Taxable Persons Supply of new immovable property New buildings

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1 Taxable Persons filled, the jointly registered entities must apply VAT to the open-market value of supplies made to other members of the group; the members of the jointly registered group must continue to file separate VAT returns; however, the total amount of VAT payable to, or recoverable from, the tax authorities is determined on the basis of an aggregate VAT return for the group as a whole; and the jointly registered group must file an annual report containing information on any changes in the shareholding of its members and the entry of new members into, and resignation of members from, the group. At the second level, transactions between the members of the jointly registered group are subject to VAT at the external cost price of the goods and services, i.e. the cost price exclusive of wages of staff employed by the group and other internal costs. However, the open-market value of the transactions must still separately be reported to the tax authorities; the members may implicitly opt for taxation of financial services and immovable property transactions carried out within the group simply by charging VAT on the related invoice; the transactions between the members of the group constitute a separate sector for the purposes of the pro rata; and the reporting obligations are identical to those applicable at the first level of joint registration. However, in addition, the group must set up and maintain an analytical information system to reflect the use of the goods and services that have been purchased for the purposes of making supplies at cost price. The information system is aimed at enabling the tax authorities to check the basis of assessment of every supply of goods and services made within the group, from the point where the goods or services are supplied by a third party to one of the members of the group until the point where they are supplied, at their open-market value, by one of the members of the group to a party outside the group. Failure to keep this information system results in refusal of the option for taxation and, in addition, imposition of a penalty of up to 2% of the group s turnover. The members of both types of groups of jointly registered entities are jointly and severally liable for payment of the VAT debts of the group and any penalties imposed on the ground of violation of the rules on joint registration Supply of new immovable property New buildings Under Article 135(1)(j) and (k) of the VAT Directive, the supply of immovable property is in principle exempt from VAT, unless the property is a new building 1 or building land 2. New buildings may include existing buildings that have been transformed. However, the circumstance that a building qualifies as new does not necessarily imply that all subsequent supplies of the building are IBFD

2 VAT Options Exercised by the Member States (situation on 1 January 2013) subject to VAT. For the purpose of delimiting the exemption 9, Member States consider buildings to be new where they are supplied: before first occupation (CY, EE, EL 3, ES, HU and PL 4 ); within a 1-year period following the date of approval of the construction for use, if the building is occupied (LV 5 ); within a 2-year period following the date of completion of the building or its essential improvement (LT); within a 3-year period following the date of completion (GB); within a 5-year period following the date of completion of the building (BG, DK 6,FR 7,IE 8 and IT 9 ); within a 5-year period following the date of first authorization to use the building or from the date of first use of the building (CZ and SK 10 ); before the end of the calendar year following the year of first occupation (RO 11 ); or within a 2-year period following the date of first occupation (BE 12,ES 13, HU 14, NL and SI). 1. In Belgium, supplies of new buildings or parts of new buildings include, under certain conditions, also the accompanying land. 2. France introduced an exemption for supplies of buiding land, with effect from 1 January In Greece, buildings are only considered to be new, if the building permit was issued after 1 January 2006 or was revised after that date, provided that, until the date of revision, no construction work has commenced. 4. In Poland, the exemption does not apply where the supply is made during first occupation of the building or the building was first occupied within 2 years from the supply of the building. 5. In Latvia, renovated or transformed buildings and structures also qualify as new buildings. The qualification new is defined by reference to the date of occupancy and the date of approval of the building for use. Supplies of newly constructed or transformed buildings are subject to VAT until they are occupied. Supplies of occupied newly constructed or transformed buildings are subject to VAT if they take place in the period of 1 year following the date of approval of the building for use. 6. In Denmark, the first supply of a building within the period of 5 years from the date of completion of its construction is subject to VAT, regardless of whether or not the building has been occupied. The second supply of the building within the 5-year period is subject to VAT only if the first supply was between connected persons and, at the time of the second supply, the building has not been occupied for more than 2 years. 7. In France, all supplies within the 5-year period are in principle subject to VAT. 8. In Ireland, the first supply of a building within the 5-year period will always be taxable. Subsequent supplies within the 5-year period will also be taxable, unless, at the time of supply, the building has been sold at least once to an unconnected party and has been occupied for 2 years or more. 9. In Italy, the criterion of new buildings applies to commercial and residential buildings supplied by construction companies only. 10. In the Slovak Republic, the decisive event is the first inspection of the building on the basis of which the property is put to use or, in the absence of such an inspection, first use of the building. 11. In Romania, new buildings also include transformed structures and transformed parts of structures, if the cost of transformation, excluding VAT, is at least 50% of the market value of the (part of the) structure, excluding the value of the land, after transformation. 12. In Belgium, buildings are new until 31 December of the second year following that in which they were first put to use or taken possession of. 13. In Spain, buildings are not only new until the first supply following their completion but also where the first supply is made within a 2-year period following their occupation and the building has only been used by the owner or a tenant/lessee. After the 2-year period, the building is deemed new if the first supply is made to the person who has used the building during that 9. As regards the VAT regime actually applicable to new buildings, see IBFD 526

