Weekly VAT News

We are delighted to invite you to our update seminar at 25 Churchill Place, Canary Wharf, on 14 May covering UK sanctions and export controls. This event will focus on navigating the evolving UK sanctions and export controls landscape within a rapidly changing international trading environment.

The agenda for this seminar is as follows:

13:30 – 14:00 Registration
14:00 Session commences

• Welcome address – Onelia Angelosanto, Partner, EY Global Trade
• Managing sanctions diversion risk in complex supply chains – Jonathan Fisher, King’s Counsel
• Strengthening the implementation and enforcement of the UK’s trade sanctions – Office of Trade Sanctions Implementation Representative (OTSI)
• Panel Discussion – Hot topics in sanctions and export controls
  • Onelia Angelosanto – EY Partner – Global Trade and Panel Facilitator
  • Jonathan Fisher – King’s Counsel – Red Lion Chambers
  • Representative from OTSI
  • Representative from Industry
  • Julian Balson – EY Partner – EY Tax Controversy & Risk Management
  • Richard Davenport – EY Director – Export Controls & Sanctions
  • Nicola Mollat – EY Partner – Forensic & Integrity Services

15:45 Close followed by refreshments

Please register for this event here.

Trade Talking Points is our fortnightly newsletter on the latest insights from EY's Trade Strategy team.

In this edition we invite you to our upcoming UK Sanctions and Export Controls seminar and provide updates on the latest US tariff announcements, UK tariff suspensions, UK and EU trade deals and industry support and trade remedies.

For further information please contact Marc Bunch, Maggie Taucher, Ross Freeman or Will Main.

President Trump issued a Presidential Memorandum on 11 April 2025 that exempts specific electronic goods from his Reciprocal Tariff Policy, which was imposed under an earlier Executive Order. The Presidential Memorandum outlines a range of exempted products, such as automatic data processing machines, smartphones, solid-state storage devices, and various semiconductor components, and provides for refunds on duties collected for these items after 5 April 2025.

Our global tax alert is available here.

Section 232 investigations into Pharmaceuticals and Semiconductors

After exempting semiconductors and relevant goods from the reciprocal/universal tariffs (as discussed above), the US formally launched investigations into pharmaceutical and semiconductor imports on 14 April. Pharmaceuticals and semiconductors are likely to be subject to tariffs in the next weeks or months.

This follows on from previous S232 tariffs for steel and aluminium, automobiles (and parts), and ongoing investigations into copper and lumber/timber.

Our global tax alert is available here.

Tariffs on Mexican tomatoes

Indications have been made that US tariffs for Mexican tomatoes will increase to 20.91% from 14 July, as the US is looking to withdraw from a 2019 anti-dumping suspension agreement.

Following the announcement regarding the S232 investigations into pharmaceuticals and semiconductors, the Whitehouse has now announced a further investigation into critical minerals and their derivative products.

Notably, the President has directed the completion of the investigation on an expedited timeline, to be finalised within 180 days rather than the statutory maximum duration of 270 days.

Background

The S232 investigation follows China’s use of export bans on critical minerals as a non-tariff measure to counter President Trump’s tariff hikes.

• China previously imposed an export ban on critical minerals, including gallium, germanium and antimony in December 2024.
• In February 2025, China implemented licensing requirements on additional minerals, including tungsten, tellurium, bismuth, molybdenum, indium and other rare earth elements.
• Additionally, in April, China imposed export restrictions on seven rare earth elements and magnets used in the defence, energy and automotive sectors. The new restrictions apply to samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium – and requires all companies to secure special export licenses to export the minerals and magnets.

Export controls apply to ALL exports from China, with media reporting that China has halted exports not just for the US, but also to other countries including Germany and Japan.

Hong Kong has suspended low value shipments (valued at less than US$800) to the US, following President Trump revoking the de minimis treatment for low value shipments from China, Hong Kong and Macau. Relevant goods will be subject to a tariff rate of 90% or a specific duty of US$75 from 2 May, increasing to US$150 from 1 June. Hong Kong postal service stated that it would immediately stop accepting postal items containing goods shipped to the US. 

On 14 April 2025, the Brazilian government officially enacted Bill No. 2.088/23, allowing the government to implement countermeasures against countries imposing retaliatory measures on Brazilian products (our global tax alert is available here). The enactment followed the Brazilian President's ratification, with no vetoes to the Bill. This law enables the adjustment of the Contribution on the Intervention in the Economic Domain (CIDE) and the Contribution for the Development of the National Cinema Industry (CONDECINE) rates applicable to payments to specific countries.

