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VAT Input Tax recoverable in each Member State – A country by country guide

By Marcus Ward 17 August 2016

VAT incurred in other EC Member States may be recovered in certain circumstances. However, some claims are specifically blocked by Member States. Unfortunately, there are differences between each Member State’s domestic legislation.

For full details of how to make a claim for VAT incurred abroad, please see here

Here is a summary of VAT which cannot be claimed via the refund system:

Austria

VAT cannot be recovered on:

• The purchase, hire, operation and repair of passenger motor vehicles, except driving school vehicles, taxis and hire car vehicles;

• Entertainment expenses, except for business meals where the purpose of the meeting and the identity of the participants are documented.

Belgium

VAT cannot be recovered on:

• Manufactured tobacco;

• Spirits, except those intended for resale or supply in respect of a service (e.g. bars, hotels and restaurants);

• Accommodation, meals and beverages under an accommodation or a catering contract, unless these costs are incurred by a company’s staff effecting outside supplies of goods or services or by taxable persons who in turn supply the same services for consideration;

• Entertainment expenses (although expenses incurred in respect of an advertising event may be recoverable);

• Generally; the purchase of motor vehicles used for passenger transport and goods and services relating to such vehicles (although in some cases a 50% restriction applies and there are exceptions depending on use).

Bulgaria

VAT cannot be recovered on:

• Goods or services intended for making VAT-exempt supplies;

• Goods or services intended for “non-business” supplies;

• Entertainment expenses;

• Motorcycles or passenger cars (with less than five seats, excluding the driver’s seat), although certain exceptions apply;

• Goods or services related to the maintenance of a motorcycle or passenger car; and

• Goods that have been confiscated by the State or a building that has been demolished because it was unlawfully constructed.

Croatia

VAT cannot be recovered on;

• Entertainment expenses;

• Purchase and lease of aircraft, vessels, cars and means of personal transport for leisure purposes;

• Supplies exempt from VAT via The Croatian VAT Act Articles 39, 40 and 114;

• Supplies of goods exempt from VAT via The Croatian VAT Act Articles 41 (1) and 45 (1) (2) – (intra-Community supply of goods);

• VAT charged in contravention of the provisions, ie; VAT charged when it should not have been.

Cyprus

VAT cannot be recovered on:

• Non-business supplies; if a supply has both business and non-business purposes, VAT can be reclaimed only on the business portion of the supply;

• Supplies or imports of passenger cars;

• Certain second-hand goods, e.g. cars and antiques for which the VAT margin scheme is used;

• Business entertainment and hospitality expenses, except the provision of

entertainment to employees;

• Supplies used or to be used to make a supply in Cyprus; and

• Goods and services, such as hotel accommodation, purchased for resale and that are for the direct benefit of travellers.

Czech Republic

VAT cannot be recovered on:

• Entertainment expenses.

Denmark

VAT cannot be recovered on:

• Meals for the owner and staff of a business. However, VAT on meals incurred for business purposes is partly refundable;

• The acquisition and running of places of residence for the owner and staff of a business;

• The acquisition and operating costs connected to holiday homes for the owner and staff of a business;

• Entertainment expenses, representation costs and gifts. However, VAT on business entertainment is partly refundable;

• The driving of foreign tourist buses;

• The acquisition, repair and operation of motor vehicles designed for the conveyance of not more than nine persons; and

• Payments in kind to the staff of a business. No more than 25% of VAT may be recovered on restaurant bills and no more than 50% of VAT on hotel accommodation.

• There is a right to deduct a specific amount of VAT for companies that lease

passenger cars if:

• The leasing period is at least six months; and

• The vehicle is used for business purposes for at least 10% of the mileage.

Estonia

A VAT refund is available if an Estonian company can make a similar VAT deduction on its business expenses. This limits the VAT deduction, for example, on meals and entertainment expenses. VAT on accommodation costs is deductible if the trip is not for leisure purposes.

Finland

VAT cannot be recovered on:

• Immovable property that the taxable person or its staff uses as a residence, nursery, recreational or leisure facility, as well as goods and services connected with it or its use;

• Goods and services related to transport between the place of residence and place of work of the taxable person or its staff;

• Goods and services used for business entertainment purposes and business gifts;

• (With some exceptions) Passenger cars, motorcycles, caravans, vessels intended for recreational or sports purposes and aircraft with a maximum permissible take-off weight not exceeding 1,550 kg, or on goods and services related to their use;

• Purchases intended for the private consumption of the entrepreneur or his personnel;

• Purchases related to exempt sales of investment gold;

• Purchases of taxable goods and services for direct benefit of passengers made in the name of a foreign travel service company; and

• Purchases that are VAT-exempt, but have erroneously been charged with VAT.

