This is a very interesting case and would seem to form precedence for EU Member States and taxpayers in a similar situation, resulting from a request for a preliminary ruling to the EC from the Supreme Administrative Court, Czech Republic and the Kingdom of Spain also submitted written observations.
Are tax authorities able to defer the refund of the total amount of excess VAT even though only a small part is still the subject of an ongoing tax inspection? The tax authorities and the Commission believe so, arguing that the deduction under Article 179 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) is to be made only from the total amount.
This question is particularly sensitive because the part of the claimed deduction still to be investigated might be connected with a third party’s fraudulent transactions, about which the taxable person possibly should have known. According to the Court’s case-law, this would permit (or require) the tax authorities to refuse the deduction in this regard. But does this also mean that the deduction in respect of other indisputably ‘legitimate’ transactions can be deferred for several years? Theoretically, the inspection of a single transaction to the value of one euro could therefore defer the tax assessment for all other transactions for several years.
It can be stated, as an interim conclusion, that Articles 179, 183 and 273 of the VAT Directive do not include a right for the Member States to limit in time the total amount of excess VAT if only part of it is disputed, while the other part is undisputed.
The EU Parliament will open an inquiry, Taxe 3, into financial crime, tax evasion and tax avoidance as a follow-up to the unfinished work released from the Paradise Papers. A special committee of 45 MEPs will spend a year on this project, with a primary focus on VAT fraud via offshore tax havens.
This development continues the trend to identify potential abuses, albeit via legal sovereign laws and/or intentional illegal tax evasion.
Thus, the reputational risk of all multinationals is still at the forefront of today’s news. This development should be monitored for transparency and spill-over effects.
The European Commission (EC) has proposed a new set of rules that is meant to introduce efficiencies into long-standing current practices.
The new principles include:
- One Stop Shop
- Destination principle, with VAT on goods collected by the selling State and transferred to the State of destination
- Charging VAT on cross-border trade
- “Certified Taxable Person” certification allowing simpler EU principles to apply
- Quick fixes, including storing goods in another Member State
The EY Global Tax Alert is included for reference, which thereby includes links to the related proposals.
This proposal is significant for all businesses trading in the EU, and its principles should be reviewed to enable proactive planning.
As UAE’s (and some other GCC States) VAT regime, effective 1/1/2018, becomes closer, it is clear that multinationals (MNEs) need to prepare now re: VAT assessments, information required, system review, etc. to plan effectively for this new indirect tax.
Additionally, India’s new scheme also is in effect starting this year, and a similar exercise should be conducted re: operations conducted in India.
As VAT is an indirect tax, all MNE’s should ensure such local filings are coordinated with regional / global compliance governance controls.
EY’s Global Tax Alert provides additional details re: the GCC’s upcoming rules.
The long -awaited VAT has become a reality in the GCC, effective 1/1/2018.
This provision will require advance (systems) implementation and training, especially for companies in the region not familiar with VAT reporting. Note the UAE and other GCC countries have nil, or minimal rates of corporate tax and this indirect tax will provide a local economic stimulus without creating additional complexities of corporate tax reforms.
This reform is not unexpected, although now the execution phase is very important to provide a seamless transition for reporting and collection.
EY’s Global Tax Alert provides additional details of this development.
As a long-standing advocate of Tax Executive Institute’s (TEI’s) expertise and peer networking for all executive tax members of multinationals, their reappointment as a member of the VAT Expert Group is a sound testament to their advice for the international tax community.
Additionally, TEI’s training programs, and opportunities to be a guest speaker, should be taken advantage of if one has the opportunity.
TEI Appointed as Member to the European Commission’s VAT Expert Group
On September 30, 2016, the European Commission reappointed TEI as a member of the VAT Expert Group for a three-year term. The VAT Expert Group was established in 2012 for the purpose of “advis[ing] the Commission on the preparation of legislative acts and other policy initiatives in the field of VAT” and “provid[ing] insight concerning the practical implementation of legislative acts and other EU policy initiatives in the field of VAT.” The VAT Expert Group’s next meeting will take place on October 17, 2016 in Brussels.
TEI has participated as a member of the VAT Expert Group since its inception. Allard van Nes will continue to continue to serve as TEI’s primary representative and Lorry G. Limbourg will serve as Mr. van Nes’ alternate. TEI wishes to thank Lynne Clare for her work as the alternate representative during TEI’s prior terms.
The OECD has published its international VAT/GST Guidelines, which are expected to be approved in 2016.
Jurisdictions are encouraged to use existing bilateral, regional or multilateral arrangements on mutual co-operation to practically comply with the Guidelines. The soft-law guidelines provide additional insight into the taxability of intangibles and services.
Links to EY’s Indirect Tax Alert and the OECD Guidelines are provided for reference.
As indirect taxes are becoming more significant and visible, it is apparent that the governance of such taxes should be coordinated with direct taxes in multinational organisations for significant transactions and conformity of principles. This area of tax is also increasingly specialized, with potential risks that should be considered in a global tax risk framework.