VAT Developments in the EU and AsiaPac

VAT News / Issue number 21
European Union p#1 / Asia Pacific p#3 / Middle East p#4 / Americas p#4
VAT Developments in the EU
and AsiaPac
This edition of VAT News highlights the expected new HMRC policies on VAT and pension schemes,
the requirement for foreign companies VAT registered in France to submit digital tax audit files, and
details of real time VAT reporting to be introduced in Spain.
European Union
United Kingdom
UK First Tier Tribunal rules no VAT relief for
supplies to the US government
The UK First Tier Tribunal (FTT) analyzed
whether the zero rate of VAT would apply to
the sale of military reconnaissance equipment
(Goodrich Corporation & anor [2014] UKFTT
1029 (TC).
The UK VAT Act provides that certain supplies
of goods or services are zero rated in particular
circumstances, including the supply to or by an
overseas authority, overseas body, or overseas
trader, charged with the management of any
defense project that is the subject of an
international collaboration arrangement or
under direct contract with any government or
government-sponsored international body
participating in a defense project under such
an arrangement of goods or services in the
arrangement. An ‘international collaboration
arrangement’ (commonly referred to as an
international defense collaboration ‘IDC’) is
defined as meaning any arrangement which:

is made between the UK Government
and the government of one or more
other countries, or any governmentsponsored international body for
collaboration in a joint project of
research, development or production;
and

includes provision for participating
governments to relieve the cost of the
project from taxation.
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Between 2006 and 2009, Rosemount sold equipment to Goodrich. Goodrich then
sold the equipment to the US government. Pursuant to a US ‘Foreign Military Sales’
program (FMS), the US government supplied the equipment to the governments of
Poland and Greece. Goodrich retrospectively sought Her Majesty’s Revenue &
Customs (HRMC) confirmation that the supplies to the US government were zerorated as sales made under an international collaboration arrangement. HMRC,
however, did not consider that zero-rating applied to the equipment sale.
The FTT stated that zero-rating only applies if the goods or services are sold “in the
course of giving effect to an international collaboration arrangement.” The UK VAT
Act distinguished between the defense project and the collaboration arrangement. In
the FTT's opinion, the FMS was not an international collaboration arrangement since
it was a unilateral US government arrangement and a procurement structure, not an
agreement between the UK government and other governments. The FMS involved
no ‘collaboration in a joint project of research, development or production’ and
contained no provision for participating governments to relieve the cost. In addition,
the FTT considered the roles of NATO and the UK in the procurement too vague to be
interpreted as an ‘international collaboration arrangement’. Therefore, the FTT
dismissed Goodrich’s appeal and denied the zero rate on the sale of military
equipment.
Companies making supplies to the UK and other governments, or international
organizations such as NATO, should take note of this case. Note, however, that
decisions reached by the UK FTT are not binding on EU VAT law.
Revised HMRC policies on VAT and pension schemes
Following the ECJ's judgments in PPG Holdings and ATP Pension Services, HMRC
recently issued two Revenue & Customs Briefs regarding significant policy changes on
VAT and pension fund management. HMRC stated that, provided the contractual
position shows employers are funding pension scheme costs, they can treat VAT on
investment management and scheme administration as a cost of the employer. As a
result, businesses should be entitled to recover VAT incurred on such costs. HMRC
also considers the management of defined contribution pension schemes exempt
from VAT. Companies that implement these policy changes may significantly reduce
the VAT costs associated with providing pensions. Retrospective claims may also be
submitted.
The exemption for management of defined contribution pension schemes is a
favorable change. Businesses considering making retrospective claims or evaluating
VAT overpayments should consider HMRC’s position in further detail.
France
Foreign VAT registered companies must submit digital tax audit files
Since January 1, 2014, French companies that keep their accounts in a digital format
are required to provide French tax auditors with a tax audit file [Fichier des Ecritures
Comptables - Taxe sur la Valeur Ajoutée (FEC TVA)]. This file must follow a
prescribed format and must be presented to the tax auditor at the beginning of a tax
audit.
According to a fact sheet recently published on the French tax authorities (FTA)
website, the digital obligation also applies to non-established entities registered for
VAT in France. Such entities are required to report transactions declared for French
VAT purposes in the FEC TVA. Failure to produce this digital file within the
prescribed format and timeframe may result in fines by the FTA. This requirement
does not extend to companies that recover French VAT via the 13th Directive or the
8th Directive refund mechanism (i.e., the mechanism for non-established, non FR
VAT registered entities, to recover FR VAT incurred on the acquisition of goods and
services).
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Although these requirements have not yet been published in the Official Tax Bulletin,
the tax administration has confirmed that it intends to apply them. Non-established
French VAT registered companies should evaluate the impact of these new
requirements on their reporting systems.
Spain
Real-time VAT reporting effective 2017
The tax authorities recently announced plans to introduce real-time VAT reporting
effective in 2017. Under this new regime, larger taxpayers will be required to provide
information on the invoices they issue within four days from the invoice date. The
reporting deadline for purchase invoices is four days from the date the invoice is
received. These new measures have been introduced to improve fiscal controls in
Spain.
The new system will initially apply to the following taxpayers:

