Grant Thornton VAT Club: Global VAT/GST Update June 2017

Slides from the high level Global VAT/GST update delivered by Grant Thornton's International Indirect Tax team at the London VAT Club event on Wednesday 21st June 2017. This includes:

GCC VAT update – UAE and Saudi Arabia
Brazil – PIS/COFINS tax base to exclude ICMS
EU – ECOFIN reject General Reverse Charge
Poland - Proposed extension to SAF-T
Australia - Netflix Tax and Low Value Imports
China - VAT rate simplification
Taiwan - Digital services
India - GST Implementation
Italy – VAT rate changes, split payment mechanism …
France – Anti-Fraud VAT software requirements
Switzerland – Non-resident threshold reduced
Spain – SII reporting
Cyprus – Electronic submission of VAT returns
Argentina - Proposal to reduce VAT rates and modifications to turnover tax
Bahamas – Transparency in the administration of VAT collection proposed

1. © 2017 Grant Thornton UK LLP. All rights reserved.
International Indirect Tax
Global VAT/GST Update
June 2017

2. © 2017 Grant Thornton UK LLP. All rights reserved.
Presenters
Mark Hampson
Associate Director
For Grant Thornton UK LLP
[email protected]
[phone]
Alex Baulf
Associate Director
For Grant Thornton UK LLP
[email protected]
[phone]

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Agenda
1.GCC VAT update –UAE and Saudi Arabia
2.Brazil –PIS/COFINS tax base to exclude ICMS
3.EU –ECOFIN reject General Reverse Charge
4.Poland -Proposed extension to SAF-T
5.Australia -Netflix Tax and Low Value Imports
6.China -VAT rate simplification
7.Taiwan -Digital services
8.India -GST Implementation
9.Italy –VAT rate changes, split payment mechanism …
10.France –Anti-Fraud VAT software requirements
11.Switzerland –Non-resident threshold reduced
12.Spain –SII reporting
13.Cyprus –Electronic submission of VAT returns
14.Argentina -Proposal to reduce VAT rates and modifications to turnover tax
15.Bahamas –Transparency in the administration of VAT collection proposed

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GCC
Which countries affected
•Saudi Arabia
•UAE –including Dubai and Abu Dhabi
•Bahrain
•Oman;
•Kuwait
•Qatar

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GCC
Where are we
•GCC member states have all signed the VAT framework
agreement
•Framework agreement sets out in broad terms how the VAT
system will operate
•Only Saudi Arabia and UAE certain to implement from 1 January
2018
•Other countries probably 1 January 2019
•Qatar –before the recent dispute was anticipated to be 1
January 2018

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EU

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Saudi Arabia
Where are we
•Most advanced
•Published Framework Agreement
•Draft VAT law published May 2017
•Law still leaves many issues uncertain
•Implementing regulations to follow –September / October

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Saudi Arabia
Transitional Rules
•Tax will be introduced from 1 January 2018
•Tax may be imposed on a supply made after that date where an
invoice was issued or consideration received prior to that date
•Regulations will set out conditions where tax may be relieved
from supplies taking place after 1 January 2018 where contracts
for those supplies were in place prior to the issue of the VAT law
•Regulations shall specify transitional rules for transactions with
other GCC countries that have not introduced VAT at the time of
the transaction

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Saudi Arabia
Liability of Supplies
Standard rated supplies
•Most supplies of goods and services will be standard rate of 5% unless
specifically listed in the legislation
•Details of supplies to be zero-rated, and associated conditions will be
published in Regulations
Zero-rate supplies
The framework agreement however provides for that the following shall be
zero-rated:
•Export of goods
•International services supplied to persons not resident in GCC (subject
to conditions to be published in Regulations)
•Certain medicines and medical supplies –details to be released
•International transport of passengers and goods

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Saudi Arabia
Liability of Supplies
Exemption
•The Regulations will details supplies (including conditions) which
will be exempt
•The Framework Agreement states that Financial Services as
defined by each Member State shall be exempt
•Member States may however exempt the following:
•Education
•Health
•Real estate
•Local transport

