that should have been subject to French insurance tax. The French Court of Cassation (FCC) referred the following question to the ECJ: whether the services supplied by Mapfre, in return for a lump sum payment, should be treated as VAT exempt insurance transactions when Mapfre is independent from the car being sold. The Advocate General (AG) considered these supplies within the scope of VAT exempt insurance transactions. According to the AG, the scope of insurance transactions should be considered broadly. Provided there is an insurer, an insured, and a premium paid, the transaction should qualify as an insurance service. In addition, the AG considered the contractual relationship between the car owner and the insurer (Mapfre). Furthermore, the AG determined that any premium paid by the car owner to Mapfre should not be treated as a pre-payment for possible future repair costs; rather, the premium should be considered a genuine insurance premium which covers the risk of damage. Finally, the AG distinguished between the supply of warranties by a car dealer (which should be considered after sales services) and the supply of warranties by an insurer. It is unclear whether the CJEU will follow the AG s opinion. Businesses that currently supply warranties through service contracts may wish to consider the impact of the AG s opinion on their current VAT position. United Kingdom Summary of responses to Intrastat simplification consultation Her Majesty s Revenue and Customs (HMRC) published the findings of a consultation exercise regarding the simplification of the Intrastat reporting system for recording intra-eu movements of goods. The consultation ran from January 21, 2014 to April 8, 2014 and presented two main options for simplifying the current system: removing the requirement to submit a separate Intrastat arrivals declaration in favor of a single enhanced dispatches declaration, or reducing the percentage coverage rate of arrivals trade from 93% to approximately 90%. The document, available on HMRC s website, reports that a total of 86 responses were received. The majority of the businesses who responded stated they were in favor of the removal of the requirement to submit a separate arrivals declaration (in line with the European Commission's proposal). Respondents also indicated, however, a preference for a reduction in the percentage coverage rate of both arrivals and dispatches declarations in order to maintain the quality and timeliness of the statistical data available. HMRC states that a new project will commence in the coming months to consider alternatives to reduce the reporting burden while maintaining the quality and timeliness of the data. Lithuania Local reverse-charge VAT for construction works Effective July 1, 2015, taxable persons who are registered for VAT will be required to withhold and account for VAT on the receipt of construction services from local vendors. If such services are received by a non-taxable person, the supplier of the services will be required to account for the VAT due. Companies in receipt of such services from Lithuanian suppliers should consider the impact of these new rules on services rendered after July 1, PwC 2

3 Italy Tax authority guidance on the split payment VAT system The Italian tax authorities have published guidelines on the new split payment VAT system. Under these rules, certain public bodies are required to pay the net (VAT exclusive) amount to suppliers. The corresponding VAT amount should be paid to a specific reserve account. Such public bodies include the State, government bodies, public entities and consortia, chambers of commerce, industry, trade, and agriculture universities, local health entities, hospitals, certain nursing homes, charitable public entities and pension institutions. The guidelines include details on how these new rules will be implemented and the specific wording that should be stated on the invoices issued by suppliers to these public bodies. Businesses making supplies to Italian public bodies should consider whether their supplies fall under the split payment system in Italy. Europe Switzerland Proposal to lower the Swiss VAT registration threshold The Swiss Federal Council has published its commentary on proposed amendments to the Swiss VAT Law. Subject to approval by the Swiss parliament, these changes will be effective January 1, The draft legislation contains certain amendments which are of particular relevance to e-service and e-commerce businesses, including: change to the VAT registration threshold for e-service providers changes for e-commerce changes to the VAT rate applicable to electronic newspapers. Change to the VAT registration threshold for e-service providers According to the proposed legislation, businesses which provide electronic services to private individuals (B2C) in Switzerland are liable for VAT in Switzerland to the extent that their global (i.e., Swiss and non-swiss) turnover exceeds CHF 100,000 (approximately US$105,000). For example, a US based e-service provider that sells digital services to non-swiss based customers in excess of US$105,000 (approximately) and sells digital services to a single Swiss private customer who pays US$50 for such services, will be required to register and account for Swiss VAT on US$50 under the proposed rules. Changes for e-commerce In accordance with the current Swiss VAT legislation, small deliveries of goods by e- commerce businesses, with a value of less than CHF 200 (approximately US$210), are exempt from import VAT. Under the proposed changes to the VAT legislation, such sales will be subject to VAT in Switzerland if the non-established supplier generates turnover in excess of CHF 100,000 (approximately US$ 105,000). Changes to the VAT rate applicable to electronic newspapers The draft legislation proposes to extend the application of the reduced VAT rate of 2.5% to electronic newspapers and magazines (without advertising character). It should be noted that e-books should continue to be taxed at the standard rate of 8%. Businesses which operate within the above mentioned industries should monitor the development of the proposed changes to the VAT law. In particular, US established e- service providers should consider the impact of the requirement to register for Swiss VAT on their business activities. 3 PwC

