CONTENTS ▶ SOUTH AFRICA New VAT registration requirement for foreign e-commerce businesses 1

▶ EDITOR’S LETTER 2

▶ BELGIUM Belgian VAT: new clarifications regarding e-invoicing 2

▶ GERMANY VAT grouping developments 3

▶ GHANA New VAT Act introduced 4

▶ LATVIA VAT amendments regarding electronically supplied services 4

▶ LUXEMBOURG VAT rate increases on the way 5

▶ NETHERLANDS Dutch AG issues opinion on deduction of VAT on vacant immovable property 6

▶ NEW ZEALAND GST: claims by non-resident businesses & tooling costs 7

▶ ROMANIA EU VAT refunds: application of former 8th Directive to non-resident with Romanian Tax representative 8

▶ SINGAPORE Goods and Services Tax (GST) updates for the fund management industry 9

▶ SPAIN VAT – Directorate general of taxation tax ruling n° V0445-14 10

▶ SWITZERLAND Swiss Supreme Court says U.S. dating website operator must register for VAT 10

▶ UNITED KINGDOM Report on the world customs organisation’s Authorised Economic Operator Conference 11

▶ UNITED STATES Sales tax systems in the USA – an overview 12

LUXEMBOURGVAT rate increases on the way

READ MORE 5

NEW ZEALANDGST: claims by non-resident businesses & tooling costs

READ MORE 7

JULY 2014 ISSUE 2 WWW.BDOINTERNATIONAL.COM

INDIRECT TAX NEWS

SOUTH AFRICANEW VAT REGISTRATION REQUIREMENT FOR FOREIGN E-COMMERCE BUSINESSES

The rapid advances in Technology and increases in e-commerce transactions across the word in the last decade

have reached the South African shores and South African consumers have increased their consumption of goods and services acquired over the internet.

Goods and services acquired over the internet from local suppliers that are registered as VAT vendors are subject to VAT at the 14% standard rate. Local suppliers must charge VAT on their supplies and are required to remit the VAT to the South African Revenue Services (SARS).

Goods acquired from foreign suppliers are subject to 14% VAT on importation into South Africa. Local clients must bear the 14% VAT charge on goods imported in South Africa. However, in respect of services, and especially e-commerce services, SARS used to require the local client to account for and pay VAT on imported services (essentially a reverse charge mechanism) acquired from foreign suppliers. Enforcing compliance with this requirement was virtually impossible. This, in effect, made acquiring services and e-commerce services supplied by foreign suppliers more attractive, since they were supplied at a lower cost than services acquired from a local supplier.

To ensure parity between local and foreign suppliers, and to address the issue of non-compliance with VAT on imported services, the South African VAT legislation was amended. The amendments were made in regulations that came into effect on 1 June 2014. The amendments compel foreign suppliers of “electronic services” to local clients to register as VAT vendors in South Africa and to charge 14% VAT on the supply of these services. A further requirement is that payment for the e-service must be from an account with a South African bank.

What are “electronic services”?

Obviously, the issue of whether services provided by a foreign supplier constitute “electronic services” is crucial. According to the regulations, “electronic services” broadly include the supply of:

• Educational services, such as internet-based courses provided as part of an education programme. However, there is an exception where the service provider is registered with an educational authority in the “export” country;

• Games and games of chance, which include electronic betting and wagering;

• Internet-based auction services;

• E-books, still pictures, music, and audio-visual content;

• Subscription services, including, among other things, magazines, newspapers, journals, social networking services, websites, and blogs.

Registration of foreign electronic e-service suppliers

Foreign suppliers of e-services to local clients are obliged to register for VAT at the end of the month in which the total value of their taxable supplies exceeds ZAR 50,000.

The requirements for the VAT registration for foreign suppliers of e-services has been streamlined to make registrations as easy as possible and to encourage compliance. Unlike with traditional VAT registrations in South Africa, foreign suppliers of e-services do not need to have a representative vendor acting on their behalf in South Africa. Furthermore, based on the fact that it is expected that these entities will only have output VAT liability, they do not need access to a bank account in South Africa for purposes of receiving VAT refunds.

SEELAN MUTHAYANSouth Africa – Johannesburg smuthayan@bdo.co.za

UNITED STATESSales tax systems in the USA – an overview

READ MORE 12

2 INDIRECT TAX NEWS 2

Dear Readers,

Greetings from Dublin where our ‘Irish’ summer is threatening to arrive any day soon.

In advance of the summer holiday season, the BDO VAT Centre of Excellence Committee together with our colleagues Rosario Estella, Nuria Hernández Redondo, and Carlos Lopez from BDO Spain’s Madrid Office are busy working on the agenda and logistics for the forthcoming BDO international VAT conference which will be held in Madrid in mid-September 2014.

This annual two day conference attracts an increasing number of BDO colleagues from countries outside the European Union each year with attendees expected from the U.S., Canada, India, Australia, and hopefully China, among other countries.

The conference event itself provides an excellent opportunity for representatives from BDO offices worldwide to meet to discuss evolving indirect tax related issues and to plan how best to work with each other to ensure we provide a holistic, seamless advisory service to our local and international clients.

Each year we hope to set a higher standard and I am excited that this year it seems likely that we will have some representation by our BDO Customs and international Trade Advisory colleagues in Madrid.

In advance of same, I wish you all an enjoyable and hopefully somewhat sunny summer season and, as always, any feedback you may wish to provide on how to make this publication more relevant and user friendly are welcome at ifeerick@bdo.ie.

Kind regards from Dublin.

IVOR FEERICKChair – BDO International VAT Centre of Excellence Committee Ireland – Dublin ifeerick@bdo.ie

EDITOR’S LETTER

The Belgian tax authorities issued a new VAT circular letter (AAFisc Nr. 14/2014 dd. 04.04.2014) that comments on

modifications to the Belgian VAT legislation resulting from the implementation of the EU directive 2010/45/EU concerning e-invoicing. This circular replaces all previous comments from the tax authorities with respect to e-invoicing. The modifications to the VAT relating to e-invoicing entered into force retroactively on 1 January 2013.

