The burgeoning interest in virtual currency has been hailed as the “gold rush” of the 21st century, with potentially staggering gains to be made on crypto transactions and owners able to maintain a certain level of anonymity. Tax authorities worldwide are grappling with the tax treatment of cryptocurrency transactions, as well as whether to require that they be reported. The April issue of ITN includes updates on several countries (Bahrain, Czech Republic, Indonesia, Spain and the U.S.), whose authorities have released guidance or policies on the indirect tax treatment of cryptocurrency. While not immediately related to indirect tax, the OECD has launched a public consultation on a global tax transparency framework for the reporting and cross-border exchange of information on crypto assets, including proposed changes to its common reporting standard.
In other news, the EU has formally adopted a new VAT directive that modernises the rules on VAT rates and aligns them with EU priorities and also is holding a public consultation on whether the current VAT rules are adapted to the digital age and how digital technology can be used to combat VAT fraud. In addition, the European Commission has proposed a solution to double taxation problems in the context of distance sales of goods imported into the EU under the rules that became effective in July 2021.
Indirect tax bytes
- European Union: The European Commission is holding a public consultation during the period 20 January - 5 May 2022 on whether the current VAT rules are adapted to the digital age and how digital technology can be used to help EU member states combat VAT fraud and benefit businesses. The “VAT in the digital age” initiative aims to respond to the challenges presented by the digitalisation of the economy and its impact on VAT regimes. The consultation seeks views in the following areas: VAT reporting obligations and e-invoicing; the VAT treatment of the platform economy; and the use of a single EU VAT registration.
- Finland: A law ratified on 11 March 2022 extends the application of the zero-rate VAT on goods used for testing, treating or preventing COVID-19 and supplied to specific organizations, with the zero rate applying retroactively as from 1 January 2022 through 30 June 2022.
- Greece: The authorities issued a press release on 28 March 2022, which provides that, due to the requirement for companies to use the electronic invoicing platform, “myDATA” (my Digital Accounting and Tax Application), companies are no longer required to submit sales lists. For 2021, businesses must upload to myDATA relevant information on invoicing income, self-invoicing expenses and securities by 27 May 2022; amendments to submissions can be made during the period 10 June and 31 October 2022.
- Norway: The Minister of Finance announced a consultation on 8 April 2022 on a proposal to amend the VAT act to introduce a general VAT obligation on the sale of all remotely deliverable services from abroad to recipients in the Norwegian VAT area.
- Mexico: The State Administration of Taxation published an ordinance on 9 March 2022 that updates the list of nonresidents that have registered with the Federal Taxpayers’ Registry for VAT purposes as suppliers of digital services in the country. Nonresident suppliers of digital services have been subject to VAT in Mexico since June 2020.
- OECD: The OECD released a toolkit entitled, “VAT Digital Toolkit for Asia-Pacific,” on 10 March 2022 to assist tax authorities in the region with the design, administration and implementation of measures to ensure the effective collection of VAT on e-commerce activities. While not immediately related to indirect tax, on 22 March, the OECD launched a public consultation on a new global tax transparency framework for the reporting and cross-border exchange of information on crypto assets, including proposed changes to the OECD's common reporting standards on the automatic exchange of financial account information between countries.
- Spain: The law introducing a tax on non-reusable plastic was published on 9 April 2022 and will apply as from 1 January 2023.
- Sweden: Bills submitted to parliament on 22 February 2022 would implement changes to the VAT rules as announced in the 2022 budget, including an increase in the VAT registration threshold from SEK 30,000 to SEK 80,000.
