InTouch Australia Malaysia

Asia Pacific VAT/GST Alert
InTouch
with indirect tax news
Issue 01/14
Australia
• GST Reform Measures – Government
Announcements
• GST rulings
• GST Cases Update – Cross-border supplies
for tour operators
China
• Expanded guidance on applying the VAT
refund (exempt) method to zero-rated
services
• Guidance on applying the VAT refund
(exempt) method to retail export of goods
via cross-border electronic commerce
India
•
•
•
•
Notifications/Circulars for VAT
VAT case laws
Notifications/Circulars for Service Tax
Service Tax case law
Japan
• Planned new taxation on electronically
supplied services from offshore
Malaysia
• Key changes to the 2014 Goods and
Services Tax bill
New Zealand
• Amendments to the Customs and Excise
Act 1996
• Australian GST case on incentive payments
– potential impact in New Zealand
Welcome to issue 01/14 of InTouch*
which covers developments in VAT/ GST
in Asia Pacific during the period January
2014 to March 2014.
Please feel free to reach out to any of the
PwC contacts on the back of this issue.
Philippines
Taiwan
Singapore
Vietnam
• Executive order on the VAT Tax Credit
Certificates Monetisation Program
• GST changes for the fund management
industry
South Korea
• Tax invoice requirements for the supply
of raw materials overseas to a local
entrepreneur
• VAT treatment of overseas construction
projects
• Changes in conditions to apply 0% VAT on
exported services
• Cash support given to distributors is
subject to 10% VAT
• Requirement to notify bank account
details to the tax authorities
• VAT declaration for trading activities of
Export Processing Enterprise (“EPE”)
Australia
GST Reform Measures – Government
Announcements
On 27 March 2014, the Tax Laws Amendment
(2014 Measures No 1) Bill 2014 was
introduced into the House of Representatives.
Schedule 2 to the Bill contains the proposed
changes to the GST refund rules which
were originally announced by the previous
government on 17 August 2012. The key
measures include the following:
• The new proposed Division 142 in the
A New Tax System (Goods and Services
Tax) Act 1999 provides that, subject to
exceptions, where an assessed net amount
takes into account an amount of GST
exceeding that which is payable, then the
excess (after adjustments and corrections)
that has been passed on to another entity
is taken to have always been payable on a
taxable supply (and as a consequence, not
refundable) until the taxpayer reimburses
the other entity for the “passed on” GST.
• The Bill also contains measures to
restore review rights under Part IVC
of the TAA, addressing the decision of
the Administrative Appeals Tribunal
in Naidoo v Commissioner of Taxation
[2013] AATA 443 that a decision made
by the Commissioner under s105-65 was
not part of the assessment process, and
therefore not reviewable under Part IVC.
• The amendments will apply in relation to
working out net amounts for tax periods
starting on or after the day following Royal
Assent.
GST Rulings
• GSTD 2014/1: This ruling sets out the
Commissioner’s view that he can make a
private ruling on the way in which s10565 of the TAA applies or would apply to a
taxpayer, on the basis that s105-65 is about
the administration or collection of GST. Such
a private ruling can be about any aspect
of the operation of s105-65, including the
exercise of the Commissioner’s discretion.
The Determination also states that a taxpayer
can only object to a private ruling concerning
s105-65 in very limited circumstances.
• GSTD 2014/2: This ruling sets out the
Commissioner’s view that where real
property is acquired following the exercise of
a call option, the call option fee does not form
part of the consideration for the acquisition
for the purposes of calculating the margin for
a supply under the margin scheme.
GST Cases Update
Cross-border supplies – tour operators
In ATS Pacific Pty Ltd v Commissioner of Taxation
[2014] FCAFC 33, the Full Federal Court
unanimously dismissed the taxpayer’s appeal and
upheld the Commissioner’s cross appeal from the
decision of the primary judge in ATS Pacific Pty
Ltd v Commissioner of Taxation [2013] FCA 341.
The Court found that it was not open to the
primary judge to find or conclude that there were
two supplies, when it was not in dispute that
the Australian providers supplied the Products,
and not the taxpayer. Rather, the arranging or
packaging of the tour was but a component of
the one “critical supply”, being that ATS would
“ensure that the Products were supplied to the
tourists”. Accordingly, the Commissioner’s crossappeal was allowed, with the Court concluding
that the taxpayer made single taxable supplies to
the non-resident tour operators.
