www.pwc.com/nl Financial Services VAT Alert Tracking EU VAT Developments Edition 2011/2 February 2011
Editorial Welcome to the February edition of the FS VAT Alert. There is some significant breaking news this month, as both Germany and the UK submit referrals to the ECJ regarding the exemption for investment management services. In particular, the progress of the UK case involving the VAT treatment of investment management services supplied to pension funds will be watched closely in a number of countries where such services are currently subject to VAT. Steve Kiberd (Editor) Contents BULGARIA 1. Supreme Administrative Court decides on the VAT treatment of the management of special investment purpose joint-stock companies (SIPJS companies) DENMARK 2. New tax authority guidelines on partial VAT registration 3. High Court decision on factoring FINLAND 4. Administrative Court: VAT exemption for factoring not in line with the EU VAT Directive GERMANY 5. Supreme Tax Court: Questions referred to the ECJ regarding the VAT treatment of portfolio management services LUXEMBOURG 6. Tribunal d arrondissement: VAT treatment of insurance costs recharged by leasing companies UNITED KINGDOM 7. UK to refer questions to the ECJ on VAT exemption for pension fund management services 2 of 7
BULGARIA 1. Supreme Administrative Court decides on the VAT treatment of the management of special investment purpose joint-stock companies (SIPJS companies) Court finds that the activities of SIPJS companies, which are restricted to investing in real estate, do not qualify for VAT exemption. In the Court proceedings the revenue authorities argued that the management of SIPJS companies should be treated in the same way as the management of closed-end investment funds, i.e. as a VAT exempt supply. In view of this, the authorities disallowed the deduction of the input VAT charged on the management services received by SIPJS companies. The Court ruled that SIPJS companies are not included in the list of persons the management of which is VAT exempt, i.e. collective investment schemes, closed-end investment companies and pension funds. In view of this, the services provided in relation to the management of SIPJS companies should be treated as VATable supplies in Bulgaria. Also, according to the Bulgarian revenue authorities the income from interest on deposits made by SIPJS companies should be treated as VAT exempt turnover. However, the Bulgarian VAT legislation provides for an exhaustive list of the persons for whom the income from interest earned from deposits should be included in the VAT pro rata calculation. In addition to the investment bodies listed above, this list also includes credit and financial institutions, insurance companies, management companies under the Public Offering of Securities Act and under the Social Insurance Code, health and social insurance companies. As SIPJS companies are not included in this list either, the position of the revenue authorities was not supported by the Court. Businesses which may be affected by this decision should contact their usual PwC contact or call the below VAT specialists for further advice. Ilina Tsvetkova + 359 2 9355135 ilina.tsvetkova@bg.pwc.com Gergana Chalakova + 359 2 9355172 gergana.chalakova@bg.pwc.com IN THE NEWS BULGARIA Amendments to the VAT legislation, new for 2011: Reduced VAT rate for hotel accommodation From 1 April 2011 the reduced VAT rate of 7% applicable to hotel accommodation will be increased to 9%. The new reduced VAT rate will apply not only to hotel accommodation where it is a part of a package tour organised by a tour operator or a travel agent, but also to accommodation provided directly by a hotelier to a customer. Mandatory electronic submission of the VIES declarations (EC Sales Lists) Electronic submission of the VAT declaration, sales and purchase ledgers becomes mandatory when a VIES declaration needs to be submitted for the respective tax period. Procedure for self-billing introduced The Bulgarian VAT legislation now provides explicit rules for self billing. Self-billing can be applied only if both the supplier and the recipient are established and VAT registered in Bulgaria and meet specific criteria. Please note, however, that self-billing may not be applied for certain types of supplies, including supplies of financial and insurance services. 3 of 7