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Saudi Arabia
Supplies
Outside scope
•Supplies of goods and services provided by a business to itself are
outside scope of VAT. This should include supplies between a branch and
its head office
•However Nominal supplies (to be defined by Regulations) will be excluded
from this general rule
Supplies -Agents
•An agent acting on behalf of someone else will be deemed to have
received and supplied the goods or services
Adjustments to Valuation
•Market value can be substituted where:
•Supply is at under value and
•Between related parties and
•Where the recipient cannot recover VAT charged in full

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Saudi Arabia
When is tax payable
Time of supply –when is tax payable
Goods
Earlier of:
•Invoice issued or
•Payment received or
•Date goods are made available to customer/ distributor or
•Date of despatch or delivery begins (if supplier responsible for
delivery).
Regulations may provide additional time of supply provisions

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Saudi Arabia
When is tax payable
Services
•Earlier of invoice issued or payment received or completion of
service
•Services provided continuously have a different tax point. The tax
point for these contracts are the earlier of:
•Payment or
•The due date of payment of the invoice.
•Services supplied on a continuous basis will require invoicing at
least annually. Tax cannot be deferred indefinitely

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Saudi Arabia
Imports
When is tax payable
•Date of Customs declaration
•If there is no declaration the date goods are physically imported
•If held in a duty suspension regime –the date that they are
released
•It is possible that Regulations will provide for tax to be declared on
the importers VAT returns rather than collected separately by the
Customs authorities
Value
•Value for Customs purposes plus any Customs or Excise Duty
payable
•Additional Regulations may be introduced

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Saudi Arabia
Place of supply
Place of supply –Taxable if take place in KSA
•The KSA for VAT purposes is the territory of the Kingdom, its
territorial waters under the rights it holds pursuant to the United
Nations Convention on the Law of the sea, the air space under its
control and its rights in the zone divided with Kuwait

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Saudi Arabia
Place of supply
Goods -General rule:
•Where the goods are placed at the disposal of the customer
(supplier not responsible for transport)
•Where the supplier provides transport where the journey begins.
•Goods delivered from KSA to a business in another GCC country,
the place of supply is where the journey ends. Proof that the
goods have been transported cross border is required, otherwise
the supply is taxable in KSA
•Goods imported into KSA from overseas are taxable in KSA

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Saudi Arabia
How to determine supply of goods
Startlocation Endlocation Placeof supply GST treatment
KSA KSA KSA Standard/ zero rate
KSA GCCcountry
(Business
customer)
GCC countryOut of scope
KSA Overseas KSA Zero-rate
Overseas Overseas Overseas Out of scope
Overseas KSA
-Import of goods
Overseas Standard or zero rate
-VAT payable on
goods cleared from
Customs control
GCCcountryKSA –Business
customer
KSA Standard / Zero rate

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Saudi Arabia
Place of supply -services
How to determine place of supply of services?
•Services are made in KSA if the supplier is resident
•The supplier is resident in KSA if:
•He has a place of business or
•Other fixed establishment
•If the business has more than one fixed establishment the
service is supplied from the one which is most closely connected
to it
•Further Regulations may be introduced to define when a
business is resident in KSA

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Saudi Arabia
Place of supply -services
Exceptions
•If the service is supplied to a taxable person the place of supply
will shift to where the customer is resident
•Real Estate transactions are supplied where the land is located
•Restaurant, educational and cultural services –where they take
place

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Services
UK Co.
Local
distributor
KSA rep
office (UK
Co)
Goods –
imported by
Distributor.
Goods
Customer
Services
expense
(taxable?)