For more information, please contact:
Peter Konidaris
[email protected]
+61 3 8603 1168
China
Expanded guidance on applying the VAT
refund (exempt) method to zero-rated
services
Pursuant to the new Caishui Circular
[2013] 106 (“Circular 106”), China’s State
Administration of Taxation (“SAT”) has issued
the SAT Public Notice [2014] 11 (“Public
Notice 11”) on “The Administrative Measures
for Applying the VAT Refund (Exempt) Method
to Zero-Rated Services”. Public Notice 11
replaces the current SAT Public Notice [2013]
47 and enters into force retrospectively on
1 January 2014. Zero-rating is available
to services prescribed by the Ministry of
Finance (“MOF”) and the SAT. The services
currently prescribed include International
Transportation or Transportation to Hong
Kong/Macau/Taiwan, as well as research and
development services and design services
provided to overseas entities.
Public Notice 11 now prescribes the
administrative measures for applying
the VAT Refund (Exempt) Method to the
newly included services of railway and
space transportation, as well as to specific
arrangements of voyage charter, time charter
and wet leasing services where they qualify
for VAT zero-rating as a form of International
Transportation or Transportation to Hong
Kong/Macau/Taiwan.
Interestingly, Public Notice 11 further defines
transportation services whose airway bill, bill
of lading or passenger ticket indicates a starting
or ending point that is outside of China, to be a
form of International Transportation. Similarly,
transportation services whose airway bill, bill
of lading or passenger ticket indicates a starting
or ending point that is in Hong Kong/Macau/
Taiwan, are a form of Transportation to Hong
Kong/Macau/Taiwan.
Guidance on applying the VAT refund
(exempt) method to retail export of goods
via cross-border electronic commerce
The MOF and SAT have jointly issued the
Caishui Circular [2013] 96 (“Circular 96”) on
“Tax Policies Regarding Retail Export via CrossBorder Electronic Commerce” which takes effect
on 1 January 2014.
Circular 96 allows electronic commerce export
enterprises to apply the VAT and Consumption
Tax (“CT”) Refund (Exempt) Method to their
exports of goods, subject to certain conditions.
Those enterprises that do not meet the
conditions but are registered for tax, and possess
the Declaration of Goods for Export certified
by the Customs as well as legitimate proof of
purchase of the goods may exempt their exports
of the goods instead. The electronic commerce
export enterprises covered by this Circular refer
to both enterprises that built their own crossborder electronic commerce retail platform as
well as enterprises who make use of third party
cross-border electronic commerce platform
service providers. However, Circular 96 does not
apply to the third party service providers.
For more information, please contact:
Alan Wu
[email protected]
+86 10 6533 2889
India
Notifications/Circulars for VAT
Delhi –
• With effect from 17 January 2014, notices,
summons and orders (“documents”)
shall be issued through electronic means,
which includes pasting on the webpages
of the dealer, SMS alerts and emails at
the registered email IDs of the dealer.
The documents issued through electronic
medium shall be treated on par with the
service of documents by registered post.
• The requirement of filing audit report in
form AR-1 has been dispensed with effect
from 14 February 2014. Haryana –
• It has been clarified by the Additional
Excise and Taxation Commissioner that
additional tax in the nature of surcharge
@ 5% levied under section 7A shall be
applicable on all composition schemes
except for the lump sum scheme prescribed
for retailers.
• The Excise and Taxation Commissioner
has clarified that a works contractor opting
for composition scheme shall be liable
to pay tax @ 4% on the total valuable
consideration receivable (including the
value of land) for the execution of the
contract. Further, no input tax credit shall
be allowed on intra-state purchases to a
dealer under composition scheme.
Karnataka –
• With effect from 1 March 2014, the threshold
limit for VAT registration has been increased
from INR 0.5 Mn to INR 0.75 Mn.