E-invoicing is clarified

In the circular, the Belgian tax authorities confirmed the following:

• An electronic invoice is subject to the same rules as a paper invoice;

• An invoice qualifies as an electronic invoice when it is both received and issued in any electronic format. (In other words, the format is unrestricted and can be, for example: XML, Word, PDF, and so on.)

Two additional conditions apply with regard to e-invoices. The first condition is acceptance of the electronic invoices by the receiver. Acceptance can be implicit, such as through payment of an electronic invoice without objection. Note, however, that the tax authorities prefer acceptance demonstrated through a written agreement because of the evidential value and because of the possibility of making arrangements regarding the legal requirements in advance.

The second condition obliges the taxpayer to guarantee the following with respect to the invoice: the authenticity of it, the integrity of its content, and the readability. This condition results in the following burden of proof:

• Proof that the supplier listed on the invoice has effectively executed the transaction (authenticity);

• Proof that the content of the invoice cannot be altered after sending the invoice (integrity);

• Proof that all items in the invoice are clear (that there is not much room for interpretation) and that the invoice will remain readable during the period it must be retained (in other words, while it is achieved).

What is new in this circular is that there are no restrictions on how the above guarantees must be accomplished.

In the circular, the Belgian tax authorities pay a great deal of attention to business controls related to establishing a trustworthy audit trail. Business controls are basically the processes set in place to generate reliable financial, accounting, and regulatory reporting data. Given this focus on business controls, an invoice is seen as part of a whole transaction, rather than an isolated document.

Examples of business controls relevant to invoicing are matching (which might involve comparison of, for example, an order form, a transport document, and an invoice) and IT controls. The choice of which business controls are used is left to the taxpayer, though the controls should take into account things like the taxpayer’s size, the activity of the company, and so on. The language of the circular makes it clear that audit trails are essential when establishing the authenticity and integrity of an invoice.

But with the circular also comes uncertainty…

In the past, the use of EDI and (advanced) electronic signatures were sufficient to guarantee the requirements of authenticity and integrity of an invoice. As per the circular, this is no longer the case. Though the technical means previously used keep their evidential value, they should be supplemented with evidence resulting from internal business controls. Taxpayers must decide for themselves whether their mix of technical means and internal business controls are sufficient. An additional item of evidence that the tax authorities have accepted is an audit certificate issued by an external auditor that includes an assessment of the efficiency of the taxpayer’s business controls.

Another important consideration is the fact that the tax authorities will no longer make (preliminary) decisions on the appropriateness of processes or software packages used to ensure authenticity, integrity, and readability of invoices.

Conclusion

It’s in the taxpayer’s interest to keep as much documentation as possible regarding the business controls that establish an audit trail. Companies should ensure their e-invoicing procedures are compliant with the regulations, particularly with regard to using internal and external business controls. A starting point is a cost-benefit analysis, where parameters such as internal processes, technical costs, the willingness of the contracting parties to use e-invoices, and so on, are taken into account.

If you are considering switching to e-invoicing, consult http://www.efactuur.belgium.be for useful information about different systems of e-invoicing, including discussion of their pros and cons.

LIESBETH DEBUSSCHERE ERWIN BOUMANSBelgium – Brussels liesbeth.debusschere@bdo.be erwin.boumans@bdo.be

BELGIUMBELGIAN VAT: NEW CLARIFICATIONS REGARDING E-INVOICING

3INDIRECT TAX NEWS 2

GERMANYVAT GROUPING DEVELOPMENTS

On 5 May 2014, the German Federal Ministry of Finance stated its current position in respect of the inclusion of

non-taxable persons as part of a VAT group. In addition, it has commented on the person of an executive employee with regard to the organisational link as requirement for a German VAT group.

Non-taxable persons

The German Federal Ministry of Finance has commented on whether non-taxable persons are able to function as part of a VAT group. In the current letter, it holds the opinion that a non-taxable person cannot be a part of a VAT group, but concedes that the inclusion of non-taxable persons is allowed in principle under Article 11 of Directive 2006/112/EC due to the judgments of the Court of Justice of the European Union dated on 9 April 2013 (C-85/11; commission/Ireland) and on 25 April 2013 (C-480/10; commission/Sweden). However, it does not hold the opinion that it is mandatory to include non-taxable persons into the regulations of a VAT-group.

Concerning the exclusion of non-taxable persons, the Federal Ministry of Finance refers to Article 11 Paragraph 2 of Directive 2006/112/EC, and explains that a Member State implementing the regulations regarding the VAT group is entitled to take measures in order to prevent evasion as well as avoidance of taxes by implementing this rule. Concretely, the Federal Ministry of Finance explains that the exclusion of non-taxable persons prevents the abuse of increasing the input tax deduction by including these persons into the VAT group.

Nevertheless, the German Federal Ministry of Finance has postponed its final opinion until two decisions by the Court of Justice of the European Union have been made. The cases in question are C-108/14 – Larentia & Minerva and C-109/14 – Marenave Schiffahrt referred by the German Federal Finance Court to the CJEU for a preliminary ruling. The questions presented to the CJEU concern the calculation method of the input tax deduction at a holding company, as well as the inclusion of a partnership in the VAT group. An outcome is expected in mid 2015.

We also await the CJEU’s final judgment in C-7/13 Skandia America, a case referred by Sweden for preliminary ruling regarding the interpretation of Article 11 of Directive 2006/112/EC that asks if a branch (in a Member State) can be part of a VAT group independently from its head office (located abroad).

Organisational links & the executive employee

Until now, VAT grouping rules in Germany have required a parent company to ensure by organisational measures that it can prevent a different decision-making process by the subsidiary company (in terms of a daughter company). Due to current jurisdiction by the Federal German Finance Court, the German Federal Ministry of Finance has now dropped this opinion. To merely affirm an organisational link between the subsidiary and the parent company it is not sufficient to prevent a different decision-making process. It is actually necessary that the parent company is able to assert its decisions within the subsidiary company.

The organisational link terminates in cases of bankruptcy if a liquidator was ordered in favour of the company, and if the bankruptcy court ordered that this decision will only be valid upon approval of the (preliminary) liquidator. For the time being, the Federal Ministry of Finance reserves the release of the judgment and its general application beyond the individual case. For this purpose, it refers to the requests for a preliminary ruling (mentioned above).

