VAT and international transactions
Andy Ilsley
Indirect Tax Director
10 September 2015
www.bakertilly.co.uk
Agenda
• Introduction and context
• EU VAT principles
• Export evidence
• “Place of supply” of services
• Customs duty issues
• E Services and MOSS
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Introduction and context
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Introduction and context
• International tax is on the agenda – BEPS project, increased
routine sharing of information cross border
• Risk Management is a key part of international expansion
• Need to understand principles and obligations
• Financial penalties and increased costs of non-compliance reduce
profitability
• Most countries have a VAT or GST (even US are thinking about it)
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EU VAT principles
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Place of supply of goods
Place of supply of goods
Goods not despatched or transported (remain in that territory)
• Place where goods are when supply takes place
Goods despatched or transported (to another territory)
• Place where despatch or transport begins
Exceptions
• Where place of departure is outside member states
• Place of supply is member state of importation if supplier acts as
importer
Note – not necessarily related to PE status
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Place of supply of goods (cont’d)
Installed or assembled goods
Where the goods are installed or assembled
• Place where goods are when supply takes place
However:• Rules vary depending on the member state
• It may be possible to avoid registering
• Customer accounts for the VAT on your behalf
• Implications even where sub-contractors are used to fulfil contracts
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Intra-community supplies of goods
Supplier – conditions for zero rating
• Supply involves removal of goods from UK to a VAT registered person
in another member state
• Supplier quotes the customer’s VAT registration number on the sales
invoice plus two digit country code
• Supplier obtains valid commercial evidence of removal of goods from
the UK within three months of supply
• Otherwise the goods are standard rated for VAT purposes
* APPLICABLE TO EU MEMBER STATES
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Intra-community supplies of goods
Evidence of removal from the UK
No official HMRC documentation
Commercial documentation includes:• Shipping documents
• Customer’s order/evidence of payment
Invalid VAT numbers
Supplier should check customer’s VAT number
• Scope for fraud
• Increased scrutiny by HMRC
• Potential joint and several liability for the VAT
Supplier not held responsible for output VAT if:• He has taken all responsible steps to check validity
• All other conditions for zero rating are met
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Triangulation simplification
GRCo
UKCo
goods
FrCo
Tax points
Special tax points - Intra community supplies of goods and
acquisitions
Where any supply of goods involves both:• The removal of the goods from or to the UK
• Their acquisition in another EU country or in the UK
Time of supply is earlier of:-
• The 15th day of the month following that in which the goods were
dispatched or received
• The date of the issue of a VAT invoice
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Call off stock and consignment stock
Call off stock
• Transferred goods held effectively in the control of the customer
• Simplification if stock destined for one named customer
Consignment stock
• Transferred goods held in the control and ownership of the supplier
• Customer or customers unknown at the time of consignment
• VAT registration implications
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Movement of own goods
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Exports
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Exports
Condition for zero rating
• Goods must be removed from the UK to a destination outside of the EU
• Supplier must obtain satisfactory evidence of export
• Goods must not be delivered to or collected by UK person or UK
customer at a UK address, even if claimed for subsequent export
• Goods must not be used in UK before export
• Only the final supply in a series of transactions can be zero rated, ie the
supply to the overseas person
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Exports (cont’d)
Main types of exports
Direct exports
• Arrangements under supplier’s control
• 3 months for the goods to physically leave the UK
Indirect exports
• Arrangements made by someone other than the supplier, eg the
customer collects from your premises
• 3 months for the goods to physically leave the UK
• Supplier still retains responsibility and liability for the export
• Supplier should consider taking a deposit equal to the VAT
UNDERSTAND THE INCOTERMS!!
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Exports (cont’d)
Evidence of export
• Supplier needs to take all reasonable care and to ensure that evidence
of export is obtained and retained
Evidence consists of:• Official documents
• C88 stamped by HMRC
• Commercial evidence
• Sea waybills, air waybills etc
• Certificate of shipment
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Place of supply of services
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Place of supply of services
Place of supply of services rules
General rule
• Place of supply is where the business customer (B2B supplies) is
established provided the customer is acting as a taxable person
• Business customer accounts for VAT via reverse charge mechanism
• Place of supply of services supplied to non-business customers (B2C
supplies) remains where the supplier is established
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Place of supply of services (cont’d)
Key issues
• Evidence that customer is in business (EU VAT number)
• Are you supplying to a taxable person acting as such?
• Public sector/charities – always apply general B2B rule even if
services will be used for non-business purposes
• Businesses below VAT registration limits – alternative evidence of
business activities (eg letter from Chamber of Commerce or tax
authorities)
• Supplies for private use – always use B2C rules
• If in doubt, apply B2C rules – can always adjust later
• Impact upon global contracts is not clear
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Place of supply of services (cont’d)
Place of belonging
• No statutory definition to determine which establishment makes or
receives a supply but the aim is to tax a supply where the service is
consumed
• Tests that can be used
• Which establishment uses or enjoys the service provided?
• Which establishment enters into contracts or receives invoices?
• Which establishment has sufficient human and technical resources to
receive or make the supply?
• Not a single conclusive test – look at the economic reality
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Place of supply of services (cont’d)
Place of supply of services rules
Still exceptions to the general rule such as:• Services in relation to land
• Transport services
• Supplies of services to non-taxable customers belonging outside of the
EU
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Customs Duty issues
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Customs Duty
Customs Duty is a cost to the business – any reduction is an
absolute saving
• What are the goods?
• Where are they made?
• What are they worth?
• Where are they going?
MAJOR CHANGES TO UNION CUSTOMS CODE – EFFECTIVE
FROM 2016
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Customs Duty
• Current Customs code is outdated and does not reflect the
complexity of international supply chains, IT etc
• New Union Customs Code (“UCC”) from 1 May 2016
• Mandatory use of electronic communication with customs authorities
• Compulsory requirement for guarantees for certain customs regimes
(e.g. warehousing and processing reliefs)
• Greater emphasis on customs-approved AEO status
• Changes to valuation rules (e.g. royalty payments, “first sale”
opportunity)
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E-Services and MOSS
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E-Services
• 1 January 2015 - Last of the EU VAT changes
– gradual implementation from 1 January 2010
• Problem with taxing e-services, especially B2C
• Growth of digital economy
• “Use and enjoyment” test for non-EU suppliers
• Extending the principle – “Place of Supply” where recipient belongs for
B2C
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What services are affected?
• Broadcasting services, including internet
• Telecoms – internet access, video conferencing
• Online subscriptions, apps, music downloads
• Provision of downloadable software
• Internet access – Wi-Fi, etc
• E-Books
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Mini One Stop Shop – (“MOSS”)
• Mirrors current system for non-EU suppliers
• Single VAT registration, typically in country of belonging
• Standard EU VAT return directive
• On line filing of information per member state
• Some practical difficulties identified and addressed
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Summary - key risk areas
• Supply and installation
• Interaction with direct tax
• Establishment issues and VAT registration requirements
• Export evidence
• Compliance obligations and record keeping
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Thank you - any questions?
Andy Ilsley
T: +44 (0) 121 214 3190
M: +44 (0) 773 644 1644
E: andy.ilsley@bakertilly.co.uk
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