France

VAT cannot be recovered on:

• Accommodation costs incurred on behalf of the management or staff of a company. (VAT is recoverable when such expenses are incurred for the benefit of persons not employed by the company, provided the expenses are incurred in the interest of the company or when it supplies the same services for consideration);

• The supply, import, leasing, repair and maintenance of most cars for passenger transport and other related costs, such as petrol. (However, 80% of VAT on diesel fuel can be recovered and VAT is recoverable when the cars are purchased by a car dealer for resale or by a person who hires out cars.);

• Goods transferred without remuneration or for remuneration that is much lower than their normal price, unless the value of the goods is very low (except business gifts whose collective value does not exceed EUR 65, including VAT, per beneficiary per year); and

• Domestic transport of passengers and related expenses (except for public transport supplies and transportation from home to work, subject to conditions).

If French VAT has been incorrectly charged, a foreign taxable person can, in principle, obtain a refund (unless a corrected invoice has been issued—a specific procedure applies for a supplier to issue a corrected invoice).

Germany

VAT cannot be recovered on:

• Supplies of goods and services that are not used for business purposes, including gifts; or

• Supplies of services acquired or goods imported connected to certain exempt activities.

Greece

VAT cannot be recovered on:

• Intra-community supplies and exports.

• The supply, import or intra-community acquisition of tobacco products that are destined for use in non-taxable transactions;

• The supply, import or intra-community acquisition of alcoholic beverages that are destined for use in non-taxable transactions;

• Entertainment expenditure, including expenditure on hospitality and amusement;

• The acquisition, leasing or hire, modification, repair or maintenance of passenger vehicles with up to nine seats, pleasure boats except if they are used for the sale, leasing or transportation of persons for a fee;

• Accommodation, food, transport and entertainment expenses incurred for company personnel or representatives;

• The supply of goods and services in connection with real estate located in Greece (in certain circumstances);

• Expenses unrelated to the business activity of the claimant; and

• Incorrect VAT invoicing.

• If the VAT imposed is used for both taxable and exempt transactions, a refund will be granted only in respect of the taxable transactions.

Hungary

VAT cannot be recovered on:

• Use of goods or the services directly for exempt supply of goods and/or services; or

• Use of goods or services for purposes other than taxable business activities, except when the goods or services are entirely used in the interest of achieving taxable objectives.

• Motor fuels and other fuels, goods that are necessary directly for the operation of passenger cars;

• Passenger cars, motorcycles above 125 cc, yachts, sporting and leisure boats;

• Residential buildings (except where a taxable person engaged in the leasing of such buildings opted for taxation of the rental);

• Purchases of goods and services related to the construction and renovation of residential buildings;

• Food and beverages;

• Services received in connection with the operation and maintenance of passenger cars;

• Services of restaurants and other public catering services;

• Entertainment services;

• Taxi services;

• Parking services and highway tolls, with the exception of parking services used and highway tolls paid for a motor vehicle whose gross weight is equal to 3.5 tons or more (including buses); and

• 30% of telephone and mobile phone costs and services related to data submission by internet protocol.

Ireland

VAT cannot be recovered on:

• Petrol except diesel;

• Food, drink, hotels/accommodation or other personal services (as from 1 July 2007, VAT on accommodation is recoverable if certain stringent conditions are satisfied);

• Entertainment expenses; and

• The purchase, hire or importation of passenger motor vehicles (VAT on motor vehicles used for certain purposes is recoverable).

Italy

VAT cannot be recovered on:

• Entertainment expenses.

• It is possible to deduct VAT paid on cars/fuel/maintenance used for the company’s business. The percentage deduction set by Italian VAT legislation is 40% in the case of both private and business use. The deduction is 100% if exclusively used for business purposes.

Latvia

VAT cannot be recovered on:

• The acquisition of unused immovable property and services received in relation to the construction, reconstruction, renovation, restoration or repair of immovable property;

• Goods and services purchased for personal use;

− Rental, maintenance and repair of a passenger car if these services are not used for business purposes. If the vehicle is used for business purposes, VAT can be recovered for the business use (in proportion to that use), but the claimant must provide supporting documentation with the application (e.g. route description in Latvian or English);

− Purchase of fuel, lubricants and spare parts intended for a passenger car if they are not used for business purposes;

− Expenses for recreation activities;

− Catering (including restaurants);

− Health improvement activities; and

− Entertainment.

Lithuania

VAT cannot be recovered on:

• The purchase or lease of a passenger car;

• Transport of passengers by cars (taxi services);

• Entertainment and representation expenses. However, where a taxable person is established in the EU, 75% of the VAT incurred on entertainment and representation expenses (goods and

services) is refundable;

• The supply of goods or services on which VAT does not have to be accounted for;

• Goods supplied to another EU member state if the supply of these goods would have been subject to the zero rate; and

• Goods exported from the EU if the supply of these goods would have been subject to the zero rate.

Luxembourg

VAT cannot be recovered on:

• Supplies on which VAT has been charged by mistake;

• Goods or services that are VAT exempt.

