Weekly VAT News
EY VAT News – 15 July 2024
Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments for the period to 15 July 2024.
If you would like to discuss any of the articles in more detail, please speak with your usual EY indirect tax contact or one of the people below. Alternatively, you can use our ‘contact us’ form. If you give us a brief description of your query (not just on this week’s content), we will send it to a relevant person in EY.
If you have any feedback or comments on EY VAT News, please contact Ian Pountney.
EY Publications
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Trade Talking Points – 11 July 2024
Trade Talking Points is our fortnightly newsletter on the latest insights from EY's Trade Strategy team.
In this edition we provide updates on the new UK government, the new Agreement on Climate Change, Trade and Sustainability (ACCTS), and the EU’s electric vehicles duties.
For further information please contact Sally Jones, George Riddell or Margarethe Taucher.
Court of Justice of the European Union
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Judgment: Supplies within a VAT group are outside the scope of VAT even if input VAT is restricted
Topics – VAT Groups – Scope of VAT and deduction
On 11 July 2024 the Court of Justice of the European Union (CJEU) released its decision in this German referral asking whether a VAT Group has the effect of removing supplies of goods or services made for consideration between its members from the scope of VAT. Do supplies of goods or services made for consideration between those persons fall within the scope of VAT in any event in the case where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax, as there is otherwise a risk of tax loss.
The applicant is a foundation governed by public law and the controlling company of a university comprising, inter alia, a school of medicine. It is a taxable person and provides services for consideration (patient care). It also provides services in the exercise of its powers as a public authority (student teaching), in respect of which it is not considered to be a taxable person.
The applicant is the representative member of a VAT group which includes U-GmbH (UG). UG provided, inter alia, cleaning services for the applicant. It provided those services across the complex of buildings comprising the university school of medicine, that is to say on those which are used for patient care (falling within the applicant’s economic and taxable activity) and on those used by the applicant in the exercise of its powers as a public authority, that is to say premises used for student teaching (falling within the applicant’s non-taxable activity).
The tax authorities argued that the applicant’s operations constituted a single undertaking. In that regard, it calculated a higher liability to VAT due to a benefit in kind generated by the cleaning services attributable to the non-taxable activity.
The CJEU recalled that the referring Court asks, in essence, whether Article 2(1) and the second subparagraph of Article 4(4) of the Sixth Directive must be interpreted as meaning that supplies of services effected for consideration between persons forming part of a VAT group do not fall within the scope of VAT even where the recipient of the supply is not (or is only partially) entitled to deduct input tax, which would entail a risk of tax losses. The questions are therefore intended to ascertain whether internal transactions between the members of a VAT group are to be regarded as transactions subject to VAT.
The CJEU noted that pursuant to Article 2(1), the supply of goods or services effected for consideration within the territory of a Member State by a taxable person acting as such is to be subject to VAT. Pursuant to Article 4(1), a 'taxable person' is any person who independently carries out an economic activity referred to in Article 4(2), whatever the purpose or results of that activity.
Also, a supply of services is subject to VAT only if there is a legal relationship between the supplier and the recipient in the course of which reciprocal supplies are exchanged, the remuneration received by the supplier constituting the actual consideration for the service supplied to the recipient. To establish that such a legal relationship exists, it is necessary to ascertain whether the provider carries out an independent economic activity.
Considering whether services supplied between members of the same VAT group must be subject to VAT, the CJEU noted that each Member State has the option of treating as 'a single taxable person' persons established within the territory of the country who are legally independent but who are closely linked financially, economically and organisationally. The implementation of the scheme provided for in the second subparagraph of Article 4(4) of the Sixth Directive means that the national legislation adopted on the basis of that scheme authorises entities with such links to cease to be regarded as separate taxable persons for VAT purposes in order to be regarded as a single taxable person and that, where that provision is applied by a Member State, the subordinate entity or entities within the meaning of that provision cannot be regarded as a taxable person or persons within the meaning of Article 4(1).
Consequently, the treatment of a VAT group as a single taxable person under the second subparagraph of Article 4(4) precludes the members of the VAT group from continuing to submit VAT returns separately and from being identified, within and outside their group, as taxable persons, since only the single taxable person is entitled to submit those returns. That provision therefore necessarily presupposes, where it is applied by a Member State, that the national transposing legislation ensures that the taxable person is a single person and that a single VAT number is granted for the group. It follows that a supplier belonging to a VAT group cannot be regarded, on an individual basis, as a taxable person separate from the taxable person constituted by the VAT group. It is not necessary to determine whether that supplier satisfies the condition of independence laid down in Article 4(1) when it supplies a service for consideration to another entity of that group. Therefore, such a supply cannot fall within the scope of VAT under Article 2(1).