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Saudi Arabia
Credit Notes
•Output tax declared on a supply can in certain circumstances be
reduced by the issue of a credit note. Detailed requirements will
be published in Regulations
Circumstances include:
•A supply is cancelled
•Material change or alteration to the nature of the supply
•Consideration is altered
•Goods or services are returned

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Saudi Arabia
Bad Debt Relief
•Regulations will be introduced allowing, subject to conditions
output tax to be recovered where consideration for a supply
remains unpaid
•Similarly Regulations will be introduced which requires an
adjustment of input tax recovered where debts remain unpaid

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Saudi Arabia
Recovery of VAT
•Taxable person is entitled to claim VAT incurred on goods and
services used in their economic activity and intended for making
taxable supplies
•Taxable supplies include:
•Zero-rated supplies
•Internal supplies
•Supplies that would have been taxable if made in KSA
•Input tax will not be recoverable in connection with non-taxable
supplies Regulations will detail partial exemption method

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Saudi Arabia
Recovery of VAT
•Regulations may introduce a special regime for accounting for input
tax recovery in respect of capital assets (capital goods scheme)
•Businesses may be required to repay tax recovered on imported
goods which are subsequently transferred to another GCC country,
and where KSA authorities transfer the tax paid
•Businesses will be required to repay input tax recovered on unpaid
debts. Details will be included in Regulations
•Regulations may provide that input tax on certain goods and
services can never be recovered and will be blocked

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Saudi Arabia
VAT recovery
Evidence
•Business must hold a valid VAT invoice from the supplier
•Regulations may be introduced setting out acceptable alternative
evidence

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Saudi Arabia
Registration
Compulsory registration
•A business carrying on an economic activity making supplies of
goods and or services in KSA
•The compulsory registration threshold is SAR 375,000
Voluntary registration
•A person may voluntarily register provided meets conditions to be
laid out in Regulations
•A taxable person is a person that performs an economic activity
irrespective of the place where the Economic Activity is carried out

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Saudi Arabia
Registration
Group registration
•Group registrations will be allowed. Details will be included in
Regulations
•Eligible members -Legal persons resident in KSA that carry on an
economic activity and have close financial or economic links
•Shall be treated as a single taxable person
•Joint and several liability of members for VAT debts and
obligations
•Only supplies of goods between members are disregarded

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Saudi Arabia
Returns
Tax payable
•Tax payable is output tax due in the return period after deduction
of input tax allowed
•VAT can be recovered on imported goods transferred from
another GCC country provided the tax collected by the Member
State of import has been transferred to KSA Authorities
•If input tax is not recovered in the relevant period it may be
recovered on a later Tax return in accordance with provisions to
be stated in Regulations
•Cash accounting regulations maybe introduced

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Saudi Arabia
Returns
•Regulations will provide details of return periods. Businesses will
have opportunity to vary allocated return periods. Maximum length
will be 3 months
•Submission dates will be set out in Regulations
•Regulations will set out process for dealing with and disclosing
errors
•Regulations will set out when tax is due to be paid on returns and
assessments
•A refund can be claimed if input tax on a return exceeds output
tax. There will be Regulations which will set out the circumstances
when a refund will be paid. There may be some provisions where
tax not refunded is carried forward to later periods (Article 47(3))

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Saudi Arabia
Assessments
•Time limits for raising assessments and amending VAT returns will
be published in Regulations

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Saudi Arabia
Refunds
Designated Persons
•The Tax Authority may allow entities not carrying on economic
activities to claim a refund of tax incurred in KSA
•Regulations will define “designated” persons
Overseas Businesses
•Regulations may allow businesses registered for VAT or other
similar tax outside the GCC to claim a refund of tax incurred in
KSA. Provided the costs are used in their economic activity
•A third party organisation may be used to process these refund
applications. This entity will be able to deduct a commission from
the refund

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Saudi Arabia
Invoices
Invoicing requirements
•Regulations may set out when invoices have to be issued
•Regulations will also set out the required format and content as
well as:
•Format of credit and debit notes
•Electronic invoicing details
•Self –billing requirements
•Issuing invoices on behalf of third parties
•When simplified invoices will be permitted

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Saudi Arabia
Records
Document retention
The following documents are required to be kept:
•Sales invoice
•Credit notes and debit notes
•Vendor invoices and credit notes
•Import documents
•Customs export documentation
•Records and accounting documents relating to taxable activities
Regulations will set out how long documents and records should be
retained