VAT Case Laws
• The Allahabad High Court, in Commissioner
of Commercial Tax v SeagramIndia Pvt Ltd
(2013-NTN-Vol 53-283), held that no VAT
was leviable on the grant of permission to
use a trade mark on a non-exclusive basis.
The transaction of permitting the use of
trade mark was treated as a mere license of
trade mark, and not a deemed sale. The High
Court relied on the landmark Supreme Court
decision in the case of Bharat Sanchar Nigam
Ltd v Union of India and others (2006-3-SCC1).
• The Madras High Court, in National Small
Industries Corporation Limited v State of
Tamilnadu (2014-67-VST-414), allowed CST
exemption on in-transit sale of goods where
the goods purchased from outside the State
were consigned directly to buyers in the State
under a hire purchase arrangement. The
High Court held that the definition of ‘sale’
under sales tax was wide enough to cover
hire purchase transactions and therefore, the
benefit of CST exemption under section 6(2)
was available (as long as the conditions of
section 6(2) of the CST Act were met).
• The Karnataka High Court, in State of
Karnataka v Flemingo Duty Free Shop Pvt
Ltd (2014-68-VST-398-Karn), held that
the sales by a duty free shop situated at an
international airport to inbound passengers
were made before the goods had crossed the
customs frontiers of India. Consequently,
such sales were not liable to sales tax as
the same qualify as a sale in the course of
imports into India covered by section 5 of the
Central Sales Tax Act, 1956. The Karnataka
high court has relied on the Supreme Court
decision in Hotel Ashoka v Assistant CCT and
Anr (2012-VIL-03-SC).
Notifications/Circulars for Service Tax
• The sponsorship of sporting events organised
by a national sports federation or its affiliates,
where participating teams/ individuals
represent a country, shall be exempt from
service tax liability.
Service Tax Case Laws
• The Delhi High Court, in CST and Ors v Ernst
and Young Pvt Ltd and Ors (2014-TIOL-263HC-DEL-ST) held that an appeal against the
order of CESTAT where the question was
whether an activity could be held to be a
service, related to ‘rate of tax’. Accordingly,
the order was appealable before the Supreme
Court and not with the High Court.
Japan
• The Mumbai Tribunal, in Naikavare Chemicals
Ltd v CCE (2014-TIOL-104-CESTAT-MUM),
held that taking over a business on irrevocable
leave and licence basis involved the
performance of actual management function
and not advisory per se, and hence could
not be held liable to tax under ‘management
consultancy services’.
• In Electromec Engineering Enterprises v
CCE (2014-TIOL-205-CESTAT-DEL), the
Delhi Tribunal held that in case of repair
and maintenance activity, if there were two
separate contracts, one for labour and one for
supply of parts, service tax was payable only
on the service charges.
• In CCE v Premier Motor Garage (2014-TIOL226-CESTAT-DEL), the Delhi Tribunal held
that in a cost-sharing arrangement between
an authorised service station and the car
manufacturer for sales promotion of cars,
the amount recovered by the authorised
service station from the manufacturer would
be taxable under Business Auxilliary Service
(“BAS”).
• In CCE v Ebay India Pvt Ltd (2014-TIOL243-CESTAT-MUM), the Mumbai Tribunal
held that e-commerce transaction services
provided through a website which facilitated
sale and purchase of goods over the internet
would be taxable under BAS and not under
‘online data access and/or retrieval services’.
The Tribunal further held that the listing fee
charged towards ‘banner advertising’ on an
e-commerce website could not be classified
under BAS and should be classified as ‘sale
of space or time for advertisement services’
which is taxable only with effect from 1 May
2006.
For more information, please contact:
Vivek Mishra
[email protected]
+91 124 330 6518
Anita Rastogi
[email protected]
+91 124 330 6531
Planned new taxation on electronically
supplied services from offshore
On 4 April 2014, the Ministry of Finance
submitted a concrete proposal to the
International Taxation Discussion Group of the
Government Tax Commission regarding the
taxation of electronic supplies (e.g. electronic
books, music, software, applications etc.) for
Japanese Consumption Tax (“JCT”) purposes.
From 1 October 2015 or later, the JCT Law may
be amended to subject electronic supplies by
foreign corporations to JCT.
