Tag Archives: cross-border

Changes to the treatment of cross-border movement of goods from 1 May 2016

By   8 October 2015
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How will goods cross EC borders post UCC? 

HMRC has updated its guidance notes on the Union Customs Code (UCC) which is being introduced across the EC on 1 May 2016.

Details here

Main points

  • The UCC is a revision of the Modernised Customs Code (MCC) and there will be a number of changes to how goods cross EU borders.
  • Some transitional arrangements will operate until 2020.
  • Mandatory guarantees for most special procedures and temporary storage (TS) – this only applies to new authorisations.
  • The ability to make some movements under TS rather than national transit or Electronic Transit System (ETS) – formerly New Computerised Transit System (NCTS).
  • The removal of the earlier sales provisions relating to valuation – but there are some transitional arrangements.
  • All communications between customs authorities and economic operators must be electronic.
  • Valuation: The earlier sale facility will be withdrawn and replaced by a last sale only rule. 
  • Under the UCC there will be some circumstances where the provision of a guarantee is mandatory.

  • Royalties and licence fees – Currently, for a royalty fee to be liable to duty it must: relate to the imported goods, and be paid as a condition of sale of those imported goods. Under the UCC, royalties and licence fees will generally be paid as a condition of the sale of the goods and should be included in the customs value.

Some procedures and reliefs will cease or change on 30 April 2016, these are:

  • The €10 waiver of customs duty for free circulation customs declarations – where customs duty is payable no de-minimis exemption will apply – this doesn’t affect any Community System of Duty Reliefs (CSDR) duty reliefs.
  • Goods being declared to Onward Supply Relief (OSR) can only be entered using a full customs declaration or the Simplified Declaration Procedure (SDP).
  • The use of Information Sheets for Special Procedures (INF) documents with an Entry in Declarant’s Records (EIDR).
  • Inward Processing Drawback (IP (D)) and Low Value Bulking Imports (LVBI) authorisations will no longer be valid and these authorisations can’t be used to import goods regardless of any expiry dates shown on your authorisations.
  • Processing under Customs Control (PCC) authorisation holders will be given an Inward Processing (IP) authorisation number which must be used for new importations after 30 April 2016.
  • Type D customs warehousing authorisation holders will be given a new authorisation number with a prefix of C (for type D authorisation), or E (for a type E warehouse with type D rules of assessment) – these must be used for entries to customs warehouses after 1 May 2016, the normal debt rules of assessment will apply.
  • Goods being declared to LVBI will only be entered using an SDP authorisation.

System changes

HMRC expects that some changes to economic operators’ systems will be needed. However this will depend on which authorisations are held and what procedures or processes individual businesses use. A plan for the major IT changes is already in place.

Economic Operator Registration and Identification (EORI)

There are no changes to the EORI process. It is a requirement for all economic operators (such as businesses) involved in international trade to be registered and to have an EORI number. You’ll need to have an EORI number to be able to apply for any customs authorisations, approvals or decisions. For details on EORI see here

VAT – Proof of evidence of Intra-EC supplies

By   23 September 2015
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A B2B supply of goods from one Member State to another (a dispatch) is VAT free (with the recipient dealing with acquisition tax in the Member State of receipt). However, in order to VAT free treatment to apply evidence that the goods have moved cross-border must be provided and satisfy the authorities in the Member State of dispatch.

The level of evidence and type of documents required to support the right to VAT free treatment varies significantly between Member States. This has led to confusion and difficulties for businesses.

As a result the EC VAT Expert Group* have, this week, produced a paper (paper 46) named “‘Proof of evidence of Intra-EU supplies’” Here: 46 – Proof of IC Supplies

As well as identifying the wide discretion afforded to Member States as to the type of documents required, it notes that this discretion and lack of clarity often leads to disproportionate compliance burdens for businesses involved in the cross border supply of goods. This also results in the fundamental principle of fiscal neutrality and the free movements of goods being impaired.

In summary

 The Group’s findings may be summarised:

  •  Diversity of documentation

Most Member States rely on a myriad of documents which may not be listed in national legislation. Such diversity is a problem and may require businesses to provide documentary evidence that cannot be reasonably obtained. This practice does not reconcile with principles established by the ECJ. The paper adds that tax authorities tend to focus on certain formalities and not permit alternative evidence.