DENMARK 2. New tax authority guidelines on partial VAT registration New guidelines from tax authorities regarding the possibility of separate VAT registrations of multiple companies owned/controlled by the same taxable person According to Danish VAT law, a taxable person who owns several companies can have these companies VAT registered separately on request. This possibility has resulted in a number of beneficial VAT structures, including within the financial sector, involving maximising VAT recovery in respect of VATable supplies made from one VAT registration to another. It is those situations that the Danish tax authorities wish to stop by introducing new guidelines referring to the cases in which an artificial construction is involved, implying that the net revenue will decrease. (Therefore, the new guidelines will not affect the right to partial registration of fully taxable entities.) 3. High Court decision on factoring Danish High Court decision regarding international factoring The Danish High Court has ruled that international factoring where one overall fee is charged for the collection of debt and the insurance of the debtor risk is a single supply, subject to VAT in accordance with the ECJ case MKG. The Danish tax authorities had argued that the total fee partly consisted of a factoring service subject to VAT, and partly a VAT exempt insurance service. Anette Henriksen +45 3945 3945 ath@pwc.dk FINLAND 4. Administrative Court: VAT exemption for factoring not in line with the EU VAT Directive The Administrative Court of Helsinki has published a decision regarding the VAT exemption of factoring in Finland. The decision has been appealed against to the Finnish Supreme Administrative Court. The decision given by Helsinki Administrative Court runs counter to the way VAT has been implemented in Finland, which is based on the Government Bill 88/1993 for the Finnish VAT Act where factoring was considered as VAT exempt. The Court held in its decision that factoring is not a VAT exempt financial service, because the exemption applied in Finland is not in compliance with the EU VAT Directive and the European Court of Justice (ECJ) case-law (MKG-Kraftfahrzeuge- Factoring GmbH, C-305/01). In the MKG case, the ECJ ruled that when a company purchases debts, assuming the risk of the debtors' default, and in return invoices its clients in respect of commission, this constitutes taxable debt collection and factoring. However, the ECJ ruling has not, in practice, had any impact on the Finnish VAT system. Due to the decision of the Helsinki Administrative Court there is now pressure to change the VAT treatment of factoring in Finland. Companies which may be affected should contact PwC for further advice. Maarit Pokkinen +358 9 2280 1864 maarit.pokkinen@fi.pwc.com 4 of 7
GERMANY 5. Supreme Tax Court: Questions referred to the ECJ regarding the VAT treatment of portfolio management services Portfolio managers managing security portfolios should consider the essential questions referred to the ECJ regarding the VAT treatment of their services With its decision of 28 October 2010 (V R 9/10) the German Supreme Tax Court submitted to the ECJ (C-44/11) inter alia the question whether or not portfolio management services provided to single investors are tax exempt as transactions in securities according to Article 135 (1) lit. f Council Directive 2006/112/EC. Further, the German Supreme Tax Court asked the ECJ whether sales and purchases of securities and custody services undertaken by the portfolio manager have to be treated as part of, or as ancillary to, the portfolio management, so that the same VAT treatment applies to the portfolio management and these other services. Where the portfolio management is subject to VAT, the ECJ has been asked how the place of supply of such services should be determined. Please note that the German Supreme Tax Court has already decided with its judgment dated 11 October 2007 (V R 22/04) that portfolio management services provided by banks are VAT exempt services in contradiction to the current opinion of the Federal Ministry of Finance. Also the Lower Fiscal Court of Hesse has decided on 22 March 2010 (6 K 1930/09 - preliminary proceeding regarding the decision of the German Supreme Tax Court dated 28 October 2010) that the VAT exemption is applicable for portfolio management services provided by a bank. Taxpayers rendering portfolio management services with regard to portfolios consisting in securities should inform their tax office in case they intend to exempt these services from VAT based on this preliminary ruling at the ECJ. Where VAT has been assessed regarding portfolio management services the taxpayers should file an objection against this VAT assessment and apply for a suspension of the proceeding until the ECJ has made its decision. Businesses which may be affected by this should contact their usual PwC contact or Sylvia Neubert on the number below. Sylvia Neubert +49 69 9585 6235 sylvia.neubert@de.pwc.com LUXEMBOURG 6. Tribunal d arrondissement: VAT treatment of insurance costs recharged by leasing companies Car leasing service providers should consider this judgment as it may have an impact on their current VAT position The Luxembourg tribunal d arrondissement has ruled that insurance costs recharged by a car leasing service provider do not fall within the VAT exemption for insurance services. Various reasons have led the tribunal to this conclusion. The main reason mentioned by the tribunal is the fact that the leasing companies do not act as insurance companies or insurance brokers as they do not financially cover the insured risks and they pay the premiums themselves (the transactions were booked in the profit and loss accounts), i.e. they could not be regarded as an intermediary in this regard. The insurance costs recharged by leasing companies are therefore VAT taxable. 5 of 7