Moreover, the Federal Ministry of Finance has commented on the position of the executive employee. So far, an executive employee has been necessary to function as managing director of the subsidiary company in the context of the organizational link between parent and subsidiary company. In future, the leadership role is not mandatory any more. In fact, in the opinion of the German Federal Ministry of Finance not only executive employees but rather all employees are subject to a personal dependency due to the employment contract between parent company and employee. Therefore, the parent company is entitled to dismiss its employee from the position of managing director of the subsidiary at any time in case of a decision contrary to instructions given by the parent company, the organisational link between parent company and subsidiary is basically approved.

ANNETTE POGODDA-GRÜNWALD DANIEL AUERGermany – Berlin annette.pogodda-gruenwald@bdo.de daniel.auer@bdo.de

4 INDIRECT TAX NEWS 2

GHANANEW VAT ACT INTRODUCED

Value Added Tax (VAT) is imposed in Ghana under the VAT Act of 2013 (VAT Act). The VAT Act replaces the

1998 VAT law with effect from 1 January 2014, but some of the provisions governing VAT administration under the old law (including those dealing with record keeping, recovery of tax due, certain offences, penalties, and appeals) continue to apply, pending enactment of a comprehensive law governing the administrative aspects of all domestic tax laws. The VAT Regulations of 1998 also continue to apply, subject to a few amendments.

VAT is charged on every taxable supply of goods and services made in Ghana, on every taxable importation of goods into Ghana, and on the taxable supply of imported services. The term “goods” is defined to include movable and immovable tangible property, thermal and electrical energy, heating, gas, refrigeration, air conditioning, and water, but excludes money. “Services” refers to anything other than goods or money.

Under the VAT Act, a supply of goods or services takes place and VAT becomes payable as follows:

• When someone in Ghana acquires goods or services for their own use: on the date on which the goods or services are first used by the person;

• When someone in Ghana acquires goods or services by way of gift: on the date on which ownership passes or the date the performance of the services is completed;

• In any other case, on the earliest of the date on which:

– The goods are removed from the taxable person’s premises, or from other premises where the goods are under the taxable person’s control;

– The goods are made available to the person to whom they are being supplied;

– The services are supplied or rendered;

– Payment is received; or

– A tax invoice is issued.

At the end of each monthly accounting period, a taxable person may deduct from the output tax due for that period the input tax they paid on goods and services purchased in Ghana or on goods and services imported and used wholly and exclusively in the course of their business. The excess of input tax over output tax may be carried forward for three months, after which it is refunded.

No input tax deduction may be made in respect of the following:

• The taxable supply or import of motor vehicles or vehicle spare parts, unless the taxable person is in the business of dealing in, or hiring out, motor vehicles or selling vehicle spare parts; or

• The taxable supply of goods or service in respect of entertainment, including the provision of restaurant meals, and hotel expenses, unless the taxable person is in the business of providing entertainment.

No input tax deduction is available to a taxable person for purchases or imports of exempt supplies.

On making a taxable supply of goods or services, taxable persons must issue a tax invoice in a format prescribed by the Commissioner-General.

Every taxable person must submit a VAT return not later than the last working day of the month immediately following the accounting period to which the return relates. The return must show the amount of tax payable for the period and the amount of input tax credit/refund claimed.

ABEL MYBURGHSouth Africa – Johannesburg amyburgh@bdo.co.za

LATVIAVAT AMENDMENTS REGARDING ELECTRONICALLY SUPPLIED SERVICES

The Latvian parliament (Saeima) is currently working on amendments to the VAT Law with respect to

electronically supplied services. The amendments are needed to ensure compliance with new place of supply rules, which will be introduced throughout the European Union with effect from 1 January 2015. The amendments to Latvian VAT law are expected to be in force from that date.

New rules

Under the amendments, the definition of electronically supplied services will be extended to be in line with the updated Directive 2006/112/EK. Special regulations will be introduced to determine the place of supply of electronically supplied services provided within the European Union to customers that are not taxable persons. From 1 January 2015, regardless of where the taxable person supplying the services is established, the place of supply of such services shall be the Member State where the customer is established, or where the customer has his or her permanent address, or where the customer usually resides.

Furthermore, under a special regime, known as the ‘Mini One Stop Shop’, if electronically supplied services, radio and television broadcasting services, or electronic communication services are provided to a recipient that is a non-taxable person, the provider of the services will not be required to register for VAT purposes in each Member State where its customers are located. Instead, the provider of such services will only have to register in one Member State and submit VAT returns there to account for VAT due on such services in all other Member States.

To register for this special regime, the taxpayer will be required to submit an application to the Latvian State Revenue Service via the electronic declaration system.

INITA SKRODERE GITA AVOTINALatvia – Riga inita.skrodere@bdotax.lv gita.avotina@bdotax.lv

5INDIRECT TAX NEWS 2

LUXEMBOURGVAT RATE INCREASES ON THE WAY

Prime Minister Xavier Bettel recently confirmed that Luxembourg VAT rates will increase as of 1 January 2015. With

the exception of the super-reduced VAT rate of 3%, which will remain unchanged, the VAT rates of 6%, 12% and 15% will each be increased by 2%.

The standard rate (currently 15% and increasing to 17%) applies to most of the supplies of goods and services. The intermediary rate (currently 12% and increasing to 14%) applies, for example, to wine, commercial printing, and bank custody services. The energy sector is subject to the reduced rate (currently 6% and increasing to 8%), whereas the supply of food, books, and medication are taxed at the super reduced rate (3%).

With this increase, the Luxembourg government aims at partially offset the EUR 800 million it expects to lose from the implementation of the new place of supply rules that will apply to electronic commerce throughout the European Union with effect from 1 January 2015.

ERWAN LOQUET EMELINE COFFELuxembourg erwan.loquet@bdo.lu emeline.coffe@bdo.lu

6 INDIRECT TAX NEWS 2

NETHERLANDSDUTCH AG ISSUES OPINION ON DEDUCTION OF VAT ON VACANT IMMOVABLE PROPERTY

Under Dutch VAT rules, entrepreneurs are allowed to deduct VAT they paid on costs incurred to purchase or

construct immovable property (buildings), to the extent the purchased goods or services are used for taxable activities for VAT purposes.