- United Kingdom: A plastic packaging tax (PPT) applies in the UK as from 1 April 2022 to incentivise the use of recycled plastic in packaging. The PPT applies to plastic packaging produced in or imported into the UK that does not contain at least 30% recycled plastic, and a rate of GBP 200 per tonne of plastic packaging will be applied if the packaging contains less than 30% recycled plastic. Imported plastic packaging is liable to PPT, whether the packaging is unfilled or filled. The PPT affects UK producers of plastic packaging, importers of plastic packaging, business customers of producers and importers of plastic packaging, and consumers who purchase goods in plastic packaging in the UK. An exemption applies to producers and importers of small amounts of plastic packaging. The Spring Statement 2022, delivered on 23 March 2022, includes a five-year reduction in the VAT rate on energy saving materials, such as solar panels, heating pumps and roof insulation, from 5% to 0%.
- U.S. and UK: The U.S. Trade Representative announced on 22 March 2022 a new tariff agreement with the UK to allow UK steel and aluminium products to enter the U.S. market without the application of Section 232 tariffs. In return, the UK agreed to lift retaliatory tariffs on over USD 500 million worth of U.S. exports to the UK.
- United States: The U.S. Court of International Trade (CIT) issued a decision on 1 April 2022 in a case involving the legality of certain import tariffs imposed on Chinese-origin goods under Section 301 of the Trade Act of 1974. Although the CIT concluded that the imposition of the tariffs did not violate the Trade Act, it ruled that USTR failed to comply with requirements under the Administrative Procedure Act when it imposed the duties. The CIT remanded USTR’s decision imposing the tariffs back to the agency for further explanation and consideration, but the court did not lift the tariffs.
Commission proposes solution to address double VAT on distance sales of goods from outside the EU
The European Commission has proposed a solution to double taxation problems that have been identified in the context of distance sales of goods imported into the EU. The solution would allow sellers or online platform operators to reclaim any import VAT that was erroneously collected by the customs authorities.
The VAT e-commerce package that became effective in the EU on 1 July 2021 allows taxpayers to report the VAT due on B2C cross-border supplies of goods in a single member state, rather than in each member state in which supplies are made (for an analysis of these rules, see the article in the June 2021 issue of Indirect Tax News). Implementation of the e-commerce rules has been relatively smooth, but nine months into the new rules, some technical issues have surfaced, including double taxation of imports not exceeding EUR 150 when a taxpayer uses the Import One-Stop Shop (IOSS) VAT return.
The IOSS—an electronic portal introduced as part of the e-commerce package—simplifies the declaration and payment of VAT by e-commerce businesses on distance sales of goods imported into the EU from a third country or territory. The IOSS allows suppliers and online platforms selling imported goods to EU buyers to collect, declare and pay the VAT to the tax authorities, rather than have the buyer pay VAT at the time of import. Where the IOSS is used, buyers will pay import VAT due at the point of sale and, therefore, will avoid additional VAT charges when the goods are delivered. The IOSS can be used only where the goods are dispatched by or on behalf of a supplier from outside the EU at the time of the supply and the value of the goods does not exceed EUR 150. Excisable goods also are excluded.
IOSS and double taxation
Before 1 July 2021, low value consignments—i.e., consignments valued at up to EUR 22—were exempt from VAT on importation into the EU. The exemption was abolished under the e-commerce rules (one reason being to level the playing field because EU online retailers had to pay VAT on low value goods shipped within the EU). Import VAT is now chargeable on all imported goods, irrespective of the value, at the rate applicable in the country where the goods are delivered. As noted above, the IOSS allows sellers and online platforms to collect, declare and pay VAT due on consignments valued up to EUR 150 in a single VAT return and it enables the payment of VAT on the supply at the time payment is accepted instead of paying import VAT at the time the goods clear customs. Consignments with a value exceeding EUR 150 remain liable for VAT at customs clearance.
Sellers or online platforms that are considered to be deemed suppliers for VAT purposes must register for the IOSS in one member state; non-EU-based businesses generally will have to appoint an EU intermediary to fulfil the VAT compliance obligations under the IOSS. Once registration takes place, the seller/online platform/intermediary will be issued a unique IOSS identification number that should be provided to customs at the time of import. This will indicate to customs that VAT already has been properly declared on the supply to the consumer so the customs authorities do not have to collect the import VAT.
