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Recent developments in the field of VAT: a view from the European Commission


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This workshop has been held at Legal Business Day on 8 September 2011.
This presentation takes you through the future of VAT from an EU perspective, giving detailed background information on the future VAT reforms and insight into what can be expected in the future VAT framework in Europe. Special attention is paid to the practical implications of the new European Council Regulation clarifying the existing VAT rules.
During this workshop DLA Piper specialists shared information concerning the key decision makers in Europe and the value of early participation in the legislative process for your business. A case study was presented, which focuses on the practical issues you may face if your business were to get involved in the legislative process.

Published in: Business, Economy & Finance
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Recent developments in the field of VAT: a view from the European Commission

  1. 2. The future of VAT A view from Brussels Daan Arends Emma Greenow Deze presentatie is beschikbaar op
  2. 3. Topics <ul><li>Practical implications of latest EU VAT rules </li></ul><ul><ul><li>Current issues - case study </li></ul></ul><ul><li>Insight in legislative proces: where are we? </li></ul><ul><ul><li>New VAT rules on financial and insurance services </li></ul></ul><ul><ul><li>Future of VAT </li></ul></ul><ul><li>How can you participate? </li></ul>
  3. 4. VAT Package 2010 - New place of supply of services <ul><li>New general rule place of supply of cross-border B2B services as of 2010 </li></ul><ul><ul><li>Place where the customer is established (subject to certain exceptions) </li></ul></ul><ul><li>EU Council Regulation No 282/2011 applies from July, 1, 2011 </li></ul><ul><li>Key concepts of new POS rules: </li></ul><ul><ul><li>VAT status of customer </li></ul></ul><ul><ul><li>Supplier and customer location </li></ul></ul><ul><ul><li>Who is liable for VAT </li></ul></ul><ul><li>New rules coming up in 2013 and 2015 </li></ul>
  4. 5. VAT status of customer: B2B or B2C? <ul><li>&quot;B2B&quot; - Business to Business </li></ul><ul><ul><li>Customer = “taxable person” </li></ul></ul><ul><ul><li>Includes businesses performing taxable and non-taxable activities (eg local governments, &quot;active&quot; holding & financing companies) </li></ul></ul><ul><ul><li>Includes businesses trading below registration threshold </li></ul></ul><ul><ul><li>Includes wholly non-taxable legal person &quot;identified&quot; for VAT in its jurisdiction </li></ul></ul><ul><ul><li>VAT planning opportunities! </li></ul></ul>
  5. 6. B2C vs B2B: VAT planning Supplier Holding Supplier Holding plus 19% NL VAT NL LUX 15% LUX VAT
  6. 7. New EU Council Regulation - Place of business of a taxable person <ul><li>May differ from the place from which the activities are carried out! </li></ul><ul><li>Factors to be taken into account </li></ul><ul><li>Mere presence of postal address may not be taken into account unless it meets the criteria </li></ul><ul><ul><li>-> see Planzer Luxembourg </li></ul></ul><ul><li>Concept of &quot;fixed establishment&quot; for VAT now in Regulation </li></ul><ul><li>Supplier location: the &quot;intervening&quot; fixed establishment </li></ul>
  7. 8. New EU Council Regulation - customer location <ul><li>Customer location: </li></ul><ul><ul><li>Where the customer is established in more than one place, the services are - as a general rule - taxable in the place where the customer has established his business. </li></ul></ul><ul><ul><li>If provided to a fixed establishment -> taxable at that place. </li></ul></ul><ul><li>EU VAT Committee </li></ul><ul><ul><li>Customer is responsible for determining at which location service is received! </li></ul></ul><ul><ul><li>List of factors to be taken into account </li></ul></ul>
  8. 9. Case study GER Supplier GER Customer Global Contract Which establishment is providing the service? Does the local fixed establishment intervene? Reverse charge mechanism applicable? CS FE SU FE