3 Taxable Persons period. Renovated or transformed buildings and structures also qualify as new buildings if the costs of renovation or transformation exceed 25% of the acquisition price or market value of the building, excluding the value of the land. 14. In Hungary, the 2-year period begins on the date of the official occupation licence. In Austria, Finland, Germany, Luxembourg, Malta, Portugal and Sweden, it makes no difference whether or not buildings are new: in Finland, Luxembourg, Malta and Sweden, supplies of buildings are generally exempt from VAT. Similarly, in Austria, Germany and Portugal, the supply of immovable property is exempt from VAT if the property is subject to real estate transfer tax. In Germany, that transfer tax applies to the transfer of plots of land or parts thereof, with or without buildings, unless the property is withdrawn from the business assets for private purposes. Consequently, the concept of new buildings does not exist in those Member States Occasional supplies As regards the supply of new buildings and building land, Member States may treat as a taxable person anyone who supplies those goods on an occasional basis 10. With the exception of France, Hungary 1, Ireland and Spain, in none of the Member States are non-taxable persons supplying new buildings or building land compulsorily subject to VAT. However, in Belgium 2, Greece and Luxembourg, private individuals and other non-taxable persons can opt for taxation of supplies of new buildings under certain conditions. In Romania, private individuals who make more than a single supply of land or buildings in a year are deemed to carry out an economic activity for VAT purposes, if they acquired the land or acquired or constructed the buildings for the purpose of resale. In Denmark, private individuals are considered to be taxable persons when they parcel out and supply more than three plots of land from their own property. 1. In Hungary, non-taxable persons are treated as a taxable person in respect of supplies of new buildings and building land if they carry out those transactions in a businesslike manner (i.e. purchase a plot of land, transform it into building land and connect it to water, electricity and other utility networks and, subsequently, sell it) or make those supplies repeatedly (i.e. at least four times within a 2-year period). 2. In Belgium, supplies of new buildings or parts of new buildings include the accompanying land, with effect from 1 January Registration threshold Under Articles 281 to 292 of the VAT Directive, the Member States may apply an exemption to transactions carried out by small businesses established within the Member State 11 whose annual turnover is below a certain threshold, commonly 10. Under Article 12 of the VAT Directive. 11. See Article 283(1)(c) of the VAT Directive. As to the question of whether or not the exclusion of non-resident taxable persons from the arrangements for small businesses infringes the principle of non-discrimination (Article 12 EC), the freedom of establishment (Articles 43 et seq. EC), the freedom to provide services (Article 49 EC) or the principle of equal treatment, the ECJ gave its decision on 26 October 2010 (judgment in Ingrid Schmelz IBFD