As regards the question whether it is necessary to distinguish between the particular case where the supplier of such a service cannot rely on the right to deduct input VAT due or paid, on the ground that there is, in that case, a 'risk of tax losses', the CJEU recalled that, in the context of a VAT group, the right to deduct input VAT due or paid is conferred on the group itself, and not on its members.
The CJEU noted that in prior cases cited by the referring court, the condition relating to the need to avoid a risk of tax losses related to a different question to the one examined in the context of the immediate proceedings.
In conclusion, the CJEU held that Article 2(1) and the second subparagraph of Article 4(4) of the Sixth Directive must be interpreted as meaning that the supply of services for consideration between persons forming part of a group formed by persons who are legally independent but closely linked to each other financially, economically and organisationally, do not fall within the scope of VAT, even where the recipient of the supply is not (or is only partially) entitled to deduct input VAT.
Comments: This latest judgment regarding VAT groups further supports the nature of a single taxable person and disregarding supplies between group members. -
Judgment: A transfer of land previously allocated as a business asset to the State, against payment of compensation, is a taxable supply
Topics – Expropriation, transfer of ownership of land, whether VAT due on compensation
On 11 July 2024 the Court of Justice of the European Union (CJEU) released its decision in this Polish referral asking whether the provisions of Article 9(1) of the VAT Directive, in conjunction with Article 14(2)(a), allow a farmer, who is liable to pay VAT under general rules and who transfers the ownership of a plot of land to the State Treasury under an expropriation procedure in exchange for ‘compensation’ related to the change of its intended use for non-agricultural purposes, to be regarded as a taxpayer obliged to pay VAT on that compensation due solely to the fact that the plot was earlier used for agricultural activities subject to VAT.
Makowit is a dairy farmer and is registered for VAT. Having acquired plots of land, he intended to expand his farm. The land acquired was not subject to VAT and Makowit did not deduct any VAT with regard to the acquisition.
By a public decision, some of the newly acquired plots of land were compulsorily acquired by the state for the purpose of investment in local roads. In this regard, Makowit lodged with the tax authority an application for a tax ruling to determine, first, whether he should be regarded as being subject to VAT as a result of the sale of the plots of land acquired by the treasury and, second, whether the compensation received in this respect should be subject to VAT.
The tax authority considered that the transfer by expropriation of ownership of plots of land to the Treasury, for the purpose of making investments in roads, had to be regarded as a supply of goods for consideration by Makowit acting as an entity carrying on an economic activity, within the meaning of domestic VAT law, that is to say, as a taxable person for VAT purposes.
Makowit challenged that decision before the Regional Administrative Court which annulled the tax ruling. It found that Makowit had not taken any steps to sell the land in question and its acquisition had been decided upon independently of his will. Thus, according to that court, that supply was unrelated to Makowit’s agricultural activity and, consequently, he had not acted as a taxable person for VAT purposes when the land in question had been transferred to the Treasury.
The tax authority brought an appeal on a point of law against that judgment which is now subject to this referral.
The CJEU recalled that Article 2(1)(a) of the VAT Directive lays down the conditions which a supply of goods must satisfy to be classified as a transaction subject to VAT. Having conceded that Makowit is a taxable person for VAT purposes and carries on an economic activity, the CJEU noted that in essence it had been asked to consider whether Articles 2(1)(a) and 14(2)(a) read together, must be interpreted as meaning the transaction in the immediate proceedings against the payment of compensation to the owner of that land must be subject to VAT where that owner is a farmer, subject to VAT, even if he does not carry out any land marketing activity and has not taken any steps to make such a transfer.
The CJEU noted that pursuant to Article 2(1)(a), the supply of goods effected for consideration within the territory of a Member State by a taxable person acting as such is to be subject to VAT. It is therefore necessary to examine whether the circumstances in the immediate case correspond, first, to the concept of 'supply of goods for consideration' and second, to that of 'taxable person acting as such'.
