Category Archives: International

International VAT – Complex, expensive and difficult. The triggerpoints

By   2 August 2016
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Further to the recent announcement of our comprehensive and extensive new International tax service offering here  I thought it a good idea to provide a brief guide on when a business or an adviser needs to consider indirect tax when selling overseas. I hope this summary will be of use.  Please contact us if you feel that any issues here are relevant to you or your clients.

International and cross-border transactions can be extremely complex and frustrating (take it from me if you haven’t already experienced it). From the physical movement of goods to the many various types of services, VAT is a minefield. Not only is it very complicated, but different languages, rules and practices can add to the overall issues with dealing with the tax.  This shouldn’t be a barrier to companies doing business across the world and we are here to support and assist you.

We are experienced in advising not only on UK indirect tax, but issues in other EC Member States and matters outside the EC.

Do you know whether you have indirect tax responsibilities in other countries?  Do you know whether you are taking advantage of all available reliefs?

There are often complex and conflicting issues concerning VAT when dealing with customers or suppliers outside these shores.  Although the EC-wide VAT system is supposed to be harmonised, not unsurprisingly, there are significant differences in domestic law and the application of EC legislation.  It is easy to get caught out or not even consider VAT issues outside the UK.  There are special rules for a lot of activities, with the rules for International Services particularly complex.

Experience insists that overseas tax authorities do not mitigate any assessments and penalties simply because your business is based outside their country.  Another twist is that HMRC are simply not interested in any transactions outside the UK so will not assist with taxpayers’ queries.

So what sort of questions should a business be asking itself and in what circumstances could VAT rear its ugly head?

When should I be considering VAT?

  • Exporting goods – Do they properly qualify for zero rating?
  • Dispatching goods to other EC Member States – Are they UK VAT free?
  • Distance Selling (usually online/mail order) – There are special rules for this.
  • Selling goods in the UK which are to be removed from the UK.
  • Retail sales to visiting customers.
  • Electronically supplied services – MOSS
  • Imports – what value? Recovery of import VAT. Customs Duties. Procedures. Reliefs.
  • Acquisitions from other Member States – what are the rules? Self-supplies. Procedures.
  • Provision of services – What is the Place Of Supply (POS)?
  • Provision of services – UK VAT, no VAT, overseas VAT chargeable?
  • Working abroad – What are the rules?
  • Property owned overseas.
  • Overseas businesses owning UK property
  • Purchasing services overseas – VAT free?  Self-supplies
  • Purchasing/hiring transport/vehicles cross border; aeroplanes, yachts, road vehicles etc.
  • Organising trade fairs, exhibitions seminars or training etc– There are special rules.
  • The Performance rules eg; cultural, artistic, sporting – There are special rules.
  • Supplies of electronically supplied services – There are special rules.  MOSS (Mini One Stop Shop) issues.
  • Place of belonging issues.  Where do you belong for VAT purposes?  Where does your customer belong?
  • Intercompany charges/management charges/recharges – Require careful consideration.
  • Filing overseas returns and dealing with overseas authorities’ inspections/investigations
  • Cross-border transactions in used goods (including works of art and cars) – there are special rules.
  • When negotiating contracts or pricing transactions/projects. You need to know the VAT position first otherwise you cannot budget correctly.

How we can help

We can assist whether you have an ad-hoc query or you require a full service in an overseas country.  We can:

  • Deal with overseas authorities on your behalf
  • Resolve disputes with overseas clients/suppliers
  • Analyse cross-border/international positions
  • Advise on international structures
  • Resolve complex international technical problems
  • File overseas declarations/returns and registrations
  • Deal with HMRC on complex POS matters
  • Assist with classification and valuation matters
  • Deal with documentation (which can be complex and demanding)
  • Review and advise on contracts and tenders
  • Liaise with local domestic legal/accountancy advisers in overseas countries
  • Advise overseas businesses making supplies into the UK
  • Assist with e-services matters including MOSS
  • Resolve disputes with HMRC
  • Handle claims for VAT incurred overseas for a UK business and UK VAT claims for overseas businesses
  • Act as a one-stop shop for all of your overseas tax matters.