For more information, please contact:
Masanori Kato
[email protected]
+81 3 5251 2536
Kotaku Kimu
[email protected]
+81 3 5251 2713
New Zealand
Amendments to the Customs and Excise
Act 1996
Some were held not to be subject to GST while
others were held to be ‘third party considerations’.
Amendments to the Customs and Excise Act to
support the implementation of Trade Single
Window passed its third and final reading on
20 March 2014.
Most businesses in AP’s circumstances account
for GST on all payments received, whether from
the customer or manufacturer, so the finding
of the Court is of no concern to them. However,
a payment of ‘third party consideration’ by
the manufacturer will give no GST input tax
recovery to the manufacturer because they have
not acquired anything - the vehicle to which the
incentive relates went to the customer.
A key focus of the amendment concerns
the implementation of the Joint Border
Management System (“JBMS”). The operation
of a Trade Single Window will give importers
and exporters a single channel of compliance
for New Zealand border requirements,
simplifying the flow of trade and lowering
compliance costs. Offences and penalties
relating to the arrival and departure of goods
and craft will also be expanded.
The changes are expected to come into force on
1 July 2016, or by an earlier date as appointed
by an Order in Council.
Australian GST case on incentive
payments – potential impact in New
Zealand
A recent Australian GST case involving AP
Group Limited dealt with incentive payments
in the motor vehicle industry.
In the above case, various car manufacturers
made incentive payments to AP, a dealer
selling motor vehicles. The question was how
these should be treated for GST purposes.
A similar outcome arises when manufacturers
enter into ‘cash back’ schemes where they sell
to a retailer/ distributor but make an incentive
payment directly to the ultimate customer.
Australian GST rules allow the manufacturer to
recover the GST component of the payment but
New Zealand has no equivalent rules. The ‘locked
- in’ GST cost needs to be factored in at the design
stage as a cost of the promotional scheme.
The GST outcomes affect the cost of the
promotion and these outcomes are wholly a
function of the contractual terms actually in
place. Slight variations in contractual terms can
have a major effect on the GST outcome.
For more information, please contact:
Eugen Trombitas
[email protected]
+64 9 355 8686
Gary O’Neill
[email protected]
+64 9 355 8432
Ian Rowe
[email protected]
+64 4 462 7274
Malaysia
Key changes to the 2014 Goods and
Services Tax Bill
Further to the Prime Minister’s announcement
on 25 October 2013, the Goods and Services
Tax Bill (“the 2014 Bill”) was tabled in
Parliament on 31 March 2014. Some of the
key changes set out in the 2014 Bill compared
to the Goods and Services Tax Bill 2009 are
highlighted below.
• The term ‘Islamic Financial Arrangement’ is
now defined in the GST Bill 2014
• There is a change in the penalty regime for
late payment of tax due to late registration
• Non-residents making taxable supplies
exceeding the registration threshold is
required to appoint an agent to account for
GST
• Free Commercial Zones are recognised as
places outside Malaysia
• There is a relief from GST for supplies
spanning effective date where sales tax and
service tax has been received or invoiced
For more information, please contact:
Wan Heng Choon
[email protected]
+60 3 2173 1488
Philippines
Executive Order on the VAT Tax Credit
Certificates Monetisation Program
The President has issued an Executive Order
(EO) (No. 68-A dated 13 January 2014) to
facilitate and simplify the implementation
of the VAT Tax Credit Certificates (“TCCs”)
Monetisation Program (“Program”). This
program provides a mechanism for qualified
VAT-registered persons to receive the cash
equivalent of their outstanding VAT TCCs. The
new EO introduced the following changes:
1. All qualified VAT registered taxpayers
may monetize the full cash value of
their outstanding TCCs issued as of 31
December 2012. This shall be verified by
the Bureau of Internal Revenue (“BIR”) or
Bureau of Customs (“BOC”), as applicable.
2. The Program covers all outstanding VAT
TCCs as of 31 December 2012 which have
been issued in accordance with Section
112(A) of the Philippine Tax Code and
the VAT component of drawback TCCs
outstanding as of 31 December 2012,
which have been issued in accordance with
Section 106(e) of the Tariff and Customs
Code of the Philippines.