• Goods or services used for private purposes.

Malta

VAT cannot be recovered on:

• Tobacco or tobacco products, except those intended for resale;

• Alcoholic beverages, except those intended for resale or for the supply of catering;

• Works of art, collectors’ items and antiques, except those intended for resale;

• Non-commercial motor vehicles (and goods and services for the purpose of

repairing, maintaining and fuelling non-commercial motor vehicles), except those intended for resale, charter/hire, driving instructions or for the purpose of the carriage of goods or passengers for consideration;

• Vessels or aircraft, except those intended for resale or charter/hire for the purpose of the carriage of goods or passengers for consideration;

• Purchases relating to the provision of hospitality or entertainment, subject to certain exceptions; and

• Purchases relating to the provision of transport or entertainment to employees, subject to certain exceptions.

The Netherlands

VAT cannot be recovered on:

• Supplies of goods and services that are not used for business purposes;

• Supplies acquired or imported in connection with an exempt business activity;

• Food and drinks in restaurants, hotels and cafes;

• Business entertainment in excess of EUR 227 per year per person;

• Employee benefits in-kind in excess of EUR 227 per year per person;

• VAT on costs for the lease or rental of cars (these are limited to an 84% VAT refund – a 16% adjustment is made for private use).

Poland

VAT cannot be recovered on:

• Goods and services, the acquisition of which resulted from a donation or free provision of services;

• Lodging and catering services, with some exceptions;

• The deductibility of input VAT on the purchase (lease) of passenger cars is limited to 60%, but not exceeding PLN 6,000 per car.

• The purchase of engine fuel, diesel oil and gas for passenger cars or other motor vehicles.

Portugal

VAT cannot be recovered on:

• Accommodation, food and drinks (except in the case of specific events);

• Entertainment expenses;

• Purchase, hire, importation and repairs of vehicles, boats, and aircraft (unless these assets are used in specific activities). However, it is possible to recover VAT incurred on commercial cars and trucks;

• Fuel expenses (50% of the VAT on diesel is recoverable and 100% if certain

vehicles are involved);

• Tobacco; and

• Travel expenses, including tolls (except in the case of specific events).

Romania

VAT cannot be recovered on:

• Invoices on which VAT was unlawfully charged;

• Acquisitions that can be VAT exempt;

• Acquisitions made by tour operators that apply the margin scheme in the Member State in which they are established;

• Tobacco products and spirits, except those intended for resale or for supply during the performance of a catering service and;

• Acquisitions of passenger vehicles and fuel (with some exceptions).

Slovak Republic

VAT cannot be recovered on:

• Supplies of goods and services where the application of VAT was not in compliance with the Slovak VAT legislation;

• Supplies of goods that are or may be exempt from VAT (intra-Community supply of

goods, export of goods); or

• Supplies made under the tour operator margin scheme.

Slovenia

VAT cannot be recovered for:

• Yachts and boats for sport and amusement, fuel, lubricants, spare parts and related services;

• Aircraft and fuel, lubricants, spare parts and connected services;

• Cars and motor bikes and fuel, spare parts and related services;

• Accommodation, meals and beverages, unless these costs are incurred by a taxable person in the course of supplies made as part of their economic activity and;

• Entertainment expenses.

Spain

VAT cannot be recovered on:

• Entertainment expenses;

• Food and drinks, tobacco;

• Jewels and precious stones;

• VAT on accommodation, restaurant and travel expenses will be refundable only to the extent the expenses are deductible for personal and corporate income tax purposes.

• VAT incurred on car rentals and fuel will be refundable only if the car is exclusively used for business activities.

• If not exclusively used for business activities, refunds of VAT on car purchases, car importations and car leases will be possible, but only if the car can be considered an investment good for Spanish VAT purposes (ie; it must be used for at least one year within the company), and only for the proportion that the vehicle is used for business purposes (a business use of at least

50% will be required).

Sweden

VAT cannot be recovered on:

• Permanent accommodation;

• Travel services (only applicable to persons supplying travel services);

• Unreasonable entertainment services;

• Purchase of motor vehicles; and

• Car rentals (these are 50% refundable), with certain exceptions for vehicles intended to be sold or leased by a taxable person whose particular economic activity involves the sale or leasing of motor vehicles, vehicles intended to be solely used for passenger transport for hire or reward and vehicles intended to be used for driving license education and transport of the deceased.

United Kingdom

VAT cannot be recovered on:

• Non-business supplies (if a supply covers both business and non-business use VAT can be reclaimed on the business element of the supply);

• Supplies the claimant intends to use for carrying on an economic activity in the

U.K. or that the claimant intends to export from the U.K. (i.e. economic activities, the place of supply of which is the U.K.);

• Business entertainment and hospitality expenses and other expenses on which the recovery of VAT is restricted in the U.K.;

• Goods and services purchased for resale (e.g. as part of package holiday) and which are for the direct benefit of travellers;

• VAT that has been incorrectly invoiced or where VAT has been charged on the dispatch of goods to another Member State, or the export of goods outside the EU;

• The purchase or import of passenger motor vehicles, unless used wholly for business purposes and

• Certain second-hand goods, such as antiques, for which a tax invoice will not be issued.