For investment goods, Dutch VAT law provides for a “revision period”. During this period, the use of the goods is monitored. For immovable investment goods the revision period contains the financial year in which the property was taken into use for the first time and the succeeding nine financial years. A change in use (from taxable to exempt or from exempt to taxable) during the revision period requires a correction of the initial VAT treatment. If, during the revision period, the portion of the property that is used for a purpose that is subject to VAT increases, as compared to the portion used for the non-taxable purpose in the year the property was put into use, the entrepreneur can claim VAT it had not deducted. On the other hand, if the use changes and more of the property is used for VAT exempted purposes, the entrepreneur must repay the VAT it previously deducted.

In these difficult economic times, vacancy is a regular occurrence in many properties. Since the use of the immovable property during the revision period is relevant for the deduction of VAT, the question of how to deal with vacancy during the revision period is common.

In case number 13/00282, which is pending in the Highest Court in the Netherlands, the Dutch Advocate General (AG) issued her opinion on this issue. The case concerns an immovable property that was initially used for VAT exempt activities and so, when the building was put into use, the owner had no right to deduct input VAT. Subsequently, however, when the property became vacant, the owner hired a broker to find a tenant that performs taxable activities for VAT purposes, in order to opt for a taxable letting

for VAT purposes. According to the AG, in this situation the owner had the intention of using the property for VAT taxed activities, so the taxpayer could claim part of the initial non-deducted VAT based on the revision rules. The AG was of the view that the owner should be able to prove, based on objective documentation, that it intended the immovable property to be used for taxable activities for VAT purposes during the vacancy period.

According to the AG, in hiring the broker and renting the property, the owner had the intention of using the property for VAT-taxed activities and so the AG was of the view that 1/10 of the initial VAT should be allocated to each year of the revision period. However, the AG was not entirely sure whether her conclusion can be based on the EU VAT Directive and case law of the European Court of Justice. As a result, the AG advised the Highest Court of the Netherlands to submit preliminary questions to the ECJ.

Interestingly, the AG’s conclusion is not in line with the present opinion of the Dutch State Secretary of Finance. According to the State Secretary, vacancy does not constitute the use of the immovable property for taxable or non-taxable activities. As a result, according to the State Secretary, there should be no revision for the period of vacancy. So, if VAT was deducted in the first year the immovable property was put into use, the initial deduction remains. And, conversely, in situations where no VAT has been deducted, the vacancy will not lead to a recovery of VAT.

Treatment of VAT on maintenance and other costs during vacancy

It is important to note that the opinions of the AG and the State Secretary described above deal with the deduction of VAT on costs incurred to purchase or construct immovable property. Other rules apply regarding the deduction of VAT on maintenance costs and

other costs related to the immovable property during vacancy. Based on the opinion of the State Secretary, maintenance costs (for example, energy and security costs) cannot be directly allocated to a taxable activity, so the VAT on such general costs is deductible on a pro rata basis in the year of vacancy. The pro rata basis is fixed as a percentage of taxable turnover related to total turnover and is used to determine the deductible proportion of VAT on costs that are attributable to taxable and non-taxable activities (general costs).

The VAT on other costs related to the immovable property during vacancy (for example, costs for improvement or expansion) is deductible insofar as the entrepreneur intends to allocate those costs to VAT-taxed activities. The AG’s opinion does not relate to the deduction of VAT on these costs.

If the Highest Court of the Netherlands decides to submit preliminary questions to the ECJ, the ECJ’s response will not be received for some time. It is our opinion that it is important to anticipate a potential positive verdict, which means that if a taxpayer intends to use the vacant property for taxed activities, VAT will be deductible. As such, we recommend taxpayers take care to record and substantiate their intention regarding the use of the property, for example, by entering into a contract with a broker whereby the intention is to find a tenant that meets the conditions necessary to opt for a taxable letting for VAT purposes.

MARCO BEERENS JOOST VERMEULENThe Netherlands – Breda marco.beerens@bdo.nl joost.vermeulen@bdo.nl

7INDIRECT TAX NEWS 2

NEW ZEALANDGST: CLAIMS BY NON-RESIDENT BUSINESSES & TOOLING COSTS

In a bid to remove Goods and Services Tax (GST) as an impediment to non-resident businesses doing business in New Zealand,

the government has created a new category of “registered person” entitled “non-resident GST business claimants”.

New Zealand’s GST is intended to be a tax on consumption, rather than a tax on business. As such, it is meant to be tax neutral until borne by the final consumer. However, for non-resident businesses, the non-recoverable GST incurred on goods and services they receive is a real cost – and one that is not borne by New Zealand businesses, which can claim the GST as an input tax credit. As a result, the GST is not neutral – it creates a potential hurdle for non-resident companies looking to trade with New Zealand businesses.

Accordingly, new measures allow non-resident businesses receiving goods and services in New Zealand to register for GST and claim GST refunds, if they meet the registration criteria. The new provisions are effective from 1 April 2014.

Qualifying as a non-resident GST business claimant

To qualify as a “non-resident GST business claimant”, the following criteria must be met:

• The business must expect the GST refund claim in its first GST taxable period to be more than NZD 500, and

• In the country or territory of its residence:

– The business must be a registered taxpayer under a domestic consumption tax, for example, a goods and services tax or a value added tax, or

– The business had a taxable activity with a turnover of more than NZD 60,000 over a 12-month period, but was not required to be registered as a taxpayer under the provisions of its domestic consumption tax, or

– The business has had a turnover of more than NZD 60,000 over a 12-month period and there is no domestic consumption tax.

In addition, the non-resident business:

• Must not carry out, or intend to carry out, a taxable activity in New Zealand and it must not be a member of, or intend to become a member of, a GST group carrying out a taxable activity in New Zealand, and

• Must not be engaged in a taxable activity that includes providing services where it is reasonably foreseeable the services will be received in New Zealand by someone who is not registered for GST.