3. The monetisation of outstanding VAT TCCs
shall be fully implemented not later than
30 June 2016. Those holders who did not
avail of the monetisation program shall
be paid through cash conversion presently
implemented by the BIR which shall be
subsequently implemented by the BOC.
4. The BIR and the BOC shall no longer issue
TCCs for VAT refund, unless applied for by
the taxpayer.
For more information, please contact:
Malou P. Lim, Partner
[email protected]
+63 2 459 2016
Singapore
GST changes for the fund management
industry
1. Extension of the GST remission for
prescribed funds
The Minister of Finance announced in
the 2014 Budget Statement that the GST
remission for prescribed funds (which
was originally introduced in 2009) will be
extended for another 5 years until 31 March
2019.
2. New rules for determining the belonging
status of funds
The Monetary Authority of Singapore
(“MAS”) issued guidelines to ascertain if a
fund (other than a trust fund) belongs in
Singapore for GST purposes. Based on a
circular (which was published on 31 March
2014), the MAS expressed its view that it
will regard an overseas fund (other than a
trust fund) to “belong in Singapore” in the
following situations:
• The fund has an “administrative office” (no
guidance on this term is found in the circular)
with employees in Singapore;
• No “administrative office” or employees in
Singapore and the fund wholly relies on
a Singapore fund manager to carry on its
business activities; or
• The fund’s board of directors conduct
meetings at a fixed place on a regular basis in
Singapore.
The above rules will take effect from 1 April 2014
and would need to be considered with reference
to the current provisions in the GST legislation
pertaining to “international services”.
For more information, please contact:
Koh Soo How
[email protected]
+65 6236 3600
Weijie Lin
[email protected]
+65 6236 7481
South Korea
Taiwan
Tax invoice requirements for the supply
of raw materials overseas to a local
entrepreneur
VAT treatment of overseas
construction projects
Under the Korean VAT Law, in the case where
raw materials are carried out overseas to a
consigned manufacturer for no price and the
manufactured goods are transferred to a local
entrepreneur, the supply of such raw materials
shall be treated as an export.
In general, when goods or services are
exported, the obligation to issue a tax invoice is
exempted.
A tax law revision has been made to include
the supply of raw materials mentioned above
as being subject to tax invoice issuance despite
it being an export. The purpose of the revision
is to enhance the cross-check function between
local transaction parties as the recipient of the
manufactured goods is a local entrepreneur.
The above rule applies to raw materials
supplied on or after 21 February 2014.
For more information, please contact:
Dong-Keon (D.K.) Lee
[email protected]
+82 2 709 0561
The Ministry of Finance has issued a tax
ruling (Tai-Tsai-Shuei No. 10200557250)
pertaining to a scenario where a Taiwanese
Company A is engaged by an overseas
customer to provide construction services
offshore, and A further subcontracts
Taiwanese Company B to jointly assign
employees to perform services at the
overseas construction site. Under the said
ruling, the construction services would
be deemed rendered onshore but utilised
offshore and both Company A and B may
apply 0% VAT on the following sales amount
by submitting the relevant supporting
documents with their VAT returns:
Company A should report sales equivalent to
the foreign inward remittance received from
the overseas customer after deducting the
amount paid to Company B.
Company B should report the sales
equivalent of the service income received
from Company A.
For more information, please contact:
Lily Hsu
[email protected]
+886 2 27296666 Ext. 26207
Li-Li Chou
[email protected]
+886 2 27296666 Ext. 23684
Vietnam
New circular on VAT
Circular 219 guiding the implementation of the
new VAT decree 209 has just been issued and is
effective retrospectively from 1 January 2014.
This circular replaces circular 06/2012. Some
key clarifications to the new rules include:
Changes in conditions to apply 0% VAT
on exported services
Under Circular 06/2012 (applicable prior
to 2014), one of the key conditions to zero
rate exported services was that the overseas
customer should not have a permanent
establishment (“PE”) in Vietnam. This PE
condition has been removed under Circular
219 and replaced by the (re-introduced)
condition that the services must be consumed
outside of Vietnam or inside non-tariff zones
(which was the key condition for zero rating
under the VAT rules some years ago before
Circular 06).