4 Americas Puerto Rico Introduction of a VAT system in 2016 The Puerto Rican government released a Bill on February 11, 2015 regarding the anticipated tax reform to include the implementation of a VAT system effective January 1, The VAT system will replace the current sales tax system. Key highlights of the proposed VAT system include, but are not limited to: A VAT rate of 16% will be imposed on certain taxable transactions including: the import of goods into Puerto Rico the sale of goods and rendering of services by a Puerto Rican vendor The rendering of services by a non established entity to a Puerto Rico recipient. VAT at 0% will likely apply to the export of goods and services and the import of raw materials by a manufacturer holding an exempt certificate for eligible manufacturing plants. VAT exemptions will likely apply to items such as the sale and/or import of prescription drugs and the supply of certain financial services (other VAT exemptions will also likely apply). Net input VAT is likely to be recovered through a credit system. In certain cases, cash refunds will be permitted. Businesses with operations in Puerto Rico should monitor the development of draft legislation and consider the impact of the proposed VAT regime on their overall business activities. Argentina Turnover tax regime for digital supplies suspended by the Tax Authority of Buenos Aires for an indefinite period As indicated in VAT News Issue 22, the Tax Authority of Buenos Aires (AGIP) has established a new turnover-based (i.e., provincial sales tax) withholding tax system for foreign suppliers of digital services to Argentinian final consumers located in Buenos Aires (B2C supplies). According to initial provisions of the new regime, effective February 1, 2015, withholding agents (Argentine credit card companies) that collect payments for such services should withhold 3% turnover tax from the payments made by final consumers to the non-resident service providers. Credit card companies have, however, formally asked the AGIP for additional time to make the necessary amendments to their systems to enable them to identify whether the payments relate to taxable services to be used in Buenos Aires. As a result, the AGIP has postponed the enactment of the new regime until withholding agents can adequately modify their systems to be able to collect the tax. The resolution does not provide an exact date of enforcement of the new regime. Nonestablished businesses that supply digital services to final consumers located in Buenos Aries should monitor these changes closely and consider the impact on profit margins. AsiaPac India The Budget for was presented on February 28, The more notable Indirect Tax proposals within the Budget include: Goods and Services (GST) Act to be implemented beginning April 1, 2016 PwC 4

5 Service tax rate to be increased from 12.36% (including CESS) to 14%. The Indirect tax landscape in India is one that is expected to change significantly in the next 12 months with the proposed introduction of a new GST regime. Businesses with operations in India should continue to monitor the development of the new legislation with the proposed GST regime and consider how changes will affect their operations. China Adjustment of export VAT refund rates China s Ministry of Finance and the State Administration of Taxation have jointly issued Circular [2014] No.150 ( Circular 150 ) adjusting the export VAT refund rates attached to certain goods. By way of background, China restricts the amount of input VAT that can be recovered on the purchase of materials which are used to manufacture certain products for export. The following changes were announced in the circular, effective January 1, 2015: The export VAT refund rates of certain high value added products, e.g., processed corn products, textiles and articles of apparel and clothing will be increased. The increase for processed corn products will remain in place until December 31, The export VAT refund for boron steel will be abolished. Businesses with export activity in China should considered the impact of the new Circular on the percentage of input VAT they are entitled to recover. 5 PwC

6 Let s talk For a deeper discussion of how this issue might affect your business, please contact: Tom Boniface US VAT Leader +1 (646) thomas.a.boniface@ us.pwc.com 300 Madison Avenue New York, NY, Tom Boniface, New York +1 (646) thomas.boniface@us.pwc.com Evelyn Lam, New York +1 (646) evelyn.g.lam@us.pwc.com Nathan Trautwein, San Francisco +1 (415) nathan.a.trautwein@us.pwc.com Raymond van Sligter, San Jose +1 (408) raymond.v.sligter@us.pwc.com Reena Reynolds, Chicago +1 (312) reena.k.reynolds@us.pwc.com Irina Sabau, New York +1 (646) irina.sabau@us.pwc.com Sinead Hughes, Chicago +1 (312) sinead.hughes@us.pwc.com Our global indirect tax network PwC has a global network of 1,900 indirect tax professionals in 130 countries worldwide, including a dedicated VAT team located in the U.S. who is available to provide real-time VAT advice. This News Alert does not provide a comprehensive or complete statement of the taxation law of the countries concerned. It is intended only to highlight general issues, which may be of interest to our clients. For issues relating to this VAT News, please contact your local Indirect Tax Practice advisor or the specialists listed above. Global VAT Online Many of the developments above are described in more detail on Global VAT Online (GVO), PwC s online subscription service which provides up-to-date business critical information on VAT/GST rates, rules, and requirements around the world. This information will help you maintain control, mitigate risk, and improve the overall effectiveness of your VAT/GST function. GVO s news service provides timely updates on worldwide VAT/GST developments, along with a facility to deliver news to your desktop via RSS feeds, newsflashes and a weekly newsletter. It also includes commentaries on new legislative proposals, decisions on recently concluded cases, hyperlinks to related subjects, and case law and official documentation. For further information, please speak to your usual PwC advisor or the US VAT team above. Visit the GVO Website PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. SOLICITATION This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. PwC 6