As regards the supply of goods, Article 14(1) defines it as the transfer of the right to dispose of tangible property as owner. Article 14(2)(a) adds that, in addition to the transaction referred to in Article 14(1), the transfer, with payment of compensation, of ownership of goods pursuant to a requisition made by or on behalf of the public authority or in accordance with the law, is to be regarded as a supply of goods.
The CJEU noted that it is not disputed that first, the land at issue became the property of the State Treasury and, second, that transfer of ownership is the result of a unilateral decision of an authority of the public administration.
With regard to the payment of compensation, the Court has previously held that in order to determine whether that condition is satisfied, it is only necessary to establish that the compensation at issue is directly linked to the transfer of ownership and that its payment was effective. The CJEU noted that the compensation at issue in the immediate proceedings is directly linked to the transfer of ownership of the plots of agricultural land. Since that payment was effective, which it is for the referring court to determine, the transaction in question constitutes a 'supply of goods' within the meaning of Article 14(2)(a). As regards the condition that that supply must be made 'for consideration' in Article 2(1)(a), the mere receipt by the taxable person of compensation within the meaning of Article 14(2)(a) is sufficient for the condition of a transaction for consideration to be satisfied.
Considering the concept of 'taxable person acting as such' in Article 2(1)(a), the CJEU noted that the referring Court has doubts as to whether Makowit acted in that capacity when transferring ownership of the land. In this context, it points out that he does not carry out any economic activity of land marketing nor has he taken any steps to sell the land.
The CJEU considered that a taxable person, within the meaning of the first subparagraph of Article 9(1), acts, in principle, in that capacity only if he does so in the course of his economic activity. This is satisfied where a taxable person transfers ownership of immovable property used for that economic activity in the broad sense. Conversely, a taxable person who carries out a transaction on a private basis does not act as a taxable person. Consequently, a transaction carried out by a taxable person on a private basis is not subject to VAT.
The CJEU noted that the plots of land in question were part of the business assets of Makowit on the date of the transfer of ownership of them to the Treasury. It follows that Makowit, who is a taxable person for VAT by reason of his agricultural activity, acted as a taxable person by transferring ownership of land used for his economic activity, even though he does not carry out any land marketing activity and has not taken any steps to that end. A condition requiring an active approach on the part of the taxable person would not be compatible with the effectiveness of Article 14(2)(a), which, by definition, refers to the transfer of ownership of goods following a requisition made by or on behalf of the public authority or in accordance with the law.
The CJEU suggested that in the event that the referring court finds that the transaction at issue in the immediate proceedings was carried out by Makowit in the context of the management of the part of his assets which is not allocated to the agricultural holding, it would have to be held that he did not act as a taxable person and that that transaction would not be subject to VAT.
In summary, Article 2(1)(a) and Article 14(2)(a) of the VAT Directive, read together, must be interpreted as meaning that a transaction involving the transfer, by way of expropriation, of ownership of plots of agricultural land in return for the payment of compensation to the owner of that land must be subject to VAT where that owner is a farmer subject to VAT and acting as such, even if he does not carry out any land marketing activity and has not taken any steps to make such a transfer.
Comments: This is a difficult case to follow as there appears to be some background detail missing in both the judgment and domestic ruling. It is assumed that in this case there ‘was’ an intention to use the land for agricultural purposes but that this intention was not realised. Whilst the sale of agricultural land in Poland can qualify for exemption (subject to an option to tax), the sale of land classified for construction or development purposes is taxable. It appears that due to the lack of actual agricultural use, the land has been classified as land for development, disposed of as part of an economic activity and therefore taxable.
Court of Appeal
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Private hire taxi operators operating as an agent do not act as principal with passengers in England and Wales
Topics – Private hire taxi operators – Agent v principal
DELTA Merseyside Limited & Anor v Uber Britannia Limited
This case concerns an action brought by Uber against Merseyside-based Sefton Council over contract terms for all taxi operators outside London. The High Court previously held that private hire taxi operators (rather than taxi drivers) contract and act as principal with passengers in England and Wales. Private hire operators disagreed, warning of a potential consequence leading to, inter alia, passengers having to pay VAT on private hire journeys, however despite these representations the judge agreed with Uber.
The Government subsequently launched a Consultation (which closes on 8 August 2024), inviting views on potential Government interventions that could help to mitigate any undue adverse effects on the sector and its passengers. Previously, individual taxi firms were able to decide on their business model and therefore whether VAT had to be charged. The decision secured by Uber in the case of Uber v Sefton Borough Council took that choice away from firms and from passengers.