So don’t let tax interfere with your business expanding overseas, we are here to help you.

Our New International Service – VAT, Customs Duty, Sales Tax

By   1 August 2016
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Due to a new strategic alliance, we are now able to offer a true worldwide tax, customs duty and excise service.

Gone are the days when you, or your clients, had to deal individually with representatives in different countries, or pay extremely high fees and receive less than immediate service from the big 4. We now act as a one stop shop for nearly every country in the world.  Whether it be;

  • a sales tax issue in Texas
  • a dispute with the authorities in Romania
  • a Customs Duty problem with entering goods into Mumbai
  • appointing a tax representative in Hong Kong
  • a disagreement over tax with a customer in Switzerland, or
  • a requirement to file documents in Russia,

we can do this on your behalf.

Of course, we cover every EC Member State – which may be increasing important after Brexit.

We offer a comprehensive, immediate and very reasonably priced service with total transparency on cost and quick response times.  We can handle all matters including; advice, structuring, support and compliance while dealing with language issues, understanding domestic legislation and dealing with the relevant authorities in each country.  All advice is provided by our very experienced and highly qualified staff with a comprehensive network of contacts.  We understand local practices and customs as well as the precise technical requirements.  Our advice aims to remove uncertainty and provides a definitive view, rather than a business having to rely on hearsay, incomplete or outdated online information, or advice from a customer/supplier which may not be accurate  – all of which we have seen in the past and which can lead to very expensive surprises.

Our service covers the ambit from a small business’ first time cross-border or overseas transaction, to the largest multi-national.

Please contact me should you, or your clients have any international issues, or if you, or they are dissatisfied with current advice in this respect.  We can also act on behalf of other VAT consultancies which do not have worldwide coverage.

In a forthcomingt article we will consider International transactions and triggerpoints for when assistance may be required.

VAT Distance Selling Q & As

By   11 July 2016
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VAT Distance Selling: What is it and how will it affect my business?

Q – My internet business is expanding and I am now selling goods all over the EC. Does this create any VAT issues?

A – It could do; if you are selling to individuals (or any other non-business entity) then you should be charging UK VAT regardless of where your customer belongs in the EC. However, when these type of sales reach a certain limit, you will be required to VAT register in each Member State in which the threshold is breached. These are called the Distance Selling rules and apply in situations where the seller is responsible where the supplier is responsible for the delivery of goods B2C; typically mail-order and increasingly goods purchased online (so called “delivered goods”).

Q – What are those limits?

A – Each Members state sets its own limit. However these may be broken down into two categories:

€ 35,000 (or near equivalent in domestic currency) Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Ireland, Latvia, Lithuania, Malta, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Italy.

€ 100,000 (or near equivalent in domestic currency) Austria, Germany, Luxembourg, Netherlands, UK.

Q – What are the practical implications?

A – Each Member State has different rules for VAT registration and filing of returns. All dealings, save for a few Member States, are undertaken in the language of that country, so broadly, there could be 27 sets of rules and many languages to master in order to comply with the Distance Selling rules! Additionally, we find that some business are unaware of these rules, or discover the impact of them after the limits have been reached. This creates penalties for late registration and filing in nearly all Member States. However, mitigation (along the lines of “reasonable excuse” in the UK) in varying degrees is available in some countries. We have found that it is possible, via negotiation to have penalties reduced or removed after making full disclosure of past turnover. As one may expect, the approach varies from country to country.

Q – Do I have any choices?

A – Yes, although it is not necessary to register until the thresholds set out above are breached; it is possible to VAT register there on a voluntary basis rather than accounting for UK VAT. The considerations are usually; the VAT rate in the Member State concerned (compared to the UK) and; administrative simplification, ie; not having to change over from UK VAT to another Member State’s VAT regime when the limit is reached.

Q – But what if I have accounted for UK VAT on these sales already, what can be done about that? I don’t want to have to pay VAT twice to different authorities.

