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Blog Fiscalidad Internacional

9 de Enero de 2020

Aline Berbari

Tax Advisor

A new year with more Digital Service Tax and new EU VAT “Quick Fixes”

Few days ago, we were all wishing each other Peace, Love, Health, and Prosperity, etc. for the new year 2020. I was hoping that it would be a year of multiple changes and positive outcomings for humanity. Few days in Year 2020, we see ourselves dragged in an escalated violence and at the doors of an imminent war between the US and Iran. In Australia, the threat of the extinction of many species could occur because of the overwhelming fires. My heart and thoughts go to our Australian fellows who are trying to combat the fires and save their land.


New year, new hopes, new beginnings, new resolutions, etc. Who wouldn't want to know what 2020 unveils? In many countries, superstitions are still practiced, such as reading your future in the cup of coffee, or reading your fate in the palm of your hands, etc.  I, personally, find it much easier to predict the tax implications for the upcoming year than to predict someone's fate.

After reviewing tax news and policies in 2019, I think we will face major turns from international taxation perspective in 2020.

We will have the chance to review the several changes proposed and announced by several countries in the next few months, as I would like to emphasize two developments that, in my opinion, affect the international tax sphere, in the immediate time:

    1- Recap on taxing the digital economy introduced by many countries; and

    2- The new VAT measures entered into force on January 1st of 2020.

TAXING THE DIGITAL ECONOMY:

As more consumers everyday are turning to the digital and virtual sector to complete their transactions, many countries such as Italy, Austria, UK, Turkey, Czech Republic, Belgium among other countries have announced their attention to impose the digital services ("DST"), following the example of France who imposed the 3% tax on revenues generated by companies providing certain digital services, commonly known the "GAFA tax"[1], applicable retroactively to January 1, 2019 with the first payments due in November 2019. As of January 1, 2020, the DST is into force in Italy and Austria. In the UK, DST will enter into force on April 1st, 2020.

In my view, these unilateral actions can be causing a certain discomfort for multinationals:

    1- In some cases, DST will not be creditable against the companies' corporate tax position in their home country of residence;

    2- Problems of interpretation of the rules and qualification of current services may arise.

On December 2, 2019, in response to the French measures, the Office of the United States Trade Representative ("USTR") published the Report on France's Digital Services Tax Prepared in the Investigation under Section 301 of the Trade Act of 1974 ("Report") exposing in details the DST, its implications and consequences on US multinationals with activities in France.

USTR concluded that France's DST is discriminatory and is made specifically against the US GAFA, in addition to Microsoft, Netflix, Airbnb, etc. It also highlighted that the retroactive application of the tax is inconsistent and unusual with prevailing tax principles and is particularly burdensome for covered US companies.  It recommends tools "to address these serious matters, including intensive bilateral engagement, WTO dispute settlement, or "imposing duties, fees, or other import restrictions on the goods or services of [France].""  As a consequence, USTR issued a Federal Register Notice, proposing several actions including additional duties up to 100% on certain French products. The notice also seeks public comments on the option of imposing fees or restrictions on French services. Also, the list of French products subject to potential duties includes 63 tariff subheadings with an approximate trade value of $2.4 billion. 

Furthermore, US Secretary to the Treasury Steven Mnuchin's letter of December 3, 2019, addressed to the OECD expressing ¨serious concerns¨ with respect to Pillar 1 goals shows that the matter is crucial to the top of the international tax agenda and that the USA prefer a common multilateral approach to the DST.

For this reason, the OECD urgently needs to secure a more coordinated approach by way of the introduction of the new Pillar 1 and Pillar 2, that my colleagues have already treated in previous articles.[2]

In relation to Pillar 1, the OECD wishes to reach a unified approach by January 2020, which in my opinion may be difficult to achieve as members of the Inclusive Framework will be obliged to adjust their DST laws and take difficult decisions. I am not sure that many countries would accept to leave their share of the cake easily, regardless of the political determination of taxing digital companies, to attain a unified consensus in early 2020.

As for Pillar 2, the OECD laid out a timeline for future work in the upcoming months on the proposal in the near term in 2020, including plans to issue an additional and more detailed consultation document. Indeed, during the consultation, it was clear that stakeholders had different views about the proposal. The big surprise was the position of the USA who supports the GILTI-like Pilar 2 solution, as mentioned in Mr. Mnuchin's letter.

Finally, after years of debate, Canada decided to follow the rest of the states. In the recent election campaign, initially the Prime Minister Justin Trudeau promised to impose a 3% DST on digital companies that was supposed to be effective April 1, 2020. However, on December 13, 2019, he declared that Canada´s intention is to be aligned with the OECD final position that will be communicated in summer 2020. Hence, 2020 will more likely mark the implementation of a new DST in Canada.