The judgement has now been challenged at the Court of Appeal (CA) by DELTA and Veezu. DELTA holds licences from local authorities, including in Sefton and, together with Veezu, is a private hire operator.
The CA has considered whether an operator is required to enter a contract, as principal, with a person who makes a booking for a private hire vehicle, as previously held by the High Court. In this regard the CA acknowledged that the circumstances in which a booking might be made are potentially varied. The person who makes the booking may do so on behalf of someone else without incurring any contractual liability. Moreover, a booking may not necessarily specify any journey; or even be made for a journey at all. A vehicle may be booked simply to be on stand-by.
The CA considered that the High Court had been wrong to conclude as it did. It had assumed that the booking is made by ‘the passenger’, which is not necessarily the case, and it assumed that the contract is one ‘to provide the journey’ which is also not necessarily the case. In addition, a declaration was made which stated that the operator was required to contract to operate ‘lawfully’. The implication from this is that if the operator did not enter into a contract, it would be committing an offence, even though there is no statutory provision that creates such an offence.
In conclusion and allowing the appeal, the CA held that the High Court was wrong to have reached the decision that it had.
Comments: This is a complex judgment which relates to the regulatory position, and it’s yet to be tested in respect of the direct read across between the regulatory position and the VAT position. We are aware from the litigation that Bolt has been accounting for VAT under TOMS and that HMRC does not agree with the use of TOMS in this industry, and is appealing against the First-tier Tribunal judgment in Bolt. Whilst this judgment offers some scope for mobile ride hailers to argue that they’re not providing the journey, the Local Government (Miscellaneous Provisions) Act 1976 provides that an operator of a vehicle must have the requisite operator licence (and typically, drivers do not have such a licence) and not to do so could be a criminal offence (see paragraphs 8 and 9 of the judgment). Therefore, it is not clear to what extent this judgment will assist mobile ride hailers to argue that they’re not providing journeys.
For further information, please contact Ethan Ding.
First-tier Tribunal
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Collagen drink product is not a food of a kind used for human consumption and is not zero-rated
Topics – Collagen drink product – whether food of a kind used for human consumption
The First-tier Tribunal (FTT) has released its decision in this case concerning the supply of a collagen drink product ‘Skinade’ and whether it is a ‘food of a kind used for human consumption’ and therefore zero-rated within Item 1, Group 1, Schedule 8, VATA94.
Bottled Science Ltd (BSL) submitted an error correction notice for overdeclared output tax declared in VAT periods 12/16 – 09/20 inclusive in the sum of £1,250,840.06 on the basis that Skinade is properly zero-rated as food. The claim was refused by HMRC on the basis that the term ‘food’ is to be strictly interpreted as an exception to the general principle that all supplies of goods for consideration by a taxable person should be subject to VAT. Applying a purposive interpretation to ‘food’, Skinade is a product intended to produce an aesthetic beauty effect, that happens to be taken in the format of a drink.
Section 30 VATA94 provides for the zero-rating of goods or services of a description specified in Schedule 8. Group 1 of Schedule 8, titled ‘Food’, provides at Item 1 ‘food of a kind used for human consumption’. Excepted items include: other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverage; and sports drinks that are advertised or marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk, and other similar drinks, including (in either case) syrups, concentrates, essences, powders, crystals or other products for the preparation of such drinks.
The FTT was provided with a sample of Skinade which consisted of a box of travel sachets and a box containing five 150ml bottles of the product. The boxes included the Skinade logo and the words ‘better skin from within’. The front of the boxes also contains the words ‘food supplement’.
The text provided with the product explains how Skinade works and why it is considered to be superior to skin creams. The ingredients are listed, in particular hydrolysed marine collagen peptides. There are instructions on how to use Skinade, advising people to drink a bottle a day ideally after breakfast and the comment that "For lasting results we recommend continued use. Skinade should be a part of your daily skincare regime." Nutritional information is given which explains that Skinade provides 1.8% of a woman's energy needs, 15.3% of her protein requirements, 0.8% of her carbohydrate requirements and 1.5% of her recommended sodium intake. It contains no fat or fibre.