A – In our experience, HMRC do repay UK VAT overpaid if overseas output tax is due, but this sometimes becomes a struggle and HMRC require full explanation and precise evidence to support a repayment.

Q- Do these rules affect sales made to customers outside the EC?

A- No, these are usually zero rated as exports.

Q So I need to identify the location of all of my customers and monitor sales to ensure I comply with the rules and to identify whether to charge VAT, at what rate, and to which authority?

A – Yes, I am afraid so!

Please contact if you would like us to deal with overseas authorities on your behalf, or you would like assistance with technical issues or with language matters

VAT After Brexit

By   27 June 2016
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There have been many articles anticipating what would happen to Indirect Tax if the UK left the EU. Now the deed has been done we thought it would be a good idea to summarise what we actually know. This can be done very succinctly; “not very much”.  

UK VAT legislation derives from the Euro-wide Principal VAT Directive (“PVD”) and consequently has the largest European dimension of any tax. 

There are many factors which will impact on the future of VAT in the UK.  The main one being which model the UK follows for trading with the EU, or whether it can negotiate a completely new model.  Very broadly, and without going over ground that I’m sure has been covered many times since the vote, the four options are:

  • Membership of the EEA
  • Negotiated bilateral agreement
  • Advanced Free Trade Agreement
  • WTO membership

Each option is likely to result in differing VAT scenarios for trade, reporting and compliance. Until we understand what agreements will be made, it is likely that VAT life will go on in much the same way as it has done without the need for businesses to make any changes. Without a crystal ball it is impossible to say what the implications for Indirect Tax are, however, it is more than likely that any business which is involved in the following areas should be prepared for significant changes in the future:

  • Dispatches to the EU or acquisitions from the EU. It is likely that these will become exports and imports
  • Supplies of services to the EU or the purchase of services from the EU
  • Expenses incurred in the EU
  • Distance Selling
  • Triangulation
  • Financial services and insurance
  • Tour Operators’ Margin Scheme (TOMS)
  • MOSS supplies
  • Outsourcing and offshoring

It is likely that a domestic government may wish to reverse certain ECJ decisions imposed on the UK with which it disagrees. Leaving the EU will allow the UK freedom to set its own VAT rates and introduce its own legislation, although, practically and politically, it is not anticipated that the UK model will differ too sharply from the existing rules. At this stage however, this is mainly guesswork.

So, with a lot of negotiations in prospect, we are holding fire until we have more concrete information.  It could be a bumpy ride, but one which isn’t about to start for some time.

In the meantime, we will keep you informed about any proposals and the introduction of any definite changes.

Watch this space!

VAT Quickie – HMRC change bank details for payments

By   13 June 2016
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HMRC’s new bank details

Most taxpayers who pay electronically will not be affected by the change.  However, if a business pays its VAT using HMRC’s IBAN and BIC need to use the new IBAN and BIC with immediate effect.  This change will mainly affect overseas businesses. It is observed that HMRC’s efforts to publicise this change have not been very successful.

Details for Overseas payments:

Account Number (IBAN) GB36BARC20051773152391

BIC BARCGB22

Account Name: HMRC VAT

HMRC banking address:

Barclays Bank PLC
1 Churchill Place
London
United Kingdom
E14 5HP

VAT Latest from the courts – what is a business?

By   8 June 2016
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In the CJEU case of * * takes a deep breath * * Lajvér Meliorációs Nonprofit Kft. and Lajvér Csapadékvízrendezési Nonprofit Kft the court considered whether these Not For Profit companies were making taxable supplies (economic activity). This then dictated whether input tax incurred by them was recoverable.