• Not more than 50% of VAT can be recovered on the lease of passenger motor vehicles not used solely for business purposes.

Please contact us if you have any queries on claiming overseas VAT.

Reclaiming VAT Overseas

By Marcus Ward 16 August 2016

Refunds of VAT for UK businesses incurring other EC Member States

If a business incurs VAT in another EC Member State it is possible to recover it. It is not claimed on a UK VAT return, but via a special claim process which I have set out below. Unfortunately, this procedure is likely to be unavailable after Brexit. I hope that this is a timely reminder as well as a guide as the deadline for the year of the claim is 30 September.

My next article will look at precisely what VAT is recoverable in each Member State in a country by country guide – here

Claim Process

Gone are the days when a business had to make claims directly to the Member State where VAT was incurred; using numerous, complicated forms, in the language of the Member State of claim, and then waiting months, if not years to hear anything.

Now, a simple online claim to HMRC is all that is required. HMRC then coordinate payment for a business from the relevant country. This is a practical overview of the procedure.

All applications must be submitted using the electronic online system. You must be VAT registered in the UK to obtain a refund.

In order to make a claim a business must meet the following conditions:

you must not be registered, liable or eligible to be registered in the Member State of Refund
you must not have any fixed establishment, seat of economic activity, place of business or other residence in the Member State of Refund
during the refund period you must not have supplied any goods or services in the Member State of refund with the exception of;

a) transport services and ancillary services

b) any goods or services where VAT is payable by the person to whom the supply is made (the reverse charge).

By submitting your application you are declaring that you meet these conditions.

How do I claim?

A separate online application is required for each Member State from which you wish to claim. In order to start an application you must access the relevant online services section and enter standard data into the required fields, along with invoice for expenditure you wish to reclaim.

Period application covers

The refund period must not be more than one calendar year or less than three calendar months. Generally refund periods do not have to cover strict calendar quarters. However, some Member States have their own requirements, and details of these can be obtained from the relevant tax authority.

Minimum amount that may be claimed

If the refund application relates to a period of less than a calendar year, but not less than three months the minimum amount claimable is EUR 400 or the equivalent in national currency.

If the refund application relates to a period of a calendar year or the remainder of a calendar year the minimum amount claimable is EUR 50 or the equivalent in national currency.

Invoices included on the application

Invoices relating to supplies of goods or services with a tax point during the period of the refund application should be included. Additionally, a business may claim for invoices not included in a previous application as long as they relate to the same calendar year.

VAT which cannot be included on a claim

A claim cannot include VAT which has been;

incorrectly invoiced,
invoiced in respect of goods despatched to another Member State or exported from the EC
incurred in respect of non-business activities

Information required from invoices being claimed

Name and address of your supplier
Except in cases of importation the VAT identification number or tax reference number of the supplier and the prefix of the Member State of Refund
Date and number of the invoice or importation document
Taxable amount and amount of VAT expressed in the currency of the Member State of refund
The amount of deductible VAT expressed in the currency of the Member State of refund
Where applicable the deductible proportion
Nature of the goods and services acquired, described according to the following expenditure codes: Fuel, Transport Hire, Road Tolls, Travel Expenses (taxi, public transport), Accommodation, Food and Restaurant Services, Admissions to Fairs and Exhibitions, Luxuries/Amusements/Entertainment.

If an invoice includes items covering more than one expenditure code the code relating to the highest proportion of expenditure is the one that should be used.

Restriction of applications in respect of partial exemption

A business must apply the appropriate recovery rate for the goods or services purchased against each invoice or importation on your application, and show the amount of VAT recoverable in the appropriate box. The recovery rate to be applied is the last percentage appropriate to the refund period covering the invoice date. Following an annual adjustment, you will not be required to amend refund applications already submitted. The invoices can only be entered once and the percentage to be used is that covering the invoice date.

Restriction of applications in respect of non-business expenses

Expenditure incurred in another Member State that relates to non-business activities is not claimable under the refund scheme.

Language needed on the application

Member States generally require the application to be in their own language they may allow the use of a second language in the free text fields, and English is a common option. The language(s) required by the Member State of Refund will be displayed on the electronic portal as you complete the application.

Invoices which may be required to be submitted electronically

A business may be requested to submit invoices with values of EUR 1,000 or more (EUR 250 or more in the case of fuel) with the application. All other invoices should be retained as they may be requested at a later date by the Member State of Refund.

Claim updates

A business will be informed electronically at the following key stages of the process.