  •  Local initiatives

The paper notes that based on Article 131 of the VAT Directive, and often in light of the fight against fraud, tax authorities are introducing local initiatives. The compatibility of these with the EC framework may be questioned and is causing increasing burdens and costs on legitimate taxpayers.

  •  Importance given by tax authorities to the “knowledge test”

The paper considers that the level of demand from tax authorities to document intra-EC trade should not be upgraded because of fraud cases. Documentary evidence is of a type fraudsters would typically provide. The wide margin of interpretation left to tax authorities and judges regarding concepts such as “good faith” means that further guidance may be required. This, however, should not extend up to a requirement for suppliers to show evidence to authorities that their customers acted in good faith.

  •  Diversity of practices; timing versus legal certainty

The diversity of approaches across EC Member States generates costs and increase risks for businesses operating in different Member States.

Conclusion

The paper considered some recent ECJ case law on cross-border transactions and concluded VAT free treatment should be granted to the supplier when:

1)    It demonstrates that the transaction meets the substantive criteria of that provision, namely that it is entered into with another taxable person in a Member State other than that in which dispatch or transport of the goods begins. This would be done with the supplier holding at least three non-contradictory documents or elements certifying the transport or dispatch to another Member State.

2)    In this context, a reasonable customer assessment could be expected from taxpayers when tax authorities audit whether the transactions are taking place in the context of fraud and/or abuse.

Next Steps

It is recommended that new guidance could be adopted in an Implementing Regulation or an explanatory note to the relevant Articles in the VAT Directive could be prepared by the Commission.

It will be interesting to see if these recommendations are adopted.  It would make life a lot more straightforward for businesses who trade cross-border in the EC.  Although the UK has one of the most practical regimes in this respect, even genuine movements of goods from the UK can result in an unexpected and unwelcome VAT charge because of a lack of specific documentation.

* The VAT Expert Group assists and advises the European Commission on VAT matters. Details here 

I have to charge myself VAT?!

By   1 July 2015
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I have to charge MYSELF VAT?!

How comes?!

Well, normally, the supplier is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. Don’t get caught out!

Here are just some of the situations when you have to charge yourself VAT:

Purchasing services from abroad

These will be obtained free of VAT from an overseas supplier. What is known as the ‘reverse charge’ procedure must be applied. Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must account for output tax, calculated on the full value of the supply received, and (subject to partial exemption and non-business rules) include the VAT charged as input tax. The effect of the provisions is that the reverse charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus creating a level playing field between purchasing from the UK and overseas.

Accounting for VAT and recovery of input tax.
Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services.  On the same VAT return, the recipient must
      1. account for output tax, calculated on the full value of the supply received, in Box 1;
      2. (subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
      3. include the full value of the supply in both Boxes 6 and 7.
Value of supply: The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration.  The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.
Time of supply: The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.

Purchasing goods from another EC Member States

Something similar to reverse charge; called acquisition tax, applies to goods purchased from other EC Member States. These are known as acquisitions (they are imports if the goods come from outside the EC and different rules apply). The full value of the goods is subject to output tax and the associated input tax may be recovered by the business acquiring if the goods are used for taxable purposes. If you‘re not already registered for VAT in the UK and acquire goods worth £82,000 or more in the UK from other EC countries, you will have to register for VAT in the UK on the strength of the value of the acquisition tax. A business will also have to complete an Intrastat Supplementary Declaration (SDs) if its acquisitions of goods from the EC exceed an annual amount – currently £1.5 million.

Intrastat_flow_diagramMore details on Intrastat Supplementary Declarations here

Deregistration

Any goods on hand at deregistration with a total value of over £1,000 on which input tax has been claimed are subject to a self supply. This is a similar mechanism to a reverse charge in that the goods are deemed to be supplied to the business by the business and output tax is due. However, in these circumstances it is not possible to recover any input tax on the self supply.

Flat Rate Scheme

There is a self supply of capital items on which input tax has been claimed when a business leaves the flat rate scheme (and remains VAT registered).