As a starting point, it may be helpful to look at what the words “economic activity”, “business”, “taxable supplies” and “taxable person” mean:  The term “business” is only used in UK legislation, The Principal VAT Directive refers to “economic activity” rather than business and since UK domestic legislation must conform to the Directive both terms must be seen as having the same meaning.  Since the very first days of VAT there have been disagreements over what constitutes a “business”. I have only recently ended a dispute over this definition for a (as it turns out) very happy client.  In the UK the tests were set out as long ago as 1981 and may be summarised as follows:

Is the activity a serious undertaking earnestly pursued?
Is the activity an occupation or function, which is actively pursued with reasonable or recognisable continuity?
Does the activity have a certain measure of substance in terms of the quarterly or annual value of taxable supplies made (bearing in mind that exempt supplies can also be business)?
Is the activity conducted in a regular manner and on sound and recognised business principles?
Is the activity predominately concerned with the making of taxable supplies for a consideration?
Are the taxable supplies that are being made of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them?

If there is no business, an entity cannot be making taxable supplies.

In EC Legislation,  Article 9(1) of Directive 2006/112 provides: that “a ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”

The case

The case involved the Not For Profit companies constructing and operating a water disposal system. When complete, it was intended to charge a “modest” fee to users of the system.  The companies engaged in economic activities that were not intended to make a profit and only engaged in a commercial activity on an ancillary basis.

The majority of the funding for the work was provided by State (Hungarian) and EC aid.  The Hungarian authority formed the view that, because a nominal fee was charged this did not amount to an economic activity and so there was no right to deduct input tax incurred on the costs of getting the system operational.  The CJEU went straight to judgement and decided that the construction and operation of the system could rightly be regarded as an economic activity and found for the taxpayer. It also provided a very helpful and clear summary in respect of “business” by commenting that “… the fact that the price paid for an economic transaction is higher or lower than the cost price, and, therefore, higher or lower than the open market value, is irrelevant for the purpose of establishing whether it was a transaction effected for consideration …”.

NB: The one area that the CJEU did refer back to the National Court however, was whether the transaction at issue in the case was a wholly artificial arrangement which did not reflect economic reality and was set up with the sole aim of obtaining a tax advantage.

It is interesting to compare this finding with the UK case law above, especially the points concerning “a certain measure of substance in terms of the quarterly or annual value of taxable supplies made” and “sound and recognised business principles”. I strongly suspect that what constitutes a business will continue to occupy advisers and HMRC and throw up disputes until the end of time (and/or the end of VAT….).

Full case here

VAT – Latest from the courts; use and enjoyment provisions

By   25 April 2016
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Telefonica Europe Plc and Telefonica UK Limited 

The VAT Use and Enjoyment provisions set out an additional layer of rules which establish the place of supply of certain services. They apply to; telecommunications and broadcasting services; electronically supplied services (for business customers); hired goods; and hired means of transport. Broadly, effective use and enjoyment takes place where a recipient actually consumes the services, regardless of any contractual arrangements, payment, or beneficial interest. The intention of this provision is to correct instances of distortion which remain as a result of considering only where the provider and the customer belong. HMRC give the example of supplies such as telecommunications services which are actually consumed outside the EC, to be subject to UK VAT. Of course, the converse is that it would be distortive for there to be no EC VAT on such services where they are consumed in the UK.

In the Upper Tribunal case of Telefonica Europe Plc and Telefonica UK Limited the dispute involved the way in which the appellant calculated the value of its mobile telephone services which were used and enjoyed outside the EC (and thus UK VAT free). Over a number of years Telefonica had an agreement with HMRC whereby the amount of outside the EC supplies was calculated by reference to revenue, ie; comparing call, text and data income relating to non-EC supplies to total income.

HMRC subsequently formed the view that this method of calculation was distortive because higher charges were made to non-EC users than EC consumers.  HMRC proposed a “usage methodology” which used call times, texts sent and volume of data used. As may be expected, this resulted in a lower percentage of supplies that were outside the scope of UK VAT thus increasing HMRC’s VAT take.

The appellant contended that the usage methodology was contrary to EC and UK VAT legislation.  Not surprisingly, the UTT rejected this argument, deciding that Telefonica had not established that HMRC’s proposal was unlawful.

So then the outcome would be expected to be that the usage methodology should be used, but no.  It was decided that the most accurate method would be one based on the time a customer has access to the network outside the EC; which differs from both the usage and revenue methods. 