We will be observing with great interests all developments with respect to the OECD and USA proposals. I wouldn't be surprised to see Trump's administration deploying more taxes, duties or restrictions on the goods of all the above-mentioned states, as it proposes against France, in the event the OECD fails a one unified approach. In fact, the promise of more duties on European products may be in favour of the Trump administration in the context of the new elections in November 2020.

NEW VAT RULES ON EU CROSS-BORDER SUPPLIES OF GOODS:

The EU VAT regime will be subject to reforms over the next few years for January 2022, that would help eliminate an estimated €50 billion in annual VAT fraud. New VAT rules with respect to cross-border supplies of goods entered into force on January 1, 2020, as the European Council agreed on the short-term fixes presented by the European Commission, on October 2nd, 2018. These measures commonly referred to as the "Four Quick Fixes" relate to the business-to-business (B2B) VAT rules on EU cross-border transactions (intra-community supplies). The aim is to help businesses operating cross-border supply chains by clarifying their VAT obligations and to tighten up areas vulnerable to VAT fraud that are experienced under the current VAT rules.

Call-off stock:  The proposals provide for a simplified, harmonized and uniform treatment for call-off stock arrangements, reducing the obligation for businesses to VAT register stock held for a known acquirer in another EU member state. The change will remove the confusion over whether or not call-off stock gives rise to a deemed supply, where a company moves its own goods to another EU member state to supply a recipient in another member country domestically.

VAT identification number:  To benefit from VAT zero-rated measures for the intra-EU supply of goods, suppliers will be required to obtain the identification number of the customer and list it on the EU sales invoices. The latter becomes an additional condition, as, this is was not mentioned as a substantive condition of exemption in the VAT Directive.

The reporting in the EC sales list is not a condition for exemption either. Also, submitting a correct EC Sales Listing will also become a condition for exemption. Otherwise, it may not be eligible if the transaction is not correctly reported on the EC Sales Listing for the relevant period.

Chain transactions (multiple transactions of goods): in the VAT Directive, the intra-community movement of the goods should only be ascribed to one of the supplies, and only that supply should benefit from the VAT exemption provided for the intra-Community supplies. Consequently, all other supplies of good must be considered as domestic supply in the member state of departure of the transport or in the member state of arrival following the transport.  The VAT Directive does not contain rules on how to attribute the transport when multiple supplies of same goods are occurring. This present difficulties in determining which supply qualifies as an intra-community supply when the transport is made by, or on behalf of, an intermediary supplier.

To enhance legal certainty in determining the VAT treatment of chain transactions, the proposals establish uniform criteria, where the same goods are supplied successively and those goods are dispatched or transported from one member state to another member state directly from the first supplier to the last customer in the chain, the dispatch or transport shall be ascribed only to the supply made to the intermediary operator.

Proof of intra-EU supply: A common framework is proposed for the documentary evidence required to claim a VAT exemption for intra-EU supplies. Suppliers must be able to provide a combination of 2 items of evidence, issued by 2 different independent parties to each other, of the vendor and the acquirer, to prove that a supply is destined for another EU member state. Also, if the transport is performed by the acquirer or behalf of the supplier, the latter will need a written statement from the acquirer stating that the goods have been transported by him on his behalf to the member state of destination.

The new measures will remove a significant obstacle where businesses won't have to file several declarations. It is true that new conditions will increase the additional administrative burdens expecting businesses to obtain a valid VAT number from the buyer acquiring the goods in another member state.

The stricter rules will force companies to undertake a more qualified check of the customer's VAT ID number and related statements, as well as ensuring the whole process complies with invoicing procedures. The harmonization aligns more with how customs authorities verify imports and exports.

The international tax sphere is facing many changes caused by our new economical and commercial practices. As taxpayers, we moan that GAFA multinationals and other digital services companies must pay their taxes on their benefits in different jurisdictions, yet we still use their services that are now part of our lives. Would we find unacceptable to disburse any additional amount, in the event they decide to recharge the DST to the user? Only the future will tell... I'll let you ponder on that part for a moment.

Happy New Year to All

Cheers!  



[1] GAFA stands for Google, Apple, Facebook, and Amazon.

[2]http://www.legaltoday.com/blogs/fiscal/blog-fiscalidad-internacional/de-la-fiscalidad-internacional-a-la-fiscalidad-global

 http://www.legaltoday.com/blogs/fiscal/blog-fiscalidad-internacional/la-revolucion-del-impuesto-minimo-global

 

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