Mobile telephones

In order to counter missing trader intra-community fraud (‘MTIC’), supplies of mobile ‘phones and computer chips which are made by one VAT registered business to another and valued at £5,000 and over are subject to the reverse charge. This means that the purchaser rather than the seller is responsible for accounting for VAT due.

Land and buildings…. and motor cars

There are certain circumstances where land and buildings must be treated as a self supply… but that is a whole new subject in itself… as is supplies in the motor trade.

Even if the result of a self-supply or reverse charge is VAT neutral HMRC is within its rights to assess and levy penalties and interest in cases where the charge has not been applied; which always seems unfair.  However, more often than not simple accounting entries will deal with the matter…. if the circumstances are recognised and it is remembered to actually make the entries!

VAT on Crowdfunding?

By   28 May 2015
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The EC is has begun an investigation into whether VAT should apply to crowdfunding activities.

An alternative is for the Commission to consider whether crowdfunding should be covered by the exemption for financial services.  In my view this seems unlikely.

So what could the outcome be if VAT is applicable to crowdfunding?  Well, a large number of UK projects will face a 20% VAT liability on investor returns. This is especially relevant to the popular “rewards crowdfunding”, where payments by investors are made in return for products or services to be developed as a result of the fundraising. These rewards projects may include; films, albums, or software development, which are offered “free” or at a reduced rate. It would appear that in these cases, consideration is flowing in both directions.

The Commission may also decide that crowdfunding intermediary services offered by many platforms will become liable to VAT.

The current position is that the Commission has now referred the question of crowdfunding to the EU VAT Committee.

More on this subject as soon as we have it.

VAT – The Future for the EC Digital Single Market

By   11 May 2015
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VAT – The Future for the EC Digital Single Market

The EC has announced its plans for its VAT digital single market in respect of online sales. Full details are here and here.

The highlights are:

• Extension of MOSS to intra-EC and third country online B2C sales of goods.

• Introduction of a new EC-wide VAT threshold to help start-up businesses.

• Ending current distance selling thresholds.

• Allowing for domestic controls, including a single audit of cross-border sales.

• Removal of the VAT exemption for the import of small consignments form third countries.

• Removal of barriers to cross-border sales eg; geo-blocking and costs.

This is likely to have a huge impact on the way businesses deal with VAT on sales of goods to individuals overseas. If the introduction of MOSS is anything to go by, we may be in for a bumpy ride.

VAT – Domestic legislation versus EC law – a new case

By   4 March 2015
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In the recent case of VDP Dental Laboratory NV & ors (C-144/13) the ECJ has decided that a Dutch exemption for a supply which is ultra vires in respect of EC VAT legislation does not give a right to input tax deduction via EC legislation.  The exemption precludes input VAT recovery, but has the effect of exempting imports and acquisitions into The Netherlands. The ECJ held that a taxable person who is not obliged to charge VAT on the supply of goods because national law (in contravention of Community law) provides for exemption, cannot however, rely on Community law to claim input tax deduction of VAT incurred on purchases incurred in respect of that supply.  What this means though is that the exemption in Dutch domestic legislation means that the taxpayer will not be taxed on importations or acquisitions, irrespective of the VAT treatment in the Member State of an EU supplier.

Broadly, this means that a business cannot take advantage of domestic legislation and/or EC law in circumstances where it may benefit.

VAT – Overseas Holiday Lets: A Warning

By   27 February 2015
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Do you own property overseas which you let to third parties when you are not using it yourself?

It is important to understand the VAT consequences of owning property overseas.

The position of UK Holiday Lets

It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £81,000 pa. and this is only likely if a number of properties are owned.

It should be noted that, unlike other types of rental of homes, holiday lettings are always taxable for VAT purposes.

Overseas Holiday Lets

Other EC Member States have nil thresholds for foreign entrepreneurs.  This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT in the country that the property is located.  Failure to comply with the domestic legislation of the relevant Member State may mean; payment of back VAT and interest and fines being levied. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs.  This may be restricted if the home is used for periodical own use.

Given that every EC Member State has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied, eg; transport, this gives rise to a whole new (and significantly more complex) set of VAT rules.