4 Liability To Pay VAT Optional reverse charge mechanism applicable to specific supplies, regardless of the supplier s place of establishment (a) (b) (c) (d) (e) (f) (g) Investment gold Gold products of purity > 32.5% Other supplies GB No No No No No No No Yes Yes Mobile telephones 13 and certain computer equipment and CO 2 emission HU 14 Yes Yes Yes Yes Yes No No No No Fixed assets with a value of more than HUF 100,000 (EUR 342), if the supplier is under liquidation or bankruptcy procedure; Supplies of pork, wheat and meslin, rye, barley, oats, maize, triticale, soya beans, rape or colza seeds and sunflower seeds IE Yes 15 No Yes Yes No No Yes 16 No No CO 2 emission IT Yes Yes Yes Yes No No No Yes Yes Mobile telephones and integrated circuit devices LT No No No No No No No No No Supplies of timber 17 LU No No No No No No No No No CO 2 emission LV Yes No No Yes 18 No No No Yes Yes Supplies of timber and related services IBFD

5 VAT Options Exercised by the Member States (situation on 1 January 2013) Optional reverse charge mechanism applicable to specific supplies, regardless of the supplier s place of establishment (a) (b) (c) (d) (e) (f) (g) Investment gold Gold products of purity > 32.5% Other supplies NL Yes 19 Yes Yes Yes Yes No Yes Yes Yes Ready-towear clothing sector 20,CO 2 emission 21 PL No No No Yes No No No No No CO 2 emission PT Yes No Yes Yes No No No Yes Yes CO 2 emission RO No No No Yes No No No No No Certain cereals and technical plants, certain wood products and CO 2 emission SE Yes Yes No Yes No No No Yes Yes CO 2 emission SI Yes 14 Yes 14 Yes Yes No No No No No CO 2 emission SK No No Yes Yes 16 Yes Yes Yes Yes Yes CO 2 emission 1. Austria has applied for authorization to apply the reverse charge mechanism to domestic supplies between taxable persons of gas and electricity. On 6 December 2012, the European Commission proposed to the Council of the European Union not to grant the authorization. 2. In Austria, the reverse charge mechanism applies to mobile telephones and integrated circuit devices, provided that the consideration exceeds EUR 5, Germany has applied for authorization to apply the reverse charge mechanism to domestic supplies between taxable persons of gas and electricity. On 6 December 2012, the European Commission proposed to the Council of the European Union not to grant the authorization. 4. In Germany, planning, engineering and supervisory services relating to construction have been excluded from the reverse charge mechanism. 5. In Germany, the supply of staff in the construction sector has explicitly been excluded from the reverse charge mechanism. 6. In Germany, the scope of the optional reverse charge mechanism has been limited to supplies of scrap and used metals. 7. In Germany, supplies of goods, which have been provided as security and are supplied in execution of that security, are not subject to the reverse charge mechanism if the supply is made in the framework of insolvency proceedings. 8. In Germany, the reverse charge mechanism applies to mobile telephones and integrated circuit devices, provided that the consideration exceeds EUR 5, In Denmark, the scope of the optional reverse charge mechanism for this category has been limited to supplies of scrap metals. 10. In Spain, the scope of the reverse charge mechanism under this item is limited to construction work in the framework of development, construction or renovation of buildings. 11. In Spain, the scope of the reverse charge mechanism under this item is limited to supplies of immovable goods IBFD 660