  9. 10. Dutch Guidelines <ul><li>Example 1 </li></ul><ul><li>A software provider contracts with a branch of a multi-national business customer with branches in various jurisdictions for licensing services, and such branch “distributes” the licensing services to other branches of the customer. </li></ul><ul><li>Example 2 </li></ul><ul><li>A Dutch business customer engages with a German branch office of a multi-national consultancy firm with branch offices throughout the world for the performance of consultancy services. In rendering the services the German branch office involves employees from its Dutch branch. </li></ul>
  10. 11. &quot;Use and enjoyment&quot; override <ul><li>Criterion of &quot;effective use and enjoyment&quot; </li></ul><ul><li>Changes place of supply to where service is used and enjoyed (consumption principle) </li></ul><ul><li>ECoJ case law -> Athesia Druck Srl . </li></ul><ul><li>Inbound- and outbound EU </li></ul><ul><li>Overrides fallback rule for B2B and B2C </li></ul><ul><li>Various EU jurisdiction's have implemented EU&E rules which may lead to potential conflicts and double taxation </li></ul>
  11. 12. Effective use & enjoyment override Supplier US co 23% Greek VAT No VAT transfer of IP
  12. 13. Modernisation of VAT on insurance and financial services - update <ul><li>2007: Proposal for Directive and implementing Council Regulation </li></ul><ul><li>Objectives: </li></ul><ul><ul><li>Increase legal certainty and reduce administrative burdens </li></ul></ul><ul><ul><li>Consistent application throughout the EU </li></ul></ul><ul><ul><li>Allow businesses to manage better the impact of non-deductible VAT on their activities </li></ul></ul><ul><li>Measures: </li></ul><ul><ul><li>Redefining existing VAT exemptions -> Council Regulation </li></ul></ul><ul><ul><li>Introduction option to tax </li></ul></ul><ul><ul><li>Introduction industry specific exemption on (cross-border) cost sharing arrangements </li></ul></ul>
  13. 14. <ul><li>Compromise text Directive 13 May 2011: </li></ul><ul><li>Insurance and reinsurance -> &quot;transfer of insurance and reinsurance contracts &quot; -> SwissRe </li></ul><ul><li>New definition : processing of (re)insurance claims in Directive -> Skandia </li></ul><ul><li>-> &quot;means a bundle of services necessary for making a decision on (re)insurance claims&quot; </li></ul>Modernisation of VAT on insurance and financial services - update
  14. 15. <ul><li>See also new compromise text of Council Regulation May 13, 2011 </li></ul><ul><li>N ew definition of processing of insurance and reinsurance claims shall cover at least: </li></ul><ul><ul><li>(a) receipt and handling of insurance or reinsurance claims; </li></ul></ul><ul><ul><li>(b) accepting and rejecting claims and making any necessary policy or premium adjustments. </li></ul></ul><ul><li>However, processing of insurance and reinsurance claims shall not, in particular, cover the following: </li></ul><ul><ul><li>(a) claims settlement; </li></ul></ul><ul><ul><li>(b) damage assessment. </li></ul></ul>Modernisation of VAT on insurance and financial services - update
  15. 16. <ul><li>Compromise text Council Regulation May 13, 2011 </li></ul><ul><li>financial transfers - included is: &quot;(d) the execution of transfers of monies into other money media allowing temporary storage of the value of these monies and subsequent payment for goods and services, such as smart card based electronic purse systems , telephone cards, and credits for mobile phones:&quot; </li></ul><ul><li>Excluded is: &quot;(b) the electronic transport of messages between&quot; financial service providers while ensuring their integrity and security.&quot; </li></ul><ul><li>Nordea Pankki Suomi Oyj, C-350/10, July 28, 2011: </li></ul><ul><li>&quot;SWIFT’s responsibility is limited to technical aspects and does not extend to specific, essential elements of the financial transactions&quot; </li></ul>Modernisation of VAT on insurance and financial services - update
  16. 17. <ul><li>Hungarian Presidency identified four major outstanding issues: </li></ul><ul><li>1) transfer of insurance and reinsurance contract portfolios; </li></ul><ul><li>2) outsourcing; </li></ul><ul><li>3) management of investment funds; </li></ul><ul><li>4) derivatives. </li></ul>Modernisation of VAT on insurance and financial services - update
  17. 18. A VAT View from Brussels <ul><li>Shift of focus in Brussels </li></ul><ul><li>Following the financial crisis - generating revenues </li></ul><ul><li>A global and EU approach </li></ul><ul><li>Modernisation of system </li></ul><ul><li>Lisbon Treaty - shift of institutional power </li></ul><ul><li>Enhanced powers for the Commission </li></ul>