The European Commission has identified situations where VAT is charged twice—once at the time of the supply and again at the time of import:
- The supplier’s IOSS number is not provided because the postal operator of the country of dispatch is unable to transmit the IOSS number; and
- A member state is not in a position to validate the IOSS number in a full customs declaration.
VAT is levied twice in these cases because the IOSS identification number is not provided on the import declaration.
The European Commission has proposed a temporary solution to the double taxation issue by allowing sellers and platforms to make a correction to the VAT in the IOSS return, which means that sellers and online platforms will be allowed to reclaim the VAT on the supply charged to their customer in their subsequent IOSS returns. This option recently was adopted unanimously by the EU member states in the VAT Committee and will be available provided the buyer is liable for the payment of import VAT and the prerequisites for correcting an IOSS VAT return are met. Consequently, the seller or platform will correct and reimburse the buyer for the VAT collected at the time payment is accepted as long as the buyer proves that import VAT was paid at the time of customs clearance.
The solution proposed by the European Commission (and unanimously endorsed by the advisory VAT Committee) should apply immediately and should help mitigate the double taxation issue. It is hoped that EU member states and postal operators will begin immediately to adapt their IT systems. Sellers and online platforms will have to deal with customers who have to pay import VAT after they pay VAT on the supply. There is also a risk that customers will cancel orders when the post office requires import VAT to be paid at the time the goods are delivered to the consumer. Although the Commission’s proposal is pragmatic and in the commercial interest of sellers and online platforms, it seems to be burdensome because suppliers will have to refund VAT to their customers (e.g., by sending credit notes), obtain proof that the customer paid the import VAT and make corresponding adjustments in their IOSS VAT returns. These corrections will be made in a subsequent IOSS VAT return filed no later than three years after the filing of the original IOSS VAT return.
The VAT rules for e-commerce are complex. If your business is using the IOSS to comply with VAT ecommerce obligations on distance sales of imported goods, it is important to ascertain whether there are any instances of double VAT and how the member state in which you are VAT-registered addresses this issue. Since VAT Committee guidelines are not legally binding and member states may deviate from them, professional tax advice is recommended.
EU Finance Ministers approve new VAT rates directive
On 5 April 2022, the EU Finance Ministers (ECOFIN) formally adopted the new VAT rates Directive, which is designed to modernise the nearly 30-year old rules and align them with common EU priorities, such as combatting climate change, supporting digitalisation and protecting public health (for prior coverage, see the article in the January 2022 issue of Indirect Tax News). The changes have been published in the Official Journal and are effective as from 6 April 2022.
The main features of this fundamental overhaul of the VAT rates are as follows:
- Annex II of the directive, which provides for the supply of goods/services to which reduced VAT rates are available, is updated. The scope of several categories is extended and 10 new categories added. Digital services (e.g., live streaming of cultural and sports), goods that protect public health (e.g., personal protective equipment, masks) and certain items that promote the EU's climate change priorities (e.g., bicycles, green heating systems) are included on the list.
- EU member states must still apply a normal or standard rate of at least 15% and may apply two reduced rates of at least 5% to items included in the Annex II list. In addition, member states may set a super reduced rate (i.e., a rate lower than 5%) and a 0% rate for products to cover basic needs (e.g., foodstuffs, pharmaceutical products).
- The country-specific derogations that are in line with the EU Green Deal can be retained, but an “equal treatment” clause makes the derogations available to other member states that wish to utilise them. Member states will have to end any derogations that are not in line with the EU Green Deal by 2030.
In connection with the possibility for member states to set reduced rates for internet access services, the place of supply rules change so that the place of supply for the provision of virtual attendance is the place where the virtual visitor is located. EU member states are required to implement these place of supply rules for virtual/streamed activities by 31 December 2024 (i.e., with the new rules applicable as from 1 January 2025).