Registration

To register, a non-resident GST business claimant must file IR564, the Non-resident GST Business Claimant Registration Form, and provide the supporting documents listed on page 3 of the form, which are required as proof of identity of the entity and its directors. The documents required, which vary according to the type of entity being registered, must be scanned and sent to the New Zealand Inland Revenue. Any non-resident businesses about to register for GST should make sure they:

• Have the supporting documents they need to go with their registration, and

• Get tax invoices and proof of payments from their New Zealand suppliers for business expenses relating to their GST taxable activity. (Because a non-resident can only register for periods on or after 1 April 2014, expenses and receipts regarding transactions before 1 April 2014 cannot be claimed.)

The form, and details of the supporting documents referred to in sections 8 and 17 of IR564, can be downloaded from the Inland Revenue website: www.ird.govt.nz. The registration form, supporting documents and first GST return may be emailed to: 54Bnonres@ird.govt.nz or posted to: Non-resident Centre, Inland Revenue, Private Bag 1932, Dunedin 9054, New Zealand.

GST refunds to non-resident businesses will be paid either into a New Zealand bank account, if the non-resident business has one, or by way of a New Zealand dollar cheque sent to the postal address listed on the application.

GST on tooling costs

An amendment has also been made to the NZ GST to allow a New Zealand resident manufacturer of tools to zero rate the supply of specialised tools supplied to non-GST registered non-residents. Previously, where such tools were manufactured under a contract with a non-resident, the domestic manufacturer was required to charge GST at the standard rate of 15%, even when the tools were used to make products that were exclusively exported. This amendment also takes effect from 1 April 2014.

IAIN CRAIGNew Zealand – Auckland iain.craig@bdo.co.nz

8 INDIRECT TAX NEWS 2

The European Court of Justice (ECJ) issued a judgment in C-323/12 E.ON Global Commodities SE (E.ON), on a matter

referred to it by the Appeal Court of Bucharest concerning application of the 8th Directive (which has since been replaced by the EU VAT Refund Scheme, covered by Directive 2008/9).

Background

E.ON, a company based in Germany, delivered electric power in Romania. E.ON hired Haarmann as its fiscal representative in Romania, as required under Romanian law before Romania became part of the EU. Haarmann undertook activities on behalf of E.ON that included re-invoicing of transport services for which Haarmann issued invoices on behalf of E.ON.

From 1 January to 31 August 2007 E.ON deducted VAT of RON 5 118 071 it paid on invoices issued by its commercial partners (Romanian taxable persons acting as service providers). On behalf of E.ON, Haarmann submitted four VAT returns related to the VAT amount paid by E.ON. After a partial tax audit, Romanian tax authorities did not allow the deduction because the tax authorities were of the view that E.ON did not owe VAT in Romania for the electric power deliveries because the VAT obligation was transferred to the beneficiary of the delivery. Based on the tax audit report, a notice of assessment was issued to recover the additional VAT the tax authorities deemed E.ON owed.

E.ON contested the notice of assessment and brought an action in the Appeal Court of Bucharest. The court ordered that the notice of assessment be cancelled and ordered the tax authorities to refund the RON 5 118 071 to E.ON. The tax authorities appealed and the High Court of Justice found in favour of the tax authorities.

E.ON then requested reimbursement of the VAT amount under the provisions of the 8th Directive, which relates to harmonization of the laws of Member States regarding turnover taxes. The tax authorities argued that reimbursement of VAT only applies to taxable persons not registered who are not obliged to register for VAT purposes in Romania. Since E.ON had a fiscal representative (Haarmann), E.ON was considered to be registered for VAT purposes in Romania.

E.ON argued that the 8th Directive provides the conditions under which a taxable person must be registered for VAT purposes in Romania in order to benefit from reimbursement of the paid VAT. The Appeal Court suspended the matter and referred the following preliminary questions to the Court of Justice of the European Union (CJEU):

• If a taxpayer whose main headquarters is in an EU Member State outside Romania is registered for VAT purposes in Romania through a fiscal representative under Romanian laws that were applicable before Romania joined the EU, may the taxpayer be considered to not be established in Romania for purposes of application of the 8th Directive provisions?

• If the requirement under Romanian law that a taxpayer not be registered for VAT is a supplementary condition to the ones expressly regulated by the 8th Directive, is such a supplementary condition permitted?

• If the requirements of the 8th Directive can mandate the fulfilment of express conditions required to establish entitlement to a VAT reimbursement to taxpayers not established in Romania, is this so regardless of the provisions of national legislation?

The CJEU decided that E.ON was entitled the claim a refund of VAT under the 8th Directive. It concluded that the provisions of the 8th Council Directive 79/1072/EEC must be interpreted as meaning that a taxable person established in one Member State who has made supplies of electricity to taxable dealers established in another Member State has the right to rely on the 8th Directive to obtain a refund of input VAT it paid in the other Member State. According to the CJEU, that right is not precluded merely because the non-resident designated a tax representative for VAT purposes in the latter state.

DAN BARASCU HORIA MATEIRomania – Bucharest dan.barascu@bdo.ro horia.matei@bdo.ro

ROMANIAEU VAT REFUNDS: APPLICATION OF FORMER 8TH DIRECTIVE TO NON-RESIDENT WITH ROMANIAN TAX REPRESENTATIVE

9INDIRECT TAX NEWS 2

Singapore has established itself as a thriving financial centre of international repute. Singapore‘s financial centre

offers a broad range of financial services including banking, insurance and fund management, and administration.

To further strengthen Singapore’s position as a centre for fund management and administration, the Monetary Authority of Singapore (MAS) issued a circular that extends the GST remission on expenses for qualifying funds managed by prescribed fund managers to 31 March 2019. In the circular, the MAS also provided updates on how to determine whether a fund is considered to “belong” in Singapore for GST purposes.

How the updates affect the fund management industry

GST remission for funds

Normally, 7% GST is chargeable on fund management, custodian, and other services supplied by GST-registered suppliers to “funds belonging in Singapore”. Only GST-registered funds making taxable supplies are able to claim the GST incurred on their expenses. As some of the funds are not eligible for GST registration because of the type of investment activities they make, the GST incurred on the fees charged is an unrecoverable business cost to these funds.