  18. 19. Measures to generate revenue Financial Transaction Tax At the Paris summit today Chancellor Angela Merkel and President Nicolas Sarkozy said they planned to introduce the tax as part of their response to the sovereign debt crisis. Mr Sarkozy said: &quot;The French and German ministers will table a joint proposal at the EU level next September for a tax on financial transactions. This is a priority for us.&quot; Telegraph, 17/8/11
  19. 20. Sticking points Its been a difficult few months for the European Commission
  20. 21. Ongoing work to be finalised <ul><li>Proposals which still need completion: </li></ul><ul><li>VAT Package implementation - 1 January 2011 </li></ul><ul><li>VAT Refund Directive - 1 January 2010 </li></ul><ul><li>VAT Financial Services and Insurance - ongoing </li></ul><ul><li>Forthcoming proposals including: </li></ul><ul><li>VAT treatment of vouchers </li></ul>
  21. 22. The future of VAT <ul><li>European Commission want to change VAT in Europe </li></ul><ul><li>Fundamental reassessment in 2011 </li></ul><ul><li>New economic realities, technological processes, fraud patterns etc - lead to new challenges in Europe </li></ul><ul><li>Issues in recent legislation - limited European Commission power to intervene without more legislation in implementation </li></ul><ul><li>Recent consultations are inconclusive of action - level of standard rates in VAT and CCCTB </li></ul><ul><li>Often resistance by national governments on VAT - emotive issue to find agreement upon </li></ul>
  22. 23. Green Paper <ul><li>Green Paper looking at the Future of VAT launched on 1 December 2010 </li></ul><ul><li>Green Paper designed to gather stakeholder information by asking 32 questions about the whole of VAT in Europe including: </li></ul><ul><ul><li>Scope of VAT - including derogations, exemptions and definitions; </li></ul></ul><ul><ul><li>System of deductions reform; </li></ul></ul><ul><ul><li>VAT accounting; and </li></ul></ul><ul><ul><li>Protection from fraud. </li></ul></ul><ul><li>System replaced by an origin based system (country of seller) </li></ul>
  23. 24. Green Paper <ul><li>New, modern system of VAT collection; </li></ul><ul><li>Further harmonisation; </li></ul><ul><li>Increasing the power of the European Commission; </li></ul><ul><li>European Parliament are currently considering their response to the Green Paper; </li></ul><ul><li>Following Green Paper feedback Commission will draft a number of proposals. </li></ul>
  24. 25. Feedback from Green Paper <ul><li>Greater simplification, certainty and fairness; </li></ul><ul><li>Exemptions, derogations and exceptions; </li></ul><ul><li>Implementation of tax law; </li></ul><ul><li>More transparency; </li></ul><ul><li>Tax fraud prevention; </li></ul><ul><li>Hybrid system. </li></ul>
  25. 26. Input into process <ul><li>Green Paper is still the initial stage </li></ul><ul><li>European Commission seeking input from business and other stakeholders </li></ul><ul><li>Process of analysis of feedback to determine what is placed within the proposals </li></ul><ul><li>Now is the time if you have concerns to become involved - once the text is drafted it may be too late to radically change! </li></ul>
  26. 27. Case Study <ul><li>How do we work </li></ul><ul><li>Understand the issue of our client </li></ul><ul><li>Develop a strategy for engagement at EU level </li></ul><ul><li>Draft and develop key messages </li></ul><ul><li>Organise contact with key stakeholders </li></ul><ul><li>Assist with drafting legislative amendments </li></ul><ul><li>Conduct follow up and understand the needs of the stakeholder </li></ul><ul><li>Involve the media </li></ul><ul><li>National involvement </li></ul>
  27. 28. Case study <ul><li>Client expressed concern relating to the implementation of EU law </li></ul><ul><li>Formed an informal coalition of other companies </li></ul><ul><li>Developed helpful, business based information for EC </li></ul><ul><li>Conducted stakeholder meetings </li></ul><ul><li>Carried out continuous follow up </li></ul><ul><li>Positioned the client as a 'business representative' </li></ul><ul><li>Worked with the institutions to find a solution </li></ul><ul><li>Positive outcomes </li></ul>
  28. 29. Contact Daan Arends Emma Greenow E: T: 020 5419 315 E: T: + 32 2 500 1623
  29. 30. Twitter mee over Legal Business Day: #LBD11 #dlapiper