If your application fails basic validation checks by the electronic portal
When HMRC forwards your application to the Member State of Refund
When the Member State of Refund receives the application
If the Member State of Refund requires additional information from you
When the Member State of Refund makes its decision

Time limits for submitting an application

Applications must be submitted to HMRC at the latest by 30 September of the calendar year following the refund year and will only be considered submitted if the applicant has completed all of the required standing data fields (see above).

Time limits for the Member State of refund to process an application

The Member State of Refund must notify the applicant of its decision to approve or refuse the application within four months of the date they first received the application.

Payment method

The refund will be paid in the Member State of Refund or, at the applicant’s request, in any other Member State. In the latter case, any bank charges for the transfer will be deducted by the Member State of Refund from the amount to be paid to the applicant.

Error on applications

The electronic portal provides a correction facility whereby a business can recall the original application and amend existing details. You may not, however, add new lines.

Penalties

All Member States take a very serious view of incorrect or false applications. Refunds claimed incorrectly on the basis of incorrect or false information can be recovered and penalties and interest may be imposed and further refund applications suspended.

Applications refused

If the Member State of Refund refuses an application fully or partly they must also notify you of the reasons for refusal.

If this happens you can appeal against the decision using the appeals procedure of that Member State. This means that the normal VAT appeals rules of that Member State on time limits, form of appeal etc., will apply.

Interest on delayed applications

Interest may be payable to you by the Member State of Refund if payment is made after the deadline. If applicable, it will be paid from the day following the deadline up to the date the refund is actually paid. Interest rates must be the same as those applied to refunds of VAT to taxable persons established in the Member State of Refund under the national law of that Member State.

Claims on UK VAT returns

VAT incurred overseas must not be claimed on a UK VAT return. If it is, it is liable to an assessment, penalties and interest levied in the UK by HMRC.

International VAT – Complex, expensive and difficult. The triggerpoints

By Marcus Ward 2 August 2016

Further to the recent announcement of our comprehensive and extensive new International tax service offering here I thought it a good idea to provide a brief guide on when a business or an adviser needs to consider indirect tax when selling overseas. I hope this summary will be of use. Please contact us if you feel that any issues here are relevant to you or your clients.

International and cross-border transactions can be extremely complex and frustrating (take it from me if you haven’t already experienced it). From the physical movement of goods to the many various types of services, VAT is a minefield. Not only is it very complicated, but different languages, rules and practices can add to the overall issues with dealing with the tax. This shouldn’t be a barrier to companies doing business across the world and we are here to support and assist you.

We are experienced in advising not only on UK indirect tax, but issues in other EC Member States and matters outside the EC.

Do you know whether you have indirect tax responsibilities in other countries? Do you know whether you are taking advantage of all available reliefs?

There are often complex and conflicting issues concerning VAT when dealing with customers or suppliers outside these shores. Although the EC-wide VAT system is supposed to be harmonised, not unsurprisingly, there are significant differences in domestic law and the application of EC legislation. It is easy to get caught out or not even consider VAT issues outside the UK. There are special rules for a lot of activities, with the rules for International Services particularly complex.

Experience insists that overseas tax authorities do not mitigate any assessments and penalties simply because your business is based outside their country. Another twist is that HMRC are simply not interested in any transactions outside the UK so will not assist with taxpayers’ queries.

So what sort of questions should a business be asking itself and in what circumstances could VAT rear its ugly head?

When should I be considering VAT?

Exporting goods – Do they properly qualify for zero rating?
Dispatching goods to other EC Member States – Are they UK VAT free?
Distance Selling (usually online/mail order) – There are special rules for this.
Selling goods in the UK which are to be removed from the UK.
Retail sales to visiting customers.
Electronically supplied services – MOSS
Imports – what value? Recovery of import VAT. Customs Duties. Procedures. Reliefs.
Acquisitions from other Member States – what are the rules? Self-supplies. Procedures.
Provision of services – What is the Place Of Supply (POS)?
Provision of services – UK VAT, no VAT, overseas VAT chargeable?
Working abroad – What are the rules?
Property owned overseas.
Overseas businesses owning UK property
Purchasing services overseas – VAT free? Self-supplies
Purchasing/hiring transport/vehicles cross border; aeroplanes, yachts, road vehicles etc.
Organising trade fairs, exhibitions seminars or training etc– There are special rules.
The Performance rules eg; cultural, artistic, sporting – There are special rules.
Supplies of electronically supplied services – There are special rules. MOSS (Mini One Stop Shop) issues.
Place of belonging issues. Where do you belong for VAT purposes? Where does your customer belong?
Intercompany charges/management charges/recharges – Require careful consideration.
Filing overseas returns and dealing with overseas authorities’ inspections/investigations
Cross-border transactions in used goods (including works of art and cars) – there are special rules.
When negotiating contracts or pricing transactions/projects. You need to know the VAT position first otherwise you cannot budget correctly.