A GST remission was introduced on 22 January 2009 to allow qualifying funds that are managed by a prescribed fund manager in Singapore to claim GST incurred on all expenses related to the fund’s investment activities (other than specifically disallowed expenses) at an annual recovery fixed rate determined by the MAS. The remission was originally provided for expenses incurred from 22 January 2009 to 31 March 2014 inclusive. In the 2014 Singapore Budget Statement, it was announced that the GST remission would be extended to 31 March 2019. The circular confirms and provides the details about the extension.

To qualify for the GST remission, the following conditions must be met:

• The fund must satisfy conditions for income tax concessions in Singapore as a Section 13C, 13G, 13R, 13X fund, 13CA fund (with effect from 1 January 2014), or it must be a designated unit trust or a unit trust included under the CPF Investment Scheme (CPFIS) as at the last day of its preceding financial year.

• The fund must be managed or advised by a prescribed fund manager in Singapore. (Prescribed fund managers are those that hold a capital markets licence under the Securities and Futures Act (Cap. 289) for fund management and those that are exempt under the Securities Futures Act from holding such a licence).

In the circular, the MAS set the fixed recovery rate for 1 January 2014 to 31 December 2014 at 90%. Funds that meet the qualifying conditions are required to file a quarterly statement of claims to make the claims based on their financial year end. This allows funds that are not eligible for GST registration to mitigate the GST incurred while doing business in Singapore.

Determination of “belonging” status of a fund

Under the GST legislation, zero-rating (GST at 0%) generally applies to services (for example, fund management services) that are supplied under a contract with, and for the direct benefit of, persons that “belong” in a country other than Singapore at the time the services are performed. The 7% GST is applicable on services (for example, fund management or custodian services) supplied to funds belonging in Singapore.

In the circular, the MAS clarified how you determine whether a fund (other than trust fund) is treated as “belonging in Singapore”. According to the MAS, a fund is considered to be “belonging in Singapore” if:

• The fund has an administration office with employees in Singapore;

• The fund does not have any employees or an administration office of its own in any country and the fund relies solely on a Singapore fund manager to carry on its business activities (in other words, a Singapore fund manager has overall responsibility to oversee and carry out the activities of the fund and that manager is the sole contracting fund manager for the fund);

• The fund does not conduct board meetings at a fixed location outside Singapore on a permanent basis.

The rules for determining that a fund belongs in Singapore took effect from 1 April 2014. With the updates to the rules, certain services (for example, fund management services) supplied to offshore funds that were incorporated outside Singapore (which used to be subject to 0% GST before the updates) may now have to be standard-rated and charged with 7% GST.

Where the fund qualifies for the GST remission, it is possible to mitigate the GST costs as the fund will be able to recover a percentage of the GST (based on the annual recovery fixed rate) that was charged by the service providers.

How BDO Singapore can assist

Given the updates to the GST rules, service providers and fund managers should review the “belonging” status of funds that were incorporated outside Singapore (especially if the fund has fund managers in Singapore that have discretionary authority to act for the fund). Penalties will apply for incorrect returns filed and for any late payment made to the Inland Revenue Authority of Singapore (IRAS).

The updates to the GST rules are also important considerations for offshore funds that intend to engage Singapore service providers (for example, a Singapore fund manager) and for incorporating a new fund in Singapore.

BDO Singapore can help service providers review the GST treatment on the fees they charge to offshore funds to ensure that the GST treatment is correctly applied and also to advise offshore funds on the GST requirements in Singapore.

In addition, BDO Singapore can help assess whether a fund is eligible for the GST remission and, if so, we can help the fund with their filing of the quarterly statements of claims.

EU CHIN SIEN YVONNE CHUASingapore chinsien@bdo.com.sg yvonnechua@bdo.com.sg

SINGAPOREGOODS AND SERVICES TAX (GST) UPDATES FOR THE FUND MANAGEMENT INDUSTRY

10 INDIRECT TAX NEWS 2

SPAINVAT – DIRECTORATE GENERAL OF TAXATION TAX RULING Nº V0445-14

SWITZERLANDSWISS SUPREME COURT SAYS U.S. DATING WEBSITE OPERATOR MUST REGISTER FOR VAT

Ataxpayer that had been providing zero rated VAT services to its customers requested a ruling when,

after a tax inspection, the Spanish Tax Authorities determined that the taxpayer should have been charging VAT on the transactions in question.

The Spanish VAT Act provides that if a VAT taxpayer has miscalculated the amount of VAT they should have charged, they must reissue the invoice showing the correct amount of VAT owing.

Corrections to the invoice must be made at the time the miscalculations are detected, provided that the period between the date the tax accrued and the date on which the error is detected does not exceed four years. This rule also applies when an invoice is issued without the appropriate VAT charged.

The new wording of the Spanish VAT Act (effective from 2014 onwards) provides that a taxpayer cannot re-issue invoices with the correct VAT chargeable if:

1. If the Spanish Tax Authorities determine that the taxpayer incorrectly omitted charging VAT, and

2. If the Spanish Tax Authorities can prove that the taxpayer failed to charge VAT by reason of fraud.

Previously, if the tax authorities found that failure to charge VAT lead the Spanish Tax Authorities to impose a tax penalty, the taxpayer was not permitted to re-issue the relevant invoice with the correct VAT.

With respect to the right of the party invoiced to offset VAT paid against its output VAT, the Spanish VAT Act allows parties liable to the tax to adjust setoffs when the amount of VAT they were charged has been miscalculated or when they receive amended invoices from suppliers.

When a taxpayer receives a corrected invoice that results in an increase in any VAT the taxpayer initially set off, the taxpayer may make appropriate adjustments in its VAT tax return corresponding to the period in which the taxpayer either receives documentary proof of the correct amount of VAT owing or in a subsequent VAT return, so long as the period between the date the VAT accrued and the date on which the error is corrected does not exceed four years.

DAVID SARDÁ ALEX SOLERSpain – Barcelona david.sarda@bdo.es alex.soler@bdo.es

One of the unique things about VAT is that is can apply across international borders, especially when services are

provided to Swiss residents via the internet.

As a general rule, when someone in Switzerland acquires services from abroad and the services provided in a single year are valued at more than CHF 10,000, the Swiss resident must inform the Swiss tax authorities and pay 8% Swiss VAT on the value of the services acquired.