Earlier this month, both the Brazilian Senate and Chamber of Deputies approved the Bill in response to recent tariff measures by the US Administration. For details, see EY Global Tax Alerts: US imposes President's Reciprocal Tariff Policy against trading partners and ends duty-free treatment for low-value shipments from China, dated 3 April 2025; and US suspends President Trump's Reciprocal Tariff Policy for 90 days, except for China, dated 11 April 2025.

The new Brazil law sets forth a framework for adopting economic and environmental retaliatory measures aimed at safeguarding the competitiveness of Brazil's domestic production and upholding commercial agreements. For further details on the legislative background and implications, see EY Global Tax Alerts: Brazilian Senate approves bill of law allowing for retaliatory taxation, dated 2 April 2025; and Brazil close to enacting bill of law allowing for retaliatory taxation, dated 3 April 2025.

On 14 April 2025, the EU formally postponed the retaliatory countermeasures against US tariffs to allow space for negotiations. The Commission adopted two legal acts on 14 April which, respectively, impose and suspend its countermeasures:

• The first act imposes the EU countermeasures
• The second act suspends all such measures until 14 July 2025

For further information please contact Marc Bunch, Ross Freeman, Maggie Taucher or Shenshen Lin.

Wednesday 30 April

Judgment – C-278/24 Genzyński

Topics – Joint and severally liability for members of a board

A Polish referral asking whether Articles 193, 205 and 273 of the VAT Directive, in conjunction with Article 325 of the Treaty on the Functioning of the European Union and Article 17 of the Charter of Fundamental Rights of the European Union, together with the principle of proportionality, should be interpreted as precluding national legislation which provides for a mechanism whereby a member of the board of directors of a legal person is jointly and severally liable for the VAT debts of that legal person without it having first been established whether that member of the board of directors acted in bad faith or whether his or her conduct could be found to constitute a culpable error or negligence?

Thursday 8 May

Judgment – C-615/23 Dyrektor Krajowej Informacji Skarbowej (Services de transport public)

Topics – Compensation and taxable amount

A Polish referral asking whether compensation paid by a local authority to a transport operator should be included in the taxable amount under Article 73 of the VAT Directive. The operator, independent from the local authority, sought clarification on the VAT implications of potential arrangements where it would act as the operator for public transport services. The operator would earn revenue from ticket sales, compensation for lost revenue due to concessionary fares, and other sources, but would also receive compensation from the local authority to cover losses incurred.

Opinion – C-744/23 Zlakov

Topics – Free legal services – supply for VAT purposes

A Bulgarian referral asking whether a ‘supply of services’ within the meaning of Articles 2(1)(c), 24(1), 26(1)(b) and 28 of the VAT Directive is to be interpreted as including; (i) the provision of legal aid free of charge (pro bono) by a lawyer to a party in court proceedings or (ii) by the lawyer of a party which has been successful in a legal dispute, where the court awards that party’s lawyer the remuneration which he or she would have received if remuneration had been agreed under a contract for legal assistance? Is ‘taxable person’ within the meaning of Article 28 and Article 75 to be interpreted as covering a lawyer (a one-person law firm) who has provided legal services in either of these circumstances?

Judgment – C-405/24 L.s.c.

Topics – Exemption from taxes of imports of small consignments of goods of a non-commercial character

A Polish referral asking whether the provisions of Article 143(b) of the VAT Directive, and Article 1 of Directive 2006/79 on the exemption from taxes of imports of small consignments of goods of a non-commercial character from third countries, is to be interpreted as being contrary to national legislation according to which the importation of goods placed under ‘consignment’ sent from the territory of a third country by an individual and intended for an individual residing in the territory of a Member State of the European Union other than the territory of the country where the importation takes place is not exempt from VAT?

This Guidance provides details regarding the VAT road fuel charges from 1 May 2025. Businesses must use the new scales from the start of the next prescribed accounting period beginning on or after 1 May 2025 to account for private consumption of fuel on a business vehicle.

HMRC has published its latest Update for agents which includes:

• Closing in on promoters of marketed tax avoidance – have your say. In March 2025, the Government launched an open consultation seeking views on a range of new measures to close in on promoters of tax avoidance.
• Get ready for the new arrangements for moving goods from Great Britain (England, Scotland and Wales) to Northern Ireland under the Windsor Framework – Following the guidance issued in September 2024, there has been extensive preparatory work undertaken for the new arrangements for the movement of goods from Great Britain to Northern Ireland by parcels or freight set out in the Windsor Framework. As a result, and subject to the relevant procedures, the new arrangements as set out in the Windsor Framework are planned to take effect from 1 May 2025. For business-to-business (B2B) parcel movements, there are new processes that traders will need to follow to make sure goods continue to move quickly and smoothly. For existing freight movements, HMRC is introducing new simplified processes which traders may wish to take advantage of.
• Paying your PAYE and VAT bill by Direct Debit.
• Updates to the Tax Agents Handbook.
• Tips for when you must use post.
• Protecting customer data against malware.
• Have your say – enhancing HMRC’s ability to tackle tax advisers facilitating non-compliance – Reminder that HMRC is currently running a consultation. This explores options to enhance HMRC’s powers and sanctions to take swifter and stronger action against professional tax advisers who facilitate non-compliance in their client’s tax affairs – enhancing HMRC’s ability to tackle tax advisers facilitating non-compliance.