BSL argued that:
- ‘Food’ includes drink and liquid foods
- A key determinant of food is its nutritional content/the provision of nutrients – this is found in all the definitions and relevant uses of the word
- The format of the product and how it is consumed will be relevant
- The objective nature and characteristics of the product are more important than its subjective end use
- A product is not excluded from being food on the basis that it is marketed or understood to be healthy, have therapeutic qualities, or do you good (whether perceived or actual benefits)
- Food supplements are not a distinct category and can be food
Based on a multi-factorial test, which considers the description of the product, its ingredients, nutritional content, packaging/labelling, method of consumption, taste, consumer perception, marketing, manufacturing and shelf life, BSL considered Skinade to meet the requirement to be considered ‘food’. It also asserted that HMRC's description of Skinade as a beauty/skincare product creates a category of product that does not exist in VAT law. A product may enhance beauty as well as contribute to hair, nail, and skin strength and appearance and still be food. Looked at in the round, as Skinade has "sufficient characteristics" for the FTT to find it may be described as food, it must therefore be food.
The FTT noted that whilst there had been some discussion around whether Skinade is a beauty product, this is not particularly helpful. The question has to be whether Skinade is a food, not whether it could, better or additionally, be described as a beauty product.
In form, Skinade is a liquid, and the legislation provides that food includes drink, however it does not follow from Skinade being a drink that it is automatically a food. Also, whilst food needs to have some nutritional value, its level is important. The overall level of a product's nutritional value (not just the binary question whether it has any level of nutritional value at all) is relevant in a multi-factorial assessment.
Referring to Arthro Vite, the FTT noted that the products at issue there were consumed to help the body function and marketed with that in mind. However, this is not the case with Skinade, the consumption of which has a singular purpose, that of keeping users' skin looking young. In terms of ‘nutritional value’ the FTT did not regard Skinade as concerned with keeping the body alive or its development or functioning.
The FTT noted that all of the ingredients of Skinade are themselves food or, if not, are ingredients regularly used in food. However, the question is whether the finished product is a food, not whether its ingredients individually are food or food ingredients.
The FTT also noted that to taste, whilst Skinade is palatable, it would not rush to drink it for its own sake or, to borrow an expression from the caselaw in a different area of the VAT legislation, to serve it to an unexpected guest.
The FTT also dismissed any weight placed on how Skinade is produced and any supervision by the Food Standards Authority. The concept of ‘food’ in such regimes can be very different from the meaning of ‘food’ as an ordinary English word and can be driven by considerations which are not presented when looking at the ordinary meaning of the word.
The FTT noted that the factor which weighs most heavily in this case is the way in which Skinade is packaged and marketed. It recalled that the overall appearance of the packaging is quite clinical. It is white with scientific-looking logos and designs. Whilst some of the wording, for example nutritional information, might be found on food packaging, its overall appearance is much more of something one might find in a chemist's shop than a grocer's.
Also, in the same way that its packaging is not what one would expect of a food stuff, the FTT considered its overall presentation and route to market to be very different from what one would expect of a foodstuff. Skinade is not available in places foodstuffs generally are. The description on the website of Skinade as a multi award-winning, natural peach and mangosteen flavoured anti-ageing collagen drink is not a description that one would expect of a foodstuff. The same webpage goes onto to describe it as an "effective and bioavailable anti-ageing skincare product" and an alternative approach to a person's skincare regime. Skinade is marketed at trade shows aimed at the beauty industry rather than food retailers. Skinade has won cosmetic awards, rather than food industry awards, and BSL sponsors an annual prize for plastic surgeons. The Skinade website for professionals shows an image of someone having an injection in their face, advertises training and education at the Skinade University, refers to Skinade's presence at aesthetic trade shows and shows the covers of peer reviewed magazines in the dermatology and anaesthetic medicine fields. None of this is how one would expect to see food marketed.
The FTT considered that a broad-minded person would conclude that Skinade is a product with some (but it is unclear how much, when compared with foodstuffs generally) nutritional value, which is not consumed in order to keep the body alive or to enable it to function and develop. Rather, it is a product distributed and marketed, in ways which are very different from those one would ordinarily expect of food, for a very particular purpose (helping people keep their skin looking young). The directions for use reflect this. Users are told to drink a bottle of Skinade every day "ideally after breakfast". The instructions are not to consume Skinade as part of a meal. They go on to counsel that, for lasting results, Skinade should be "a part of your daily skincare regime". None of that is language redolent of food.