The judgment will have quite an important impact on leasing companies which have considered insurance costs as exempt from VAT. Such companies will have to charge VAT on the insurance costs they recharge to their clients. However, this will also have the effect of increasing the VAT recovery ratio of these companies. Marie-Isabelle Richardin + 352 49 48 48 3009 marie-isabelle.richardin@lu.pwc.com UNITED KINGDOM 7. UK to refer questions to the ECJ on VAT exemption for pension fund management services The Wheels Common Investment Fund and the National Association of Pension Funds' case (together Wheels ), concerning the liability to VAT of pension fund management services, was heard at the First-tier Tax Tribunal (the Tribunal ) between 10-15 February 2011. In an important development, the Tribunal has decided to refer the matter to the European Court of Justice ( ECJ ). Although the specific questions for the ECJ have not yet been finalised, the key issue is likely to be whether the scope of the VAT exemption for the management of "special investment funds" in art 13B(d)(6) EC Sixth VAT Directive (now art 135(1)(g) Principal VAT Directive) includes pension funds. We expect that the ECJ will hear this case mid- 2012, with the judgment to follow shortly after. The issues arising from any finding that the VAT liability of these services are exempt as a matter of EU law are highly complex, and all those potentially affected by this litigation (and who have not already done so) should take expert professional advice as a matter of urgency. Stephen Morse +44 (0) 20 7212 2728 stephen.morse@uk.pwc.com Antony Brooker +44 (0) 20 7804 2188 antony.brooker@uk.pwc.com The Tribunal has directed that the parties use their best endeavours to agree the questions for the ECJ by 5 April 2011. 6 of 7
Contact For more information, please do not hesitate to contact your local PwC Indirect Tax expert or one of the experts mentioned below: Austria Christoph Wagner tel: +43 1 501 88 36 41 christoph.wagner@at.pwc.com Belgium Thierry Noël tel: +32 2 710 7344 thierry.noel@pwc.be Bulgaria Tania Pavlova tel: +359 2 9355 147 tania.pavlova@bg.pwc.com Cyprus Chrysilios Pelekanos tel: +357 22 555 280 chrysilios.pelekanos@cy.pwc.com Czech Republic Martin Diviš tel: +420 25115 2574 martin.divis@cz.pwc.com Denmark Jan Huusmann Christensen tel: +45 3945 9452 jan.huusmann.christensen@dk.pwc.com Estonia Tanja Kriisa tel: +372 614 1977 tanja.kriisa@ee.pwc.com Finland Juha Laitinen tel: +358 9 2280 1409 juha.laitinen@fi.pwc.com France Stéphane Henrion tel: +33 1 56 57 41 39 stephane.henrion@fr.pwc.com Germany Felix Becker tel: +49 69 9585 6665 felix.becker@de.pwc.com Greece Mary Psylla tel: +30 210 687 4543 mary.psylla@gr.pwc.com Hungary Tamas Locsei tel: +36 14 619 358 tamas.locsei@hu.pwc.com Ireland John Fay tel: +353 1 792 8701 john.fay@ie.pwc.com Italy Nancy Saturnino tel: +39 02 9160 56 02 nancy.saturnino@it.pwc.com Latvia Ilze Rauza tel: +371 6 7094512 ilze.rauza@lv.pwc.com Lithuania / Belarus Kristina Krisciunaite tel: +370 5 239 2365 kristina.krisciunaite@lt.pwc.com Luxembourg Marie-Isabelle Richardin tel: +352 49 48 48 3009 marie-isabelle.richardin@lu.pwc.com Malta David A. Ferry tel: +356 2564 6712 david.ferry@mt.pwc.com The Netherlands Frans Oomen tel: +31 88 792 51 56 frans.oomen@nl.pwc.com Norway Yngvar Engelstad Solheim tel: +47 95 26 06 57 ynvar.solheim@no.pwc.com Poland Marcin Chomiuk tel: +48 22 523 4807 marcin.chomiuk@pl.pwc.com Portugal Mario Braz tel: +351 213599652 mario.braz@pt.pwc.com Romania Diana Coroaba tel: +40 21 202 8693 diana.coroaba@ro.pwc.com Slovakia Valeria Kadasova tel: +421 2 59 350 626 valeria.kadasova@sk.pwc.com Slovenia Marijana Ristevski tel: +386 1 583 6019 marijana.ristevski@si.pwc.com Spain Miguel Blasco tel: +34 9 1568 4798 miguel.blasco@es.landwellglobal.com Sweden Lars Henckel tel: +46 8 5553 3326 lars.henckel@se.pwc.com Switzerland Tobias Meier Kern tel: +41 58 792 43 69 tobias.meier.kern@ch.pwc.com United Kingdom Jamie Randell tel: +44 207 213 8253 jamie.t.randell@uk.pwc.com United States Ossie Osman tel: +1 646 471 1820 o.osman@us.pwc.com Disclaimer. Clients receiving this Alert should take no action without first contacting their usual PwC Indirect Tax Advisor. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. PwC provides industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. pwc.com 7 of 7 2011 PricewaterhouseCoopers Belastingadviseurs N.V.(KvK 34180284). All rights reserved. Assurance Tax Advisory