Of course, most rules have exceptions, and the Swiss Supreme Court recently considered an exception that requires a foreign provider to register as a Swiss VAT taxpayer with regard to certain IT services, rather than have the Swiss final customer declare the Swiss VAT on acquisition of the service.

The Supreme Court concluded in the case (ATF-2C-1100/2012) that a U.S. online dating website that had some Swiss-resident customers had to register as a Swiss VAT taxpayer.

The Court held that Swiss VAT registration is compulsory for a foreign company managing an online dating website from abroad if the website has Swiss resident customers.

In reaching its decision, the Court concluded that an online dating website is considered to provide IT service, based on the following:

1. The information is provided electronically

2. The technology used (the internet) is not a just a means of transmission; and

3. The service cannot be provided without that technology.

This case, in effect, demonstrates that with regard to VAT, the fundamental question is always multi-faceted: “Who does what and where?”.

ALEXANDRE SADIK PAOLA GARIERISwitzerland – Geneva alexandre.sadik@bdo.ch paola.garieri@bdo.ch

11INDIRECT TAX NEWS 2

UNITED KINGDOMREPORT ON THE WORLD CUSTOMS ORGANISATION’S AUTHORISED ECONOMIC OPERATOR CONFERENCE

To improve supply chain safety and security, the European Commission introduced Authorised Economic

Operator (AEO) status in 2008. Conferring AEO status on qualifying businesses is part of an internationally coordinated approach aimed at combating terrorism and non-compliance in global trade.

Businesses that are engaged in sourcing products for their supply chain from around the globe can apply to their domestic customs authority for AEO status. Such status demonstrates that the holder is a “trusted trader” for customs purposes and provides certain assurances as to the safety and security of the AEO’s supply chain.

The World Customs Organisation held its second Global AEO conference in Madrid in late April 2014. Delegates at the conference included individuals from industry, practice, academia, and public policy. Among the topics discussed were: the growing importance of AEO status in international trade, the benefits of AEO programs in terms of trade facilitation, the development and progress of Mutual Recognition Agreements (MRAs), and the increasing emphasis on engagement with Small and Medium Sized Enterprises (SMEs).

Growing importance of AEO status

At the conference, representatives from several key organisations, including the European Commission, U.S. Customs and Border Protection, the Organisation for Economic Cooperation and Development (OECD), and the World Trade Organisation (WTO) all emphasised the growing importance of AEO programs in encouraging international trade.

The representatives of these organisations see AEO programs as a tool for achieving the key objectives of:

• Reducing the general administrative burden involved in trading internationally,

• Improving security in the supply chain, and

• Helping to speed up the clearance of goods at port.

Benefits in terms of trade facilitation

Efforts are being undertaken around the world that are aimed at unlocking the potential of international trade in order to improve global economic outlook; such efforts include bilateral trade agreements (such as the proposed Trans-Atlantic Trade and Investment Partnership (TTIP) between the U.S. and the EU), and multilateral trade deals (such as the recent Bali agreement negotiated by the WTO).

Policymakers and businesses see AEO programs as a device that will help deliver capacity building and create an environment within which international trade can flourish. AEO status can facilitate faster clearance at port (through fewer interventions by customs officials and the creation of special AEO “lanes” for trusted traders) and can increase confidence in the safety and security of strategic suppliers (through the creation of a globally recognised and regulated standard).

Progress of MRAs

Authorised traders under an AEO program can also take advantage of faster customs clearance and reduced physical and documentary controls when importing or exporting into countries that participate in MRAs. Currently there are around 25 active MRAs and it is expected that the number of MRAs in operation around the world will increase significantly over the next few years. This will substantially increase the benefits of AEO authorisation.

Engagement with SMEs

The other important theme emphasised at the conference was the applicability of AEO programs to SMEs. For a long time there was a perception that AEO programs were intended primarily for the largest corporates. A number of case studies discussed at the conference involving SMEs made it clear that successful application for AEO status is advantageous to businesses of any size.

ONELIA ANGELOSANTO JONATHAN P STACEYUnited Kingdom – Manchester onelia.angelosanto@bdo.co.uk jonathan.stacey@bdo.co.uk

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UNITED STATESSALES TAX SYSTEMS IN THE USA – AN OVERVIEW

The United States does not have a value added tax at either the federal or the state level. Sales and use taxation in

the United States is operated independently by each of the 50 states. Sales taxes are administered by every state except Alaska, Delaware, Montana, New Hampshire and Oregon. Although in these five states a state-imposed general transaction tax is not present, localities may tax transactions or there may be a state-imposed tax on specific items (e.g. gas, car rentals, alcohol). The sales tax rates vary from 2.9% to over 10%.

Sales tax is usually the responsibility of the trader to charge and remand to the state, and stated separately (or implicitly added at the time of sale) to consumers. Unlike a value added tax, a sales tax is imposed only once at the retail or consumer level.

Purchases in the United States

US companies are responsible for collecting tax on sales to their customers. Out-of-state traders often fail to tax an item shipped into a neighbouring state when their own state‘s guidance does not require taxation. In these situations use tax is often due but remains unpaid by the purchaser located in the state of delivery. Tax auditors often count on inadequacy in sales tax reporting of this type and assess tax, interest and penalties on often unsuspecting taxpayers. In most states an auditor may review and assess use tax on transactions of this type going for up to four years back.

Internet sales in the United States

Contrary to popular belief, internet transactions are not exempt in any US states. However, a seller who does not have nexus in a particular state is not liable for collection of sales tax in that state. The purchaser is liable to remit use tax voluntarily on these purchases. In many states tax is due from the purchaser in the jurisdiction where possession of an item is taken, while in other states the location of ‘first use’ or some other factor may determine where tax is due.

Taxation of services in the United States

In most states professional services such as those provided by doctors and lawyers are not subject to sales tax; however, taxation of non-professional services or general labour vary widely from state to state. Given this fact, a thorough examination of a company’s service provisions (and purchases) should be considered before beginning business operations in a state and should be regularly reviewed throughout the course of a business’s ongoing operations.