In conclusion, Skinade is not a ‘food of a kind used for human consumption’ within Item 1, Group 1, Schedule 8, VATA94.
Comments: Another in a long run of cases exploring the complexities of VAT and food. Indeed, the FTT itself highlights that it did not find it an easy issue to resolve.
For further information please contact Andy Jones.
HMRC Material
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Consultation Outcome – Draft regulations: The Alcoholic Products (Excise Duty) (Amendment) Regulations 2024
The consultation page of the Alcohol Duty Review has been updated to confirm that changes will be made to the draft regulations as a result of consultation feedback and also to reflect developing policy. This will be reflected in the final legislation, due to be published by 1 February 2025.
The Alcohol Duty Review aims to improve the alcohol duty system by making it simpler, more economically rational and less administratively burdensome on businesses and HMRC. Primary legislation and The Alcoholic Products (Excise Duty) Regulations came into force on 1 August 2023.
These draft regulations aim to ensure that the administration of alcohol approvals, returns and payments operate as intended. They include the legislative requirements associated with the administration of alcohol duty.
The Regulations will be accompanied by a new digital service for customers to make their returns and payments, which is expected to launch on 1 March 2025.
For further information regarding excise duty please contact Craig Clark.
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VAT Notice 700/1: Who should register for VAT
This Notice provides details regarding when and how to register for VAT. A link to a new online tool to check what registering for VAT might mean for your business has been added to section 3.9 (see Check what registering for VAT may mean for your business).
This tool can be used to estimate what VAT might be owed or reclaimed by a business when registering for VAT. The tool can also be used multiple times to compare different situations that could apply to a business in the future. The tool can help any business to see what registering for VAT could mean, as well as linking to further information about the registration process. It is also a useful tool for businesses operating below the threshold and considering voluntary registration.
Please also refer to HMRC’s press release – HMRC launches VAT Registration Estimator.
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Update – VAT Notice 701/6 supplement: Charity funded equipment certificates
This Supplement to Notice 701/6 provides details regarding the certificates you can use when zero rating goods or services under the VAT Act 1994, Schedule 8, Group 15, items 4 to 6. All certificates A to U have been updated.
EY Global Tax Alerts
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Ethiopia
The Ministry of Finance (MOF) has issued a new directive with a list of exempt goods which are in addition to the lists on VAT Proclamation No.285/2002 (as amended) and VAT regulation No.79/1995.
The new directive also excluded all goods and services that have previously been exempt through various directives issued or decisions made by the MOF. Such goods will now be subject to VAT at the standard rate of 15%.
Our alert provides further details regarding retained exemptions, additional exemptions and transitional provisions. -
Saudi Arabia
The Zakat, Tax and Customs Authority (ZATCA) has announced the criteria for taxpayers to be included in the 13th wave of Phase 2 e-invoicing integration. Taxpayers resident in Saudi Arabia, with a taxable turnover above SAR10m during the calendar year 2022 or 2023, should comply with the Phase 2 e-invoicing requirements that are effective from 1 December 2024.
Resident businesses should comply with the obligations of Phase 2 e-invoicing integration based on the ZATCA notification and undertake the relevant steps in making the required changes in their information technology systems. Taxpayers should comply with the Phase 2 requirements in line with the e-invoicing regulation to preclude possible penalties.
Taxpayers who do not fall within the first 13 waves of Phase 2 e-invoicing integration should monitor future announcements from the ZATCA on the integration timeline period applicable to them in subsequent waves.
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Saudi Arabia
The Ministry of Finance has issued Resolution No.1352 extending the tax amnesty initiative ‘Cancellation of Fines and Exemption of Financial Penalties’, from 1 July 2024 to 31 December 2024. The initiative, previously extended from 1 January 2024 through 30 June 2024, has been further extended for another six months until the end of 2024 to continue to provide relief to taxpayers and businesses who meet the qualifying requirements.
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Argentina
The Federal Administration of Public Revenues has extended until 31 December 2024 the suspension of the ‘exclusion certificates’ in relation to the additional withholding regimes for Income and VAT applicable to the definitive import of certain goods.