A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”

If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the local authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.

VAT MOSS (Mini One-Stop Shop) Update – Small businesses

By   8 December 2014
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Further to my article on the introduction of new place of supply rules and the MOSS for B2C supplies of telecoms, broadcasting and other e-services HMRC have now stated its position on smaller businesses.

Under the initial rules, businesses which have income below the UK VAT registration turnover limit of (currently £81,000 pa) would be forced to either register for VAT in each EC Member State in which they made a sale (where the customer belongs), or registering for VAT in the UK in order to use the simplified MOSS procedure.

This would, of course, mean that such a business would lose the benefit of not being UK VAT registered and consequently having to do business in the UK with the addition of UK VAT.

HMRC has now indicated that these smaller businesses will be permitted to separate their UK and EC trading and register for VAT in the UK (so they can use the MOSS) without accounting for UK VAT on their domestic trading as long as their UK turnover remains below the VAT registration threshold.

This is curious (but welcome) since HMRC have always been against disaggregation.

For further information please see my new 2015 rules flowchart

MOSShop opens!

By   7 October 2014
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Just a reminder that the Mini One Stop Shop (MOSS) will open on 20 October 2014.

The MOSS is for suppliers of digital services to customers across the EC.

Official notification here

A full explanation of MOSS and digital supplies here

We advise that any provider of; telecoms, broadcasting and electronic services seeks specialist professional advice before the changes come into effect.  We have many clients that are involved in cross-border provision of digital services so are ideally placed to assist with whatever query you may have on this issue.

With the Scottish vote approaching….

By   10 September 2014
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What happens if Scotland gains independence?

A VAT what if….

If the Scots vote for, and gain, full independence from the UK, it is likely that the country will become a separate Member State of the EU. According to David Cameron; It’s currency will become the Euro and it will need to form its own authority for administering VAT. Although cross border controls will not be introduced, the VAT treatment of cross-border transactions will change significantly. Apart from the usual currency exchange issues, UK businesses will also be required to complete additional EC Sales Lists, Intrastat Declarations, and potentially a lot of other administrative and statistical documentation.

UK businesses will also need to determine the status of its Scottish customer, which in turn will establish the place of supply, which will dictate whether UK VAT, Scottish VAT, or no VAT is chargeable. Then there are the Distance Selling rules to consider. Some UK businesses will be required to register in Scotland as well as the UK if they sell goods by mail order. And don’t forget the changed VAT treatment of goods and services purchased from Scotland; in most cases a UK reverse charge will be applicable. Depending on circumstances though, UK businesses and residents will incur Scottish VAT and if they do, only some will be able to recover it. This will not be via a usual UK VAT return, but via an alternative VAT claim method which also adds complexity. Then there is the increase in triangulation cases, never the most straightforward VAT subject!

A simple supply from Carlisle to Ayr would will need to be analysed with a massive amount more information required plus the additional bureaucratic form filling. This added complexity will also increase the possibility of errors on which penalties will be levied.

John Swinney, the cabinet secretary for finance in the Scottish Government has pointed out that an independent Scotland would be able to choose its own levels of income tax and VAT, as well as taking control of other sources of revenue such as alcohol and tobacco duty, air passenger duty and landfill tax.

From a practical point of view, will shops and other business establishments in the North of England start accepting both Sterling and Euros? Will invoices routinely show both Sterling and Euro values? Will excise and duty rates be similar to the UK? Will there be opportunities for enterprising individuals to take advantage of any differences? Will we see smugglers coming up against modern day Robert Burns in his Exciseman incarnation? At what rate will the Scots set VAT? Will it be possible that cross border VAT rate shopping will take place? Will the Scots lose the zero rating reliefs which they currently enjoy as part of the UK? Will the Scottish people be forced to pay VAT on new houses, food, books and children’s clothing after independence? One thing is for sure, the Scots will need a whole new set of domestic legislation to cover VAT and indirect taxes.

Also: What about groups of companies with Scottish and English subsidiaries currently in the same UK VAT Group? Were independence to happen, it would be a riot unpicking that lot.

Good luck everybody!