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Saudi Arabia
Powers
•If the Tax Authority have reasonable concerns that tax will not be
paid they can confiscate goods and sell them or secure the debt
with a charge over assets
•Any person wilfully involved in violating of the businesses VAT
obligations will be jointly liable for the tax lost
•If input tax is not recovered in the relevant period it may be
recovered on a later Tax return in accordance with provisions to
be stated in Regulations
•Cash accounting regulations maybe introduced

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Saudi Arabia
Powers
Anti–avoidance
•Transactions aimed at breaching provisions of the VAT law can
be disregarded
•Tax Authority can raise an assessment to collect under declared
tax
Appeals
•Regulations will outline the circumstances of when and if an
appeal can be made against an assessment or decision by the
Tax Authority
•Appeals will be heard initially by a first instance committee. There
will be a body set up to here Higher Appeals
•The Minister may establish a mediation mechanism as an
alternative to an appeal to the first instance committee

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Saudi Arabia
Penalties
Late registration SAR10,000
Late payment SAR 1,000 plus
•5% if within 30 days of due date
•10% after 30 days but not exceeding 90 days
•20% after 90 daysbut not exceeding 365 days
•25% exceeding 365 days
Incorrect return/ information,
understating tax payable/ Overstated refund
claim
50% of tax at stake however Regulations will detail
circumstances where the Tax Authority will reduce or
suspend the penalty
General penalty egfailure to file a return,
unauthorized issue of invoices, provision of
incorrect TIN, failure to provide information,
to maintain books and records and
requirements to issue invoices.
In respect of eachfailure the higher of:
•SAR 1,000 and
•2% of average monthly taxable supplies provided the
penalty does not exceed SAR 20,000.
Evasion or makingfalse statements
Deliberate offences
200% of tax
•An additional fine of SAR 1,000,000 or imprisonment
–2 years

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EU

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UAE
Where are we
•No legislation published so far
•Ministry of Finance holding a series of workshops and seminars
for businesses and advisers
•Draft VAT law expected July 2017
•Implementing regulations to follow –July / August
•Effective 1 January 2018

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UAE
Where are we
•Quarterly returns
•Emirates level reporting -7 emirates e.g. Dubai and Abu Dhabi
•Rep offices may be able to register for VAT and recover tax
•Supplies between a branch and head office are outside scope
•Contracts silent on VAT –consideration will be inclusive unless
client can recover tax
•Food will be taxable

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EU

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Possible changes
Brazil
•For PIS/COFINS, the tax base has historically included the
ICMS (the state VAT generally levied on imports and
sales/transfers of goods etc.) charged.
•In March 2017, the Supreme Court of Justice ruled in favorof
excluding the ICMS from the basis of PIS and COFINS.
•Expecting a final report and legislation but decision should set
precedent.

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Possible changes
Brazil
•Opportunity for Brazilian taxpayers to reduce their
PIS/COFINS payments going forward, by excluding the ICMS
portion from the tax base
•Possible opportunity to improve cash flow by offsetting
federal tax liabilities with PIS/COFINS credits if taxpayers are
able to claim back the amounts overpaid in the past five years
in the form of tax credits

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EU

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European Union
ECOFIN fail to agree on GRC
•EU Finance Ministers (ECOFIN) failed to agree on the
implementation of the voluntary General Reverse Charge (GRC)
to fight VAT fraudon 16 June.
•The GRC was promoted by Czech Republic and other central
European member states
•Proposal was for any member state to opt to apply the reverse
charge on all B2B transactions to makes the buyer responsible for
reporting both the sales and the purchase VAT with no cash
payment.Aim to eliminate the opportunity for MTIC Fraud

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European Union
ECOFIN fail to agree on e-publications
•ECOFINalso failed to agree on the proposal to allow member
states to allow the reduced rate to apply to e-publications.
•CZ indicated they could not support the proposal and therefore
necessary unanimity not achieved.

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EU

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Poland
Proposed extension to SAF-T
•Poland has proposed extending its SAF-T reporting obligations to
include daily bank transactions with effect 1 September 2017.
•The obligation to prepare and submit the submissionswould fall on
banks –not the taxpayer. However, non-resident Polish VAT
registered businesses would have to prepare and submit the SAF-T
submission themselves if they are not using a Polish bank account.
•Proposal would include details of all payments, including bank
account numbers, name and tax ID of both parties, date and time of
payment, amounts and any currency conversion and bank account
balance post transaction.