Taxation of manufacturing in the United States

Taxation of manufacturing institutions varies widely from state to state. States such as Texas, Florida and New Jersey provide liberal but often complex exemption rules that are continually contested under audit. California, on the other hand, is one of the least liberal states concerning manufacturing operations. Some states, such as Colorado, provide enterprise-zone exemptions that expand further on manufacturing (and other) exemptions. In Colorado, for example, the state’s manufacturing exemptions are extended in some regions to cover mining operations for gas, oil and other minerals. Regardless of the state in which manufacturing or mining is performed, a thorough review of a state’s guidance is critical.

Taxation of software in the United States

One of the most complex sales and use tax areas is the taxation of software. Most companies do not sell software but spend significantly on software and software licensing. The following primary issues should be considered when purchasing (or selling) software or licensing:

• Custom-designed software vs ‘canned’ (pre-written) software

• Software delivery method

• Central (i.e. web-based) vs local installation

• Software maintenance (i.e. regular upgrades).

Sales tax return filing requirements

Sellers of taxable property must file tax returns with each jurisdiction in which they are required to collect sales tax. The most common sales and use tax return filing frequencies are monthly, quarterly and annually. The tax return filing frequency determination will vary between the states, but a filing frequency status is usually based on the taxpayer’s gross sales volume and tax amount due. Each state requires their own official sales and use tax form to be completed.

Sales tax returns typically report all sales, taxable sales, sales by category of exemption, and the amount of tax due. Where multiple tax rates are imposed (such as on different classes of property sold), these amounts are typically reported for each rate. Some states combine returns for state and local sales taxes, but many local jurisdictions require separate reporting. Some jurisdictions permit or require electronic filing of returns. Some states provide a discount to vendors upon payment of collected tax.

Sales tax return due dates varies among the states. Each has a specific due date for their tax returns and payments are typically due on the 10th, 15th, 20th or at month end. Most states will only grant extensions for filing sales tax returns for a good cause such as natural disasters. Lack of funds usually does not constitute a good cause. Every state imposes a stiff penalty and interest charges for the late filing and payment of sales and use tax returns.

Sales taxes collected in some states are considered to be money owned by the state, and consider a vendor failing to remit the tax as in breach of its fiduciary duties.

Sales for resale

Most states sales and use tax laws require sales or use tax to be collected on the sales of taxable tangible personal property or services unless the property was purchased to be resold. For example, goods purchased to be incorporated into in the finished product are generally not taxable. Steel purchased to be part of machines is generally not taxable. Also, the purchase of property to be subsequently rented in the same form as acquired may also be purchased for resale. However, supplies consumed and not incorporated into the manufactured product for sale may be taxable. Criteria vary widely by state.

13INDIRECT TAX NEWS 2

Exemption certificates

Generally purchasers are required to pay sales tax unless they are an exempt entity or they will use the property purchased in an exempt manner. Many state and local governments have extended a sales tax exemption to certain purchasers. These purchasers include but are not limited to federal governments, state and local governments, charitable organisation, non-profit corporations and companies that are located in tax free “enterprise zones”. Many states allow for the purchase of materials, tooling and equipment that will be used a qualifying manufacturing or research and development operations to be exempt from sales or use tax.

All states require the seller to collect sales tax from the purchaser unless the seller receives either a resale certificate or an exemption certificate from the purchaser. The seller cannot blindly accept the resale or exemption certificate from the buyer. The seller must know enough about their customer and understand the nature of the purchasers business in order to be able to accept the certificate in good faith.

The format of the resale or exemption certificate varies from state to state. It is important to understand each state’s certificate requirements relating to the minimum amount of content and information required on a certificate. Some states certificates never expire while other states require their certificates to be renewed annually. Some certificates may qualify as blanket certificates covering all transactions purchased from a buyer while other certificates may only cover a single purchase. All certificates should be stored in a safe place and never discarded.

Tax audits

All states imposing sales taxes examine sales and use tax returns of many taxpayers each year. The audit will cover the periods open under state’s specific statute limitation rules. The typical periods open under a state’s sales and use tax audit is 3-4 years. Under many states rules, the statute of limitations never expire if a taxpayer has filed false or fraudulent returns. Upon such audit, the state may propose adjustment of the amount of tax due. Taxpayers have certain rights of appeal, which vary by jurisdiction. Some states require payment of tax prior to judicial appeal, and some states consider payment of tax an admission of the tax liability.

STEVE OLDROYDUnited States – San Francisco soldroyd@bdo.com

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This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific professional advice. Please contact the appropriate BDO Member Firm to discuss these matters in the context of your particular circumstances. Neither the BDO network, nor the BDO Member Firms or their partners, employees or agents accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO is an international network of public accounting firms, the BDO Member Firms, which perform professional services under the name of BDO. Each BDO Member Firm is a member of BDO International Limited, a UK company limited by guarantee that is the governing entity of the international BDO network. Service provision within the BDO network is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.

Each of BDO International Limited, Brussels Worldwide Services BVBA and the member firms of the BDO network is a separate legal entity and has no liability for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO network.

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

© Brussels Worldwide Services BVBA, July 2014. 1406-04

CONTACT PERSONS

The BDO VAT Centre of Excellence consists of the following persons:Ivor Feerick (Chair) Ireland Dublin ifeerick@bdo.ieAndrea Haslinger Austria Vienna andrea.haslinger@bdo.atErwin Boumans Belgium Brussels erwin.boumans@bdo.beAnnette Pogodda-Grünwald Germany Berlin VAT@bdo.deDeirdre Padian Ireland Dublin dpadian@bdo.ieErwan Loquet Luxembourg Luxembourg erwan.loquet@bdo.luRob Geurtse Netherlands Rotterdam rob.geurtse@bdo.nlClaudio Giger Switzerland Zurich claudio.giger@bdo.chTom Kivlehan United Kingdom Reading tom.kivlehan@bdo.co.uk

CURRENCY COMPARISON TABLE

The table below shows comparative exchange rates against the euro and the US dollar for the currencies mentioned in this issue, as at 20 June 2014.

Currency unitValue in euros

(EUR)Value in US dollars

(USD)

South African Rand (ZAR) 0.06877 0.09360

Euro (EUR) 1.00000 1.36084

New Zealand Dollar (NZD) 0.64058 0.87179

Swiss Franc (CHF) 0.82142 1.11784