As a result of the latest extension, Customs Authorities will continue to apply the reverse withholding regimes when formalizing the import clearances, even if the taxpayer has the corresponding ‘exclusion certificates’. -
Canada
An Order in Council (OIC) has been posted on the Government's website fixing the day Canada's Digital Services Tax Act (DSTA) comes into force as 28 June 2024. The OIC was issued by the Governor General in Council, based on the recommendation of the Minister of Finance.
The DSTA impacts large domestic and foreign businesses that are part of a corporate group with global consolidated revenues of at least €750m and who earn Canadian digital services revenue from providing online marketplace services, online advertising, social media services and the monetising of user data in excess of CA$20m. If a taxpayer or its consolidated group meets the required conditions, the taxpayer(s) will be required to pay a tax equal to 3% on their taxable Canadian digital services revenue in excess of CA$20m in a calendar year.
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Finland
Following recent increases in VAT rates, the Government has decided to reform the VAT rates as well as the insurance premium tax (IPT) rate. The first of the reforms will take place within two months. The Government's proposal for increasing the general VAT and IPT rates to 25.5 % was adopted on 28 June 2024 and the new rates will become effective from 1 September 2024.
In accordance with the transitional rules, the new VAT rate will be applied when the liability to remit VAT occurs on or after 1 September 2024. Transactions for which the liability to remit VAT has occurred prior to the effective change date would be subject to the 24% VAT rate.
The Government's planned additional multiple tax-rate changes (see below) will be implemented in several stages:
- The change for commodities currently taxed at a 10% VAT rate (excluding newspapers and periodicals) that will be moved to the 14% VAT rate is intended to come into effect from 1 January 2025. The Government's proposal for the legislative change is expected to be presented to the Parliament in week 39 (i.e., the week of 23 September 2024), according to the current estimate.
- The Government reportedly intends to separately implement the rate increase for candies and chocolates from the 14% VAT rate to the general (25.5%) VAT rate, later in calendar year 2025. Due to challenges in defining the scope of application, the preparation of the matter may require more time — as of yet, there is no definitive information on enactment of this change.
- The change for menstrual protection products, incontinence pads, and children's diapers, currently taxed at 24% VAT rate and to be moved to the 14% VAT rate, is intended to come into effect from 1 January 2025. The Government's proposal for the legislative change is expected to be presented to the Parliament in week 39, according to the current estimate.
The changes necessitate that companies review, among other things, contracts and their VAT clauses, price lists, and invoice texts. Regarding the change in the general tax rate, and especially in consumer sales of products subject to the general tax rate where the price can no longer be changed (e.g., in consumer sales where the price has been agreed upon prior to the VAT rate change), profit margins will decrease. Additionally, the verification of purchase invoices must be intensified in connection with the change to ensure that the purchase invoices contain the correct VAT rate and amount. Should the invoice contain an incorrect VAT rate or amount, the invoice would be non-deductible.
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Brazil
The tax authorities (RFB) have published Private Letter Ruling No. 177, which addresses the tax treatment of remittances abroad for the right to commercialise or distribute software.
The RFB ruled that such payments are classified as royalties for Brazilian tax purposes and are therefore subject to a 15% withholding tax (WHT). Further, the RFB ruled that payments for the right to distribute or license cloud-based platforms, without transferring source code, are not subject to the 10% Contribution for Intervention in the Economic Domain (CIDE). Finally, the Ruling also confirmed that software royalties are not subject to social security contributions on imports (PIS/COFINS-Import), provided that the amounts are separated from any connected services in the supporting documentation.
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Pakistan
The Finance Acts, 2024, approved by the Provincial Assemblies of Punjab, Sindh and Khyber Pakhtunkhwa, has introduced significant tax amendments effective 1 July 2024. Our alert outlines the numerous changes introduced.
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Peru
Under a new law, the President is entitled to issue Legislative Decrees to enact certain tax measures, including the creation of a mechanism to collect VAT from digital operations and amendments to the Online Gaming and Online Sports Betting Tax Law.
Council of the European Union
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Proposal for an amending Council Implementing Regulation as regards the electronic VAT exemption certificate
The Council of the European Union has published a proposal to adapt Council Implementing Regulation (EU) No 282/20111 (the VAT Implementing Regulation) to pave the way for the introduction of an electronic exemption certificate confirming that a transaction qualifies for a specific exemption under the first subparagraph of Article 151(1) of the VAT Directive.
Please also refer to Proposal for a Council Directive amending the VAT Directive as regards the electronic value added tax exemption certificate.
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