How we can help

We can assist whether you have an ad-hoc query or you require a full service in an overseas country. We can:

Deal with overseas authorities on your behalf
Resolve disputes with overseas clients/suppliers
Analyse cross-border/international positions
Advise on international structures
Resolve complex international technical problems
File overseas declarations/returns and registrations
Deal with HMRC on complex POS matters
Assist with classification and valuation matters
Deal with documentation (which can be complex and demanding)
Review and advise on contracts and tenders
Liaise with local domestic legal/accountancy advisers in overseas countries
Advise overseas businesses making supplies into the UK
Assist with e-services matters including MOSS
Resolve disputes with HMRC
Handle claims for VAT incurred overseas for a UK business and UK VAT claims for overseas businesses
Act as a one-stop shop for all of your overseas tax matters.

So don’t let tax interfere with your business expanding overseas, we are here to help you.

Our New International Service – VAT, Customs Duty, Sales Tax

By Marcus Ward 1 August 2016

Due to a new strategic alliance, we are now able to offer a true worldwide tax, customs duty and excise service.

Gone are the days when you, or your clients, had to deal individually with representatives in different countries, or pay extremely high fees and receive less than immediate service from the big 4. We now act as a one stop shop for nearly every country in the world. Whether it be;

a sales tax issue in Texas
a dispute with the authorities in Romania
a Customs Duty problem with entering goods into Mumbai
appointing a tax representative in Hong Kong
a disagreement over tax with a customer in Switzerland, or
a requirement to file documents in Russia,

we can do this on your behalf.

Of course, we cover every EC Member State – which may be increasing important after Brexit.

We offer a comprehensive, immediate and very reasonably priced service with total transparency on cost and quick response times. We can handle all matters including; advice, structuring, support and compliance while dealing with language issues, understanding domestic legislation and dealing with the relevant authorities in each country. All advice is provided by our very experienced and highly qualified staff with a comprehensive network of contacts. We understand local practices and customs as well as the precise technical requirements. Our advice aims to remove uncertainty and provides a definitive view, rather than a business having to rely on hearsay, incomplete or outdated online information, or advice from a customer/supplier which may not be accurate – all of which we have seen in the past and which can lead to very expensive surprises.

Our service covers the ambit from a small business’ first time cross-border or overseas transaction, to the largest multi-national.

Please contact me should you, or your clients have any international issues, or if you, or they are dissatisfied with current advice in this respect. We can also act on behalf of other VAT consultancies which do not have worldwide coverage.

In a forthcomingt article we will consider International transactions and triggerpoints for when assistance may be required.

VAT Distance Selling Q & As

By Marcus Ward 11 July 2016

VAT Distance Selling: What is it and how will it affect my business?

Q – My internet business is expanding and I am now selling goods all over the EC. Does this create any VAT issues?

A – It could do; if you are selling to individuals (or any other non-business entity) then you should be charging UK VAT regardless of where your customer belongs in the EC. However, when these type of sales reach a certain limit, you will be required to VAT register in each Member State in which the threshold is breached. These are called the Distance Selling rules and apply in situations where the seller is responsible where the supplier is responsible for the delivery of goods B2C; typically mail-order and increasingly goods purchased online (so called “delivered goods”).

Q – What are those limits?

A – Each Members state sets its own limit. However these may be broken down into two categories:

€ 35,000 (or near equivalent in domestic currency) Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Ireland, Latvia, Lithuania, Malta, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Italy.

€ 100,000 (or near equivalent in domestic currency) Austria, Germany, Luxembourg, Netherlands, UK.

Q – What are the practical implications?

A – Each Member State has different rules for VAT registration and filing of returns. All dealings, save for a few Member States, are undertaken in the language of that country, so broadly, there could be 27 sets of rules and many languages to master in order to comply with the Distance Selling rules! Additionally, we find that some business are unaware of these rules, or discover the impact of them after the limits have been reached. This creates penalties for late registration and filing in nearly all Member States. However, mitigation (along the lines of “reasonable excuse” in the UK) in varying degrees is available in some countries. We have found that it is possible, via negotiation to have penalties reduced or removed after making full disclosure of past turnover. As one may expect, the approach varies from country to country.

Q – Do I have any choices?

A – Yes, although it is not necessary to register until the thresholds set out above are breached; it is possible to VAT register there on a voluntary basis rather than accounting for UK VAT. The considerations are usually; the VAT rate in the Member State concerned (compared to the UK) and; administrative simplification, ie; not having to change over from UK VAT to another Member State’s VAT regime when the limit is reached.

Q – But what if I have accounted for UK VAT on these sales already, what can be done about that? I don’t want to have to pay VAT twice to different authorities.

A – In our experience, HMRC do repay UK VAT overpaid if overseas output tax is due, but this sometimes becomes a struggle and HMRC require full explanation and precise evidence to support a repayment.

Q- Do these rules affect sales made to customers outside the EC?

A- No, these are usually zero rated as exports.