Canada

With the imposition of new tariffs and the economic uncertainty surrounding ongoing trade developments between the US and Canada, the federal government and certain provinces have announced relief that will permit businesses to defer the payment of certain taxes:

• The Revenue Agency has announced a deferral of corporate income tax payments and Goods and Services Tax/Harmonised Sales Tax remittances from 2 April to 30 June 2025, with waived interest during this period
• Manitoba has implemented a deferral for health and post-secondary education tax levy remittances until 15 June 2025, and for retail sales tax remittances until 20 June 2025, although tax returns must still be filed on time
• Ontario businesses can defer payments for various provincial taxes for up to six months, starting 1 April 2025, with all deferred amounts due by 1 October 2025; tax returns must nonetheless be filed on time
• Quebec will harmonize with the federal deferral measures, allowing for similar tax payment deferrals from 2 April to 30 June 2025, with interest resuming on 1 July 2025, and no extensions on filing deadlines

EU

The EU relies heavily on VAT as a major source of revenue for the individual Member States and for the EU’s own resources. However, each year there is a substantial gap between the VAT revenues collected and the amount that the EU expects to collect. It is estimated that the EU loses €90 billion annually to this ‘VAT gap’ due to issues such as VAT fraud, inefficient tax collection and administrative complexity.

The VAT in the Digital Age (ViDA) initiative, which is effective from 14 April 2025, brings a fundamental shift in how VAT is administered across the EU. Aimed at modernising VAT processes, reducing fraud and streamlining cross-border trade, ViDA introduces standardised digital reporting requirements that will roll out in phases over the coming years.

For the first time, businesses will have to adopt harmonised e-invoicing and near real-time reporting across all Member States, creating a more transparent and digital-first tax system. E-invoices will be directly linked to the new Digital Reporting Requirements (DRR), allowing tax authorities to receive transaction data in near real-time. Automated VAT compliance will become the new standard, with an aim of reducing human errors and improving accuracy. These changes should help simplify compliance and reduce administrative burdens, especially for small- and medium-sized enterprises.

Implementing real-time transaction reporting will also help tax authorities to detect VAT fraud as it happens, rather than through after-the-fact audits.

What businesses should do now

While full implementation of e-invoicing obligations is still a few years away, the April 2025 milestone will set the legal framework in motion. Businesses that prepare early will be ready to comply and avoid last-minute disruptions. Businesses can start preparing now by:

• Reviewing invoicing and ERP systems to analyse compatibility with structured e-invoicing
• Engaging with technology providers to implement automated e-invoicing and digital reporting solutions
• Staying updated on national rollout plans, as individual Member States may introduce local variations.

For further information about the ViDA initiative, please read: What ViDA means for the rise of global e-invoicing. Additional information and links to past newsletters can be found within our alert.

Kenya

In David Mwangi Ndegwa v Kenya Revenue Authority, the Court of Appeal has held that the sale of commercial property is subject to VAT at the standard rate of 16%. The Respondent had argued that the sale should be exempt from VAT based on Paragraph 8 of Part II of the First Schedule to the VAT Act, also that the VAT Act provision was ambiguous and should be interpreted in his favour. The judgment clarifies that, unless a supply is explicitly exempt from VAT under the First Schedule of the VAT Act, it is subject to VAT.

The European Commission has published the minutes from the 48th meeting of the Group on the Future of VAT, which includes:

• VAT Expert Group (VEG) report on VAT after ViDA – A small delegation from the VEG presented a report on ‘VAT after ViDA’ to the Commission services during the 38th VEG meeting on 13 December 2024. The report aims to modernise the EU VAT system by building on the recently adopted VAT in the Digital Age (ViDA) package. It identifies three critical priorities: simplifying the ViDA framework, modernising the VAT system to align with new digital models, and integrating sustainability goals while maintaining neutrality. The VEG report emphasises the urgency of advancing VAT initiatives related to financial services and the travel and tourism sector, echoing previous reports. Key design principles for a future VAT system proposed by the VEG include broadening the tax base, removing all or most VAT exemptions, aligning place of supply rules, simplifying processes, promoting sustainability, integrating modern technologies, and phasing out derogations and special schemes. The presentation led to an engaging discussion among Member State delegates, who praised the VEG's efforts and recognised its value. There was a clear expression of eagerness to collaborate with the VEG and businesses to drive meaningful progress in the VAT area.
• Study on the Challenges of VAT beyond ViDA: Presentation of the Inception Report by the contractor – The Commission services clarified that the study is not an Impact Assessment and does not anticipate proposals and excludes topics like travel, tourism, and financial services (as they are following a different procedure). The study aims to provide unbiased, data-driven insights into the VAT system by identifying weaknesses and proposing targeted improvements. The contractor outlined the study's structure, focusing on three pillars: simplification, digitalisation, and alignment of VAT rules with environmental policy. Emphasising the importance of a consultation process, the contractor noted that input from all 27 Member States would be collected and integrated into the study. After presenting the next steps, the contractor received no further questions, and delegates expressed satisfaction with the overall approach.
• ViDA Implementation – The Commission services provided an update on the Digital Reporting Requirements (DRR) and electronic invoicing components of the ViDA package. Discussions regarding the rules effective upon ViDA's entry into force (new Articles 218 and 232 of the VAT Directive) were held during the VAT Committee meeting on 21 March 2025, aiming for a common understanding. The Commission will develop guidelines to align interpretations with Member States. A Fiscalis workshop took place in Vienna from 8–10 April 2025, to discuss rules effective from 1 July 2030, involving Member State representatives, VEG members, and businesses. The Commission expressed appreciation for delegates' input, which aided in drafting a guiding questionnaire for the workshop discussions. This input will also inform future explanatory notes. Additionally, the Commission reported progress on the European standard for electronic invoicing, with an updated version expected in September 2025. Delegates were informed about the opportunity to request support for implementing the electronic invoicing and digital reporting aspects of ViDA from the Technical Support Instrument (TSI), with contact information to be shared.
  • GFV N° 144 – Platform Economy – Follow up – The Commission services introduced working paper GVF No 144, outlining discussion topics for explanatory notes to be addressed at an upcoming Fiscalis Workshop. Delegates were invited to provide feedback on the topics, emphasise key issues, and identify any omissions, highlighting the collaborative nature of the explanatory notes' preparation. The Spanish delegate announced that the Fiscalis seminar will occur in Madrid on 17-18 September 2025, with invitations to be sent by the end of April. Important topics raised by delegates included the treatment of facilitation fees, Article 46a, the interaction of the deemed supplier measure with the Tour Operator’s Margin Scheme (TOMS), and platform-to-platform transactions. Clarification on the scope of the 'safe harbour' measure and the validation process for platforms was also requested. Additionally, the exemption for passenger transport and the application of the SME exemption were discussed. The Commission thanked delegates for their input and requested further comments by the end of April.
  • GFV N° 145 – Single VAT Registration – Follow-up – The Commission services introduced working paper GFV No 145, detailing the implementation plan for the Single VAT Registration (SVR) component of the ViDA package. The overview included various work strands, such as securing the Import One-Stop Shop (IOSS), improving current VAT e-commerce rules, and aligning them with new legislation. Key provisions discussed included the extension of the Union OSS, the 'transfer of own goods scheme,' and the abolition of the call-off stock scheme. The document also addressed IOSS monthly listings by Member State and customs access to IOSS data. In response to feedback from some Member States, a revised version will be prepared and uploaded on CIRCABC, incorporating insights from the June 2024 Helsinki workshop. The current document serves as a timetable rather than operational conclusions. A Q&A session followed, where clarifications on specific implementation elements were requested.
  • GFV N° 146 – IOSS Project Group – FPG053 – Update – The Commission services updated delegates on the work of the IOSS project group (FPG 053), which aims to enhance the verification process for IOSS numbers. Following the adoption of the ViDA proposal on 11 March 2025, the Commission is mandated to implement measures to prevent tax evasion by securing the correct use of IOSS VAT identification numbers at importation. Initial design work began in June 2024 during a Fiscalis workshop in Finland. Since then, DG TAXUD’s IT department has developed five potential solutions, with the project group focusing on testing two: ‘option 0,’ which involves pre-importation information transmission and crossmatching with import declarations, and ‘option 1,’ potentially leading to ‘option 2,’ both utilising verifiable credentials. The selection of external participants is nearing completion, with the pilot expected to run from Q3 2025 to Q3 2026, followed by a draft Commission Regulation in Q3 2026 and adoption in Q4 2026.
• New SME scheme – Implementation – Update – The Commission services gave a brief update of the state of play, noting that some Member States are still facing delays in transposing the new rules and/or putting in place the necessary IT systems to underpin the operation of these rules. With the SME Portal already operational with help given through the issue of Explanatory Notes and a Guide, focus will be on Member States completing the information on their national rules and delivering the VAT simulator by which users could test if exemption is within reach. The Commission services are currently exploring how best to integrate SME-related data reported by Member States in the Taxes in Europe database.