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EU

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Australia
The Netflix Tax
•The second phase of significant Australian GST changes is
commonly known as the “Netflix Tax”.
•These changes are concerned with the supply of digital products
and other services from non-resident suppliers to consumers in
Australia. The Netflix Tax changes are due to take effect from 1
July 2017.
•Non-resident suppliers will have the option to opt for a simplified
GST registration or appoint an Electronic Distribution Platform
(EDP), such as Amazon or iTunes to collect and remit GST on the
individual supplier’s behalf.

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Australia
Removal of Low Value Threshold
•POSTPONED! The Low Value Threshold applies to the
importation of goods into Australia removed the requirement for
non-resident suppliers to register and account for GST on goods
with a value of less than $1,000. The $1,000 threshold was
generous and considered exceptionally high by international
standards.
•The low value threshold was to be removed with effect 1 July
2017. From this date, non-resident suppliers were be required to
account for GST on the importation of “low value goods”.
•The proposed model for collection had massive backlash from the
likes of Amazon and Alibaba so the Senate has sent the policy
design team back to have a good think about alternate options.

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Australia
Vendor collection model for low
value imports passed
But….
•On 21 June, Australian Parliament (House of Representatives) has
adopted the Bill and agreed to Senate amendments
•Requirement for overseas suppliers and online marketplaces with
an Australian GST turnover of $75,000 + to account for GST on
sales to Australian consumers from 1 July, 2018.

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EU

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China
VAT rate simplification
•New preferential tax policies with effect 1 July 2017:
•Simplify and unify the current four brackets of VAT rates (i.e.,
17%, 13%, 11% and 6%) into three brackets (i.e., 17%, 11% and
6%)
•Agricultural products and natural gas which are currently subject
to VAT at 13% shall change to 11%

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EU

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Taiwan
Digital services
•Effective 1 May 2017, foreign e-commerce operators without a
fixed place of business in Taiwan but who provide services to
individuals in Taiwan via the internet must register for VAT if their
annual Taiwan sales exceed TWD 480,000
•Approx. USD 15,500

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EU

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India
GST Implementation –confirmed
•All States in agreement to rollout GST from 1 July 2017 -15th
GST Council meeting
•Speculation on delaying the GST roll out date has come to an end.
•Following Rules and formats are cleared by the GST Council:
•Transition Rules
•Returns and Formats
•GST Council has agreed to set up a committee, comprising
officers from both Central and State Governments, to look into
complaints regarding anti-profiteering clause, that prevents
registered persons from making undue profit in GST regime.

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India
List of Returns

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India
GST rates
•GST Rates on several commodities have been fixed
•GST Council has provided outright exemption to imports under
various export promotion schemes (including SEZ) from Integrated
GST
•GST Council has reduced the tax rate in 66 out of 133 items on
which representations were made by industries

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India
Still ambiguity
•E-way bill discussions are deferred to the June 18 meeting
•Anti-profiteering rules are now likely to be released post-July 1
•Going down to the wire for clarity and rules
•Could GST be delayed until September ????

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EU

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Italy
New strategy to combat fraud/evasion
OECD Report
IMF Report
EU CommissionReport
ItalianTaxPolice Report on VAT Gap
A NEW STRATEGY TO
COMBACT FRAUD AND VAT
EVASION

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Italy
VAT rate changes

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Italy
New VAT reporting obligations
•Quarterly Communication of data of invoices, credit notes and
Customs bills
•More frequent and quicker controls on VAT payments

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Italy
Deadlines for 2017/18

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Italy
Extension of Split Payment mechanism
•“Scissionedeipagamenti” extended with effect 1 July 2017
•Customer makes payment direct to Italian Tax Authority not
supplier

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EU

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France
Anti-fraud software requirements
•France has introduced anti-VAT fraud software requirements to
take effect January 2018.
•This includes using certified, secure software for recording all
customer payments –including cash registers.
•FR VAT registered businesses selling B2B and B2C will need to
track cash, cheque, credit and transfer payments.The
requirements apply to bought-in software and in-house developed
platforms.
•Certification can be provided by any accredited software house,
including a bespoke certificate from the provider certifying
compliance with the French tax authorities’ data security and
retention obligations.