Q So I need to identify the location of all of my customers and monitor sales to ensure I comply with the rules and to identify whether to charge VAT, at what rate, and to which authority?

A – Yes, I am afraid so!

Please contact if you would like us to deal with overseas authorities on your behalf, or you would like assistance with technical issues or with language matters

VAT After Brexit

By Marcus Ward 27 June 2016

There have been many articles anticipating what would happen to Indirect Tax if the UK left the EU. Now the deed has been done we thought it would be a good idea to summarise what we actually know. This can be done very succinctly; “not very much”.

UK VAT legislation derives from the Euro-wide Principal VAT Directive (“PVD”) and consequently has the largest European dimension of any tax.

There are many factors which will impact on the future of VAT in the UK. The main one being which model the UK follows for trading with the EU, or whether it can negotiate a completely new model. Very broadly, and without going over ground that I’m sure has been covered many times since the vote, the four options are:

Membership of the EEA
Negotiated bilateral agreement
Advanced Free Trade Agreement
WTO membership

Each option is likely to result in differing VAT scenarios for trade, reporting and compliance. Until we understand what agreements will be made, it is likely that VAT life will go on in much the same way as it has done without the need for businesses to make any changes. Without a crystal ball it is impossible to say what the implications for Indirect Tax are, however, it is more than likely that any business which is involved in the following areas should be prepared for significant changes in the future:

Dispatches to the EU or acquisitions from the EU. It is likely that these will become exports and imports
Supplies of services to the EU or the purchase of services from the EU
Expenses incurred in the EU
Distance Selling
Triangulation
Financial services and insurance
Tour Operators’ Margin Scheme (TOMS)
MOSS supplies
Outsourcing and offshoring

It is likely that a domestic government may wish to reverse certain ECJ decisions imposed on the UK with which it disagrees. Leaving the EU will allow the UK freedom to set its own VAT rates and introduce its own legislation, although, practically and politically, it is not anticipated that the UK model will differ too sharply from the existing rules. At this stage however, this is mainly guesswork.

So, with a lot of negotiations in prospect, we are holding fire until we have more concrete information. It could be a bumpy ride, but one which isn’t about to start for some time.

In the meantime, we will keep you informed about any proposals and the introduction of any definite changes.

Watch this space!

VAT – Latest from the courts: A round up of partial exemption

By Marcus Ward 20 June 2016

The partial exemption calculation

The calculation is required to quantify the amount of input tax a partly exempt business is able to claim. A partly exempt business is one which makes a mixture of taxable and non-taxable (eg; exempt) supplies. Input tax attributable to exempt activities is not recoverable.

With certain businesses HMRC accept that the usual “partial exemption standard method” based on taxable turnover versus exempt turnover is either impractical, distortive, or inappropriate. In such cases the business submits an application for a partial exemption special method (PESM). This may be based on many various factors such as; floorspace, staff numbers, transaction counts, management accounting etc (or any combination). If HMRC accept that the proposal is fair and reasonable, a formal agreement will be entered into by both parties.

The question in this case was when a PESM is agreed with HMRC is there a requirement to round up figures to a whole percentage point?

According to the CJEU decision in Kreissparkasse Wiedenbrück the answer is no. It was decided that, via EC legislation, in cases where there is a PESM agreement in place there was no obligation to round up.

The view was that as a significant amount of PESMs are “sophisticated” (compared to the partial exemption standard method) they achieve a more accurate allocation of input tax between taxable and exempt activities and rounding would counter this accuracy.

Full case here

Please contact us if your business is partly exempt and you either have a PESM in place, are in the process of agreeing one, or feel that your input tax recovery is suffering by the use of the standard method.

VAT – Latest from the courts; use and enjoyment provisions

By Marcus Ward 25 April 2016

Telefonica Europe Plc and Telefonica UK Limited

The VAT Use and Enjoyment provisions set out an additional layer of rules which establish the place of supply of certain services. They apply to; telecommunications and broadcasting services; electronically supplied services (for business customers); hired goods; and hired means of transport. Broadly, effective use and enjoyment takes place where a recipient actually consumes the services, regardless of any contractual arrangements, payment, or beneficial interest. The intention of this provision is to correct instances of distortion which remain as a result of considering only where the provider and the customer belong. HMRC give the example of supplies such as telecommunications services which are actually consumed outside the EC, to be subject to UK VAT. Of course, the converse is that it would be distortive for there to be no EC VAT on such services where they are consumed in the UK.

In the Upper Tribunal case of Telefonica Europe Plc and Telefonica UK Limited the dispute involved the way in which the appellant calculated the value of its mobile telephone services which were used and enjoyed outside the EC (and thus UK VAT free). Over a number of years Telefonica had an agreement with HMRC whereby the amount of outside the EC supplies was calculated by reference to revenue, ie; comparing call, text and data income relating to non-EC supplies to total income.