Circular 219 fails however to provide a
definition of the term “consumed outside of
Vietnam”. This leaves room for interpretation
and based on past experience, it is expected
that the tax authorities will take a narrow
view that services provided to an overseas
customer are consumed in Vietnam, if they are
performed in and relate to Vietnam. This will
make zero rating of exported services more
difficult in practice.
That said, when the overseas consumption test
was last applied, it was still possible to zero rate
the services in certain specific circumstances
(and there were rulings obtained from the tax
authorities confirming this). Taxpayers should
carefully review the nature of their services
provided to overseas customers to determine
whether there are grounds to apply the 0% rate.
VAT declaration for trading activities of
Export Processing Enterprise (“EPE”)
Cash support given to distributors is
subject to 10% VAT
For more information, please contact:
Richard J Irwin
(84) (8) 3 823 0796
[email protected]
Under the past VAT regulations, it was unclear
whether cash support given to distributors was
subject to output VAT. Circular 219 now provides
that if the support is given for promotional,
marketing or display activities, the distributors
must issue a VAT invoice with 10% output VAT.
Requirement to notify bank account
details to the tax authorities
Companies are required to notify the tax
authorities of their bank accounts. This
requirement now becomes more critical because
one of the conditions for input VAT credit is that
the seller and the buyer must use bank accounts
notified to the tax authorities for making
payments. However, we are uncertain how this
requirement is monitored by the tax authorities
in practice.
If an EPE is granted a trading license, the EPE
is required to set up a branch outside of the
Export Processing Zone to carry out its trading
activities. Circular 219 clarifies that the trading
branch is required to file separate VAT returns.
Contacts
Australia
Peter Konidaris, Partner
[email protected]
Tel: +61 3 8603 1168
Japan
Masanori Kato, Partner
[email protected]
Tel: +81 3 5251 2536
Philippines
Malou P. Lim, Partner
[email protected]
Tel: +63 2 459 2016
Vietnam
Richard J. Irwin, Partner
[email protected]
Tel: +84 8 3823 0796
Cambodia
Heng Thy, Partner
[email protected]
Tel: +855 23 218 086
Kotaku Kimu, Director
[email protected]
Tel: +81 3 5251 2713
Singapore
Koh Soo How, Partner
[email protected]
Tel: +65 6236 3600
David Fitzgerald, Partner
[email protected]
Tel: +84 8 3824 0116
China
Alan Wu, Partner
[email protected]
Tel: +86 10 6533 2889
India
Vivek Mishra, Executive Director
[email protected]
Tel: +91 124 330 6518
Anita Rastogi, Associate Director
[email protected]
Tel: +91 124 330 6531
Laos
Thavorn Rujivanarom, Partner
[email protected]
Tel: +662 344 1444
Malaysia
Wan Heng Choon,
Senior Executive Director
[email protected]
Tel: +60 3 2173 1488
New Zealand
Eugen Trombitas, Partner
[email protected]
Tel: +64 9 355 8686
Indonesia
Ali Widodo, Partner
[email protected]
Tel: +62 21 52890623
Gary O’Neill, Director
[email protected]
Tel: +64 9 355 8432
Abdullah Azis, Associate Director
[email protected]
Tel: +62 21 5289 0601
Ian Rowe, Director
[email protected]
Tel: +64 4 462 7274
Weijie Lin, Manager
[email protected]
Tel: +65 6236 7481
South Korea
Dong-Keon (D.K.) Lee, Partner
[email protected]
Tel: +82 2 709 0561
Sri Lanka
Hiranthi Ratnayake, Director
[email protected]
Tel: +94 11 4719838
Taiwan
Lily Hsu, Partner
[email protected]
Tel: +886 2 2729 6666 Ext. 26207
Thailand
Somboon Weerawutiwong, Partner
[email protected]
Tel: +662 344 1000 Ext. 1247
For a comprehensive guide to global
VAT/GST information from over
70 countries worldwide, please
visit GlobalVATOnline at www.
globalvatonline.com. GlobalVATOnline
can keep you up to date on all VAT
issues and developments as they unfold.
Disclaimer. Clients receiving this Alert should take no action without first contacting their usual PwC Indirect Tax Advisor.
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