large taxpayers with a turnover exceeding six million EUR

taxpayers applying the VAT grouping regime

taxpayers that benefit from the monthly VAT refund facility.
Required report information includes the date, place and time of the transaction, and
the amount of VAT and other details as shown on the invoice. The information must
be sent to the tax authorities electronically, by filing the invoices on the tax
authorities' web service, thereby allowing the authorities to increase controls and
manage information in real time.
Although these obligations are primarily imposed to improve fiscal controls in Spain,
taxpayers should also benefit by no longer being required to file certain VAT reporting
statements (e.g., form 347, form 340 and the annual VAT summary). VAT filing
deadlines will also be extended from the 20th day of the following month to the 30 th
day of the following month. Companies that are VAT registered in Spain should
familiarize themselves with these new VAT reporting requirements.
Asia Pacific
Japan
Increase of Japanese Consumption Tax (JCT) rate postponed to April 1, 2017
On November 18, 2014, the Japanese Prime Minister officially announced that due to
economic conditions the JCT rate will not increase to 10% until April 1, 2017 (as
opposed to October 1, 2015 as originally planned).
Indonesia
New evidential requirement for 'golden' taxpayers requesting VAT refunds
According to a recently issued regulation, 'golden' taxpayers (i.e., compliant
taxpayers) that are eligible to seek a preliminary refund of VAT are required to attach
a number of documents in hardcopy format to the VAT refund claim, including the
following:

export declarations (tangible and intangible goods/services)

output VAT invoices and/or cancellation (return) notes

input VAT invoices and/or cancellation (return) notes

import declarations and/or tax payment slips on the use of offshore services
and intangible goods.
An exemption from attaching the above mentioned documents applies to taxpayers
with e-invoicing obligations.
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Malaysia
Budget 2015 increases scope of GST exclusions
As part of the 2015 budget, the list of goods and services excluded from GST has been
expanded to include books of an educational nature and newspapers. The revised list
also includes fruit, bread, coffee and various 'essential medicines'. The government
also agreed to exclude from GST the retail sale of most road fuels (petrol, diesel,
etc….). Companies doing business in Malaysia should familiarize themselves with the
new GST rules and consider the impact of these rules on existing financial systems.
Middle East
Egypt
Plans to introduce VAT in 2015
In a recent statement, the Minister of Finance announced that a law introducing a
VAT system may be published in early 2015 (possibly January or February). The
implementation of the new system is unlikely to take place until later in the year to
allow the tax community time to prepare their accounts, software and systems for the
new tax.
In contrast to the current sales tax system, the main features of the new VAT regime
include:

application to the majority of goods and services, instead of a small number of
services

ability to deduct input VAT from output VAT

increased registration threshold (EGP 500k or EGP 1 Million)

introduction of the reverse charge provisions in certain circumstances

introduction of the arm’s length rule for related party transactions

requirement for fiscal representation for non-residents

increased penalties and fines for tax evasion.
Companies doing business in Egypt should monitor the developments in this area and
consider the impact of the introduction of a VAT on their business activities and
financial systems. We will keep you updated on further developments.
Americas
Canada
GST/HST and QST elections for nil consideration: form must be filed
The GST/HST and QST rules allow members of closely related groups to elect to treat
certain taxable supplies between members as transactions for nil consideration, if
certain conditions are met. Generally, taking this election increases the group’s cash
flow.
In the past, filing the election form was not required by the Canada Revenue Agency
(CRA) or the Revenue Quebec Agency (RQ). The registrant was required only to retain
the election form in company records for audit defense purposes.
However, as a result of 2014 federal budget changes, the election must be filed (with
the CRA or RQ). The following filing deadlines apply:

new elections made after 2014 – election form is due on the first return due
date for one group member during the first reporting period the election is
effective

elections in place before 2015 – election form is due December 31, 2015, for the
election to continue to be effective after December 31, 2014.
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While preparing for these elections, businesses should review their structure and the
facts surrounding the use of the election to confirm that:

the conditions for using the election are clearly met

the election continues to be beneficial

transactions within the related group are treated correctly.
Changes to ownership structures and supplies made by members of the group affect
the group’s ability to use the election. Also, note that special and different rules apply
for financial institutions.
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Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
Tom Boniface
US VAT Leader
+1 (646) 471-4579
thomas.a.boniface@
us.pwc.com
300 Madison Avenue
New York, NY, 10017
Tom Boniface, New York
+1 (646) 471-4579
[email protected]
Reena Reynolds, Chicago
+1 (312) 298-2171
[email protected]
Evelyn Lam, New York
+1 (646) 931-7364
[email protected]
Irina Sabau, New York
+1 (646) 471- 5757
[email protected]
Nathan Trautwein, San Francisco
+1 (415) 498-6342
[email protected]
Sinead Hughes, Chicago
+1 (312) 298-2219
[email protected]
Raymond van Sligter, San Jose
+1 (408) 808-2951
[email protected]
Our global indirect tax network
PwC has a global network of 1,900 indirect tax professionals in 130 countries
worldwide, including a dedicated VAT team located in the U.S. who is available to
provide real-time VAT advice. This News Alert does not provide a comprehensive or
complete statement of the taxation law of the countries concerned. It is intended only
to highlight general issues, which may be of interest to our clients. For issues relating
to this VAT News, please contact your local Indirect Tax Practice advisor or the
specialists listed above.
Global VAT Online
Many of the developments above are described in more detail on Global VAT Online
(GVO), PwC’s online subscription service which provides up-to-date business critical
information on VAT/GST rates, rules, and requirements around the world. This
information will help you maintain control, mitigate risk, and improve the overall
effectiveness of your VAT/GST function. GVO’s news service provides timely updates
on worldwide VAT/GST developments, along with a facility to deliver news to your
desktop via RSS feeds, newsflashes and a weekly newsletter. It also includes
commentaries on new legislative proposals, decisions on recently concluded cases,
hyperlinks to related subjects, and case law and official documentation.
For further information, please speak to your usual PwC advisor or the US VAT team
above. Visit the GVO Website.
© 2014 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a
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SOLICITATION
This document is for general information purposes only, and should not be used as a substitute for consultation with
professional advisors.
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