New global VAT/GST collection proposals to level the playing field between traditional and online sellers have received a big thumbs up, while VAT rate reductions in China have been confirmed and a VAT error amnesty in Italy has begun.
TMF Group's global tax team is pleased to bring you a round-up of some key VAT news and wider tax bulletins. Have questions or need more information about any of the below? Simply make an enquiry with us.
South Africa - VAT registration for electronic services
South African legislation which came into effect on 1 April 2019 is likely to have a major impact on foreign companies supplying electronic services to South African consumers and businesses.
Crucially, the definition of 'electronic services' has now been significantly broadened to include:
- online advertising
- online consulting services
- software subscriptions
- streaming services
- online games
- online courses and publications.
In effect, this means that most services supplied electronically will fall within the definition. Consequently, foreign suppliers of e-services and intermediaries who facilitate the supply of e-services in South Africa may be required to register for VAT if the total value of taxable supplies exceeds ZAR 1 million (approx. €63,000) over a 12-month period. This has increased from ZAR 50,000 and brings it into line with the VAT registration threshold for domestic supplies. The legislation has been primarily introduced to ensure foreign suppliers do not have an advantage over domestic suppliers through not having to charge VAT.
Italy - VAT Error Amnesty
A new measure - part of Italian VAT law no. 145/2018 - has seen a general amnesty introduced for taxpayers who have made errors in their VAT filings. The amnesty, which applies for mistakes made before 24 October 2018, is only available if the errors did not affect the determination of the VAT amount. To apply for the amnesty, the taxpayer:
- must pay EUR 200 for each fiscal year it made errors/omissions in its filings
- correct the errors/omissions by 2 March 2020.
While it has not been officially documented some of the main areas the amnesty is likely to apply to are:
- Invoices with missing/incorrect information quoted (ie. Fiscal Representative details missing, incorrect VAT laws wording etc.)
- Omitted/wrong submission of Intrastat reports
- Omitted/wrong submission of quarterly VAT returns
- Omitted/wrong submission of invoice listing.
In practice, this means that if there was a failure to submit an Intrastat report, for example, a payment of €200 and the submission of the report (by 2 March 2020) will be required.
In many respects this is a favourable option for businesses that have made errors/omission – note that formal penalties can rise to €10,000. However, it should be recognised there might be potentially negative implications with the possibility that those taxpayers taking advantage of the amnesty may be placed on a register and face a further inspection/investigation once the correction deadline has passed.
China - VAT rate cuts
Chinese Premier Li Keqiang announced that a decision has been made on plans to reduce VAT as part of a CNY 2 trillion (approx. €264 billion) cost-cutting package.
The following changes will take place:
- reduction of the VAT rate from 16% to 13%, which mainly will benefit the manufacturing sector
- reduction of the VAT rate from 10% to 9%, which currently applies to industries such as transportation, construction works, etc
- increase of the input VAT which may be credited for the services sector, even though the 6% VAT rate for that sector will remain unchanged
- introduction of a VAT exemption from 1 January 2019 for small-scale taxable persons for VAT purposes with monthly sales not exceeding the threshold of CNY 100,000 (approx. €13,132).
The reason behind these VAT related measures is to provide tax relief to all sectors and to ensure that the tax burden of key industries (eg. manufacturing) is significantly lowered amid a slowing economy and tariff dispute with the USA.
Brexit - VAT Recovery update
Further to previous bulletins and our article on the impact to the VAT Refund procedure, the news that the UK did not leave the EU without a deal on either 29 March or 12 April means that businesses across the EU can continue using their respective EU refund portals for VAT recovery claims - both to and from the UK.
The new Brexit leave date is 31 October, but the situation remains fluid and if there are any developments that have VAT implications, we will of course inform you.
OECD - online marketplaces and VAT
Delegates from over 100 jurisdictions, including regional and international organisations, have unanimously endorsed new rules that will ensure the collection of additional VAT/GST revenues and level the playing field between operators in traditional and online markets.
Around 300 Global Forum on VAT participants meeting in Australia last month welcomed measures proposed in a new report by the OECD on 'The Role of Digital Platforms in the Collection of VAT/GST on Online Sales.' The report includes new measures to make e-commerce marketplaces liable for the VAT/GST on sales made by online traders through their platforms. Other measures include data sharing and enhanced co-operation between tax authorities and online marketplaces.
"These new measures provide governments with the tools needed to ensure that online platforms play their part in the collection of VAT/GST. They will also level the playing field for those on our high streets and in our malls, who have had to compete against online competitors enjoying a tax advantage" said David Bradbury, the Head of Tax Policy at the OECD.
The importance of these measures is underlined by OECD analysis, which shows that two-thirds of all cross-border e-commerce sales of goods are made via online marketplaces. Enlisting these online marketplaces to ensure that VAT/GST is paid by making them liable and through data sharing, will allow tax authorities to focus their compliance efforts on the relatively small number of marketplaces rather than on the millions of small traders operating through them.
UK - lift-off for MTD
Circling back to the UK, HMRC's Making Tax Digital (MTD) program became law on 1 April 2019. Under the program, VAT registered businesses with taxable turnover above the VAT registration threshold - currently £85,000 - are required to keep digital records and submit VAT Returns to HMRC using functional compatible software for VAT periods beginning on or after 1 April.
HMRC notes that businesses will require time to become familiar with the new requirements. As such, during the first year, HMRC will take a light touch approach to penalties, by not issuing them over filing or record-keeping where businesses are doing their best to comply with MTD.
This link on the UK government website provides further guidance.
Key takeaways for business
Tax compliance is among one of the biggest challenges for international businesses, and failing to adhere to ever-changing local rules poses a notable threat.
The changes to China's VAT rates means businesses will need to plan for adjustments to their ERP systems whilst implementing other changes to remain VAT compliant.
If you are a business that supplies electronic services to South African companies or consumers, you could be subject to VAT registration and local VAT filing requirements.
Meanwhile, if you are a business in Italy and have made any VAT errors you have an opportunity to benefit from an amnesty, and we have now reached the point where most VAT-registered UK businesses must engage with Making Tax Digital.
TMF Group's VAT services team and in-country tax experts can provide you with support in understanding the changing rules, and what they mean for your enterprise.
Contact us today to find out how we can help.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.