6 Liability To Pay VAT 12. France has applied for authorization to apply the reverse charge mechanism to domestic supplies between taxable persons of gas, electricity and telecommunications services. On 6 December 2012, the European Commission proposed to the Council of the European Union not to grant the authorization. 13. In the United Kingdom, the reverse charge mechanism applies if the value of the goods supplied exceeds GBP 5,000 (EUR 6,140), inclusive of VAT. The value limit does not apply to services. 14. In Hungary, the reverse charge mechanism only applies to registered taxable persons whose legal status does not make it impossible to collect the VAT from them In Ireland, the reverse charge mechanism only applies to construction services supplied by a sub-contractor to a principal contractor, regardless of whether or not the sub-contractor is established in the country. Also state and local authorities may be regarded as being principal contractors in this context. For the purposes of the reverse charge mechanism, the recipient of the construction services does not have to qualify as a principal contractor if the services are supplied between connected parties. 16. In Ireland, a judgment debtor does not have the power of sale. To enforce his debt, he must register a judgment mortgage against the property and then apply to the court and require the court to appoint a receiver to sell the property By its Decision 2012/704 of 13 November 2012, the Council extended the period of application of the authorization to apply the reverse charge mechanism to supplies of goods and services in the case of an insolvency procedure or restructuring procedure subject to judicial oversight, and to supplies of timber, until 31 December In Latvia, supplies of specific scrap materials are subject to the reverse charge mechanism, provided that the supplier and customer are taxable persons and the customer is licensed to purchase scrap materials in Latvia or holds a specific pollution permit, as provided by law. 19. In the Netherlands, the construction sector also includes shipbuilding. 20. In the Netherlands, the reverse charge mechanism will cease to apply in the ready-to-wear clothing sector, with effect from 1 April In the Netherlands, the reverse charge mechanism applies, with effect from 1 April 2013, to supplies of mobile telephones and integrated circuits, provided that the value of the transaction exceeds EUR 10, In Slovenia, the scope of the activities covered by the reverse charge mechanism is defined in terms of the standard classification of activities (SCA). 23. In the Slovak Republic, the reverse charge mechanism applies to metal waste and metal scrap. 22. In Slovenia, the scope of the activities covered by the reverse charge mechanism is defined in terms of the standard classification of activities (SCA) Simplified intra-community triangulation Under the simplified arrangements applicable to intra-community triangulation involving three parties: A, B and C, registered in three different Member States, in principle, the reverse charge mechanism applies to the supply made by the intermediate supplier (B) to the final customer (C) 118. Naturally, in those circumstances, the reverse charge mechanism does not apply if the intermediate supplier is established in the final customer s (C s) Member State. However, Member States may provide that the reverse charge mechanism equally does not apply when the intermediate supplier (B) has appointed a tax representative in the final customer s (C s) Member State. Where C is established or registered in Austria, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Greece, Luxembourg, Malta, Portugal, the Slovak Republic or the United Kingdom, B s supply to C is not subject to the reverse charge mechanism, if B is registered in C s Member State. Where C is established in any 118. Article 197 of the VAT Directive IBFD

7 VAT Options Exercised by the Member States (situation on 1 January 2013) other Member State, B s supply to C is still subject to the reverse charge mechanism, if B is registered (not established) in that Member State VAT representatives Where non-resident suppliers are liable to pay the tax, Member States may allow them to appoint a tax representative as the person liable for payment of the tax ( voluntary representation ). Member States may provide that appointment of a tax representative is compulsory when the supplier is established in a country with which no legal instruments exist relating to mutual assistance similar in scope to that laid down by Directive 2010/ and Regulation No. 904/ ( compulsory representation ). Generally, compulsory representation is restricted to suppliers established in countries outside the European Union. In the Czech Republic and Ireland, the concept of VAT representative does not exist. Voluntary appointment of VAT representative for EU suppliers AT Yes Yes BE Yes Yes BG Yes Yes Compulsory appointment of VAT representative for non-eu suppliers CY Yes Yes, unless the supplier gives a bank guarantee. DE Yes, on the condition No that the non-resident business only makes zero-rated supplies and does not or cannot recover input tax. DK Yes Yes, unless the supplier is established in Norway, Iceland, the Faroe Islands and Greenland. EE Yes Yes Comment 119. Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures, OJ L 84 of 31 March 2010 replaced Council Directive 2008/55/EC of 26 May 2008 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures, OJ L 150 of 10 June The latter Directive was the codified version of Council Directive 76/308 of 15 March 1976 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures, OJ L 73 of 19 March 1976, p Council Regulation (EU) No. 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax, OJ L 268 of 12 October 2010, which replaced Council Regulation (EC) No. 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added tax and repealing Regulation (EEC) No. 218/92, OJ L 264 of 15 October IBFD 662