HMRC subsequently formed the view that this method of calculation was distortive because higher charges were made to non-EC users than EC consumers. HMRC proposed a “usage methodology” which used call times, texts sent and volume of data used. As may be expected, this resulted in a lower percentage of supplies that were outside the scope of UK VAT thus increasing HMRC’s VAT take.

The appellant contended that the usage methodology was contrary to EC and UK VAT legislation. Not surprisingly, the UTT rejected this argument, deciding that Telefonica had not established that HMRC’s proposal was unlawful.

So then the outcome would be expected to be that the usage methodology should be used, but no. It was decided that the most accurate method would be one based on the time a customer has access to the network outside the EC; which differs from both the usage and revenue methods.

This type of dispute is quite common and also appears regularly in partial exemption situations. There are nearly always alternative ways to view apportionment calculations and it pays to obtain professional advice; not only to ensure that a fair result is achieved, but as assistance with negotiations (which may avoid having to go to Tribunal).

VAT Latest from the courts: Stocks Fly Fishery – single or multiple supply?

By Marcus Ward 19 April 2016

As many will know, there is a significant amount of case law concerning what may be treated as a composite supply at one VAT rate, and what are separate supplies at different VAT rates. The latest in this series is the First Tier Tribunal case of Stocks Fly Fishery

The appellant is a trout fishery in the Forest of Bowland. They argued that they supplied standard rated fishing and a distinct zero rated supply of fish for human consumption.

They provided two types of daily ticket which was required to fish the reservoir. The first was a sporting ticket, which entitled an angler to fish, but any fish caught must be returned to the water. The second was a take ticket which also enabled a person to fish but any fish caught (up to a certain number) may be taken away for food. A take ticket was more expensive than a sporting ticket. The more fish that were taken away, the more expensive the take ticket was. The taxpayer formed the opinion that it made two supplies; one of fishing which was agreed to be standard rated, and one of food for human consumption (the trout) which was zero rated. The value of the zero rated element was said to be the difference between the sporting ticket price and that of the take ticket.

The issue was whether the ability to take away the fish for food was a separate supply, or ancillary to the substantive supply of fishing.

The appellant cited Hughes v Pendragon Sabre Ltd (t/a Porsche Centre Bolton) while HMRC relied on Chalk Springs Fisheries (1987) (LON/86/706) Roger Cambrai Haynes (1988) (LON/87/624) and Card Protection Plan Ltd v Commissioners of Customs and Excise.

As an observation, the chairman in the Chalk Springs Fisheries case stated “…No trout is, in my view, supplied to him at all. Instead the fisherman must go out and catch them, if he can.” This was obviously quite unhelpful to the appellant. Additionally, the chairman was obliged to follow the well-known Card Protection Plan case which sets out guidance on matters such as this.

Decision

The FTT decided that the essential feature of the transaction was fishing and the dominant motive of anglers going to the fishery was to fish, regardless of which type of ticket was purchased. Therefore, the right to fish had to be regarded as constituting the principal service and the right to kill and keep the trout fish, if caught, should be regarded as ancillary to that principal purpose. Therefore there was a single standard rated supply of fishing.

It is always worth reviewing whether supplies made by a business can, and ought, to be treated separately, or as a single bundle. The existence of such a massive amount of case law on this subject indicates that this issue will continue to run and run.

Please contact us should this matter raise any concerns or present a possible opportunity.

VAT – Latest from the courts: Frank A Smart & Son Limited

By Marcus Ward 4 April 2016

Recovery of input tax incurred on the purchase of Single Farm Payment Entitlement (SFPE) units.

HMRC often reject claims for input tax as they consider that they relate to non-business activities, or more nebulously the costs are not reflected in the prices of supplies made by the claimant (the so called “cost component” approach). This very helpful Upper Tribunal (UT) case provides insight into the logic applied by HMRC in reaching a decision to disallow a claim for VAT incurred.

This was a company which farmed land and also paid VAT on the purchase of SFPE units. These units entitled the company to receive benefits via the EC Single Farm Payment Scheme. HMRC contended that the receipt of the SFPE payments was non-business, or in the alternative, they were not a cost component of any taxable supply made by the farming company.

The UT refused HMRC’s appeal against the initial FT-T decision in favour of the appellant. It found that there was sufficient evidence that the purchase of the SFPE units (and the income which resulted in the acquisition of them) was not a separate activity to the farming supplies so the non-business argument did not apply. Further, the Chairman stated that “…it is unnecessary for the company to prove that the cost in question was actually built into the price charged for the supply”. Therefore the cost component contention put forward by HMRC also failed.

The Chairman’s comments appear to go against HMRC’s published guidance on “direct and immediate link with the taxable person’s business”, particularly in respect of holding companies.

If you are aware of any situation where HMRC have disallowed claims for input tax for either non-business or non-cost component reasons please contact us as this case may be of benefit.

Full decision here