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France
Anti-fraud software requirements
•Certificate should confirm the requirements of the French tax
authority.
•Failure to comply with the rules could result in penalties of up to
€7,500 per software or cash register unit.
•This will present the largest financial risks to major retailers or
groups of companies using the same software platforms.
•Basic software requirements include:
•Tax authorities must be able to access individual transaction data
•Data must be stored online or in a method approved by the tax authorities
•Integrity of the data must be clearly demonstrated and applied
•Cash registers should provide daily and monthly closes
•Accounting software should have at least annual closes

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EU

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Switzerland
Extension of Split Payment mechanism
•With effect 1 January 2018 –non-established businesses will
have to register for Swiss VAT if they make supplies in
Switzerland not soley subject to the reverse chargesupplies
e.g. goods and certain supplies of services
•... unless it can prove that its worldwide revenue is less than
CHF 100,000 (approx. EUR 91’000)
•Current threshold just relates to Swiss taxable supplies

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EU

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Spain
SuministroInmediatode Información
•On December 2
nd
, 2016 the Royal Decree 596/2016 was
approved and the new SuministroInmediatode Información
(“SII”) will enter into force on 1
st
July 1
st
, 2017.
•This is a move towards near real-time VAT reporting and will
impact businesses VAT registered in Spain.
•The new SII will require companies to submit transactional data
including all sales and purchase invoices to AEAT (the tax
authority) in a predefined XML format, up to 4 days after the
invoice date (up to 8 days in 2017).
·

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Spain
SuministroInmediatode Información
•The SII will be mandatory for all Spanish taxpayers that file
monthly VAT returns.
•This includeslargecompanies with revenues greater than EUR
6m per annum and companies within the monthly VAT refund
regime.
•There are severe penalties for errors and late filing.
•Thedeadlineto file VAT returnsisextended to the30th of each
month(fromthecurrent20th of monthdeadline).

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Spain
SuministroInmediatode Información
•The invoices can be sent online in real time or in batches e.g.
daily (up to 10,000 invoices in each batch).
•Once the file is received by AEAT, the invoices will be validated
and a confirmation file will be sent back to taxpayer with the
status code on each invoice, indicating if it is valid and has
been accepted or contains an error.
•The Modelo303 VAT return must continue be submitted on a
monthly basis, but the totals must match the individual invoices
sent to the tax authorities via SII.

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Spain
SuministroInmediatode Información
•Once the SII file is received by AEAT, the invoices are validated
and a confirmation file is sent back to taxpayer with the status
code on each invoice, indicating if it is valid or contains an error.
•The taxpayer can send corrections to the tax authorities.
•Throughout the year, the taxpayer can view all invoices sent in
AEAT’s system.

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EU

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Cyprus
Electronic submission of VAT returns
•Pursuant to the amendment of Regulation 17, of the VAT
Regulations (Κ.Δ.Π 367/2016), all taxable persons from 2
May 2017 will have an obligation to submit their VAT
return (Form VAT4) electronically.
•The VAT returns (Form VAT4), can be submitted: Up to 1
May 2017 either in printed format or electronically From 2
May 2017 ONLY electronically through the TAXISnet
system
•VAT returns in printed format will not be accepted from 2
May 2017. Need to register for the TAXISnet

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Possible changes
Argentina
•The Government is sending a tax
reform proposal to Congress. The
proposal includes reduction of the
VAT rates and modifications to the
turnover tax.
•The plan is for the legislation to be
passed this year and to enter force in
2018.

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Possible changes
Bahamas
•The Government has stated that they
are planning a “Financial Restoration”.
•The goal of the restoration is to have
more transparency in the
administration of VAT collection.
•In addition, the VAT rate on certain
“basket items” may be reduced.

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brand under which the Grant Thornton member firms provide assurance, tax and
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