This type of dispute is quite common and also appears regularly in partial exemption situations. There are nearly always alternative ways to view apportionment calculations and it pays to obtain professional advice; not only to ensure that a fair result is achieved, but as assistance with negotiations (which may avoid having to go to Tribunal).  

VAT Worldwide update – Gulf Cooperation Council Countries

By   7 April 2016
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VAT introduction in the Gulf Cooperation Council countries.

The following countries have indicated that they intend to introduce a VAT system for the first time from 1 January 2018:

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

This is a likely result of costly military campaigns and a drop in global oil prices. Although it has been agreed that, to limit smuggling and competitiveness, the countries aim to introduce the tax at the same time it is likely that some countries may defer implementation to a later date.  It is thought that healthcare, education, social services and a limited list of food items will be excluded and that introductory rate will be 5%.

Tip: Businesses trading with customers and clients in these countries may need to review their tax obligations, budgets, contracts and other arrangements before the introduction of VAT.

VAT – Overseas Holiday Lets; a warning

By   8 February 2016
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It is important to understand the VAT consequences of owning property overseas. It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £82,000 pa. and this is only likely if a number of properties are owned.

However, other EC Member States have nil thresholds for foreign entrepreneurs meaning that if any rental income is received, VAT registration may be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT there. Failure to comply with the domestic legislation of the relevant Member State means; payment of back VAT and interest and fines being levied. It is also not a good idea to provoke the interest of overseas tax authorities. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs.  Such claims may be restricted if the home is used for own use.

It should be noted that, unlike other types of rental of homes, holiday lettings are always standard-rated. Also, the letting of holiday homes is always treated as a business activity unless lettings are very infrequent.  If lettings are a one-off or rare, evidence should be retained to evidence this fact.  There is no set number of times a property can be let before it is treated as a business, and the interpretation may differ between different Member States.  Details of taxable supplies and being in business here

Given that every EC Member State has differing rules to the UK, it is crucial to check all the consequences of letting property overseas.

A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”

If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.

Please contact us for further details. We have experience in dealing with overseas VAT matters on our clients’ behalf.

VAT Taxable Supply – Basic Definition

By   5 February 2016
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VAT Back To Basics 

It is sometimes useful when considering a transaction to “go back to basics” for VAT purposes. There are four tests to determine whether a supply is taxable and these are set out below.  Broadly, these tests establish whether UK VAT is payable on a sale.

A transaction is within the scope of UK VAT if all four of the following are satisfied.

  1. It is a supply of goods or services.

There is a distinction between the two types of supply as different VAT treatments may apply.  However, if no goods are services are actually provided, there is no supply.  Indeed, if there is no consideration for a supply, in most cases it is not a taxable supply.

2. It takes place in the UK.

There are quite complex tests to consider when analysing the “place of supply”, especially where services are concerned.  If the place of supply is outside the UK then usually no UK VAT is due, however, the supply may be subject to VAT in another country.

3. It is made by a taxable person.

A taxable person is any legal entity which is, or should be, registered for VAT in the UK.

4. It is made in the course or furtherance of any business carried on by that person

The term “business” is only used in UK legislation, The Principal VAT Directive refers to “economic activity” rather than “business” and since UK domestic legislation must conform to the Directive both terms must be seen as having the same meaning.  Since the very first days of VAT there have been disagreements over what constitutes a “business”. I have only recently ended a dispute over this definition for a (as it turns out) very happy client.  The tests were set out as long ago as 1981 and may be summarised as follows:

So, if the four tests are passed a taxable supply exists.  The next step is often to establish which VAT rate applies!

Tip: It is often easier to consider what isn’t a taxable supply to establish the correct VAT treatment.  Specific examples of situations which are not taxable supplies are; donations, certain free supplies of services, certain grants or funding, some compensation and some transactions which are specifically excluded from the tax by legislation, eg; transfers of going concerns.

I think that it is often the case that the basic building blocks of the tax are overlooked, especially in complex situations and I find it helps to “go back to the first page” sometimes!