EY - Indirect Tax Briefing - June 2014

Indirect Tax Briefing: July 2014

Welcome to the 10th edition of our Indirect Tax Briefing

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In this edition, we examine how technology and globalization are having an impact on indirect taxes and on how tax and trade administrations and businesses are dealing with the challenges of the digital age.

Mismatches in the application of VAT to international trade can cause issues of double taxation and unintended non-taxation. We report on the OECD Global Forum on VAT and the adoption of the International VAT/GST Guidelines.

We consider how new VAT rules for the digital sector are being introduced around the world, focusing on the EU and South Africa and the proposals for the digital economy being put forward by the OECD. Pedro Meneguetti, Assistant Secretary for Finance for the Minas Gerais State Finance Office in Brazil, speaks to us about how the state’s tax administration uses data analysis tools to carry out more effective tax audits.

Technology and globalization are rapidly changing how we live and how we do business, making cross-border trade far easier and far more prevalent in all sectors.

And we report on how the South African tax authority (SARS) is using data analytics and sophisticated systems based audits.

How can businesses respond to these trends? The executive summary of our recent report Managing indirect tax data summarizes our findings on how businesses can respond to the challenge of “big data” to reduce risks and gain valuable insights and control.

We also look at the particular indirect tax management issues that arise in the Asia-Pacific region. Our article sets out some of the indirect tax challenges that companies face while operating in this part of the world, which includes very developed VAT/GST systems (such as in Australia, New Zealand and Singapore) and new and developing systems (such as in China and Malaysia).

We also consider ways that companies can proactively manage indirect taxes to go from dealing with day-to-day operational and compliance issues to incorporating indirect tax planning into corporate strategy.

In our country update section, we outline several developments that may increase taxpayers’ compliance obligations, including the differing opinions about the VAT rules on finance leases in Bulgaria, the impact of missing trader fraud in Russia and the need for bona fide companies to verify their suppliers’ credentials, the possibility that extra dutiable costs may apply to imports into Canada, and the new trade certification rules in Mexico.

Finally, we updated our snapshot map of recent developments around the world. See our articles to find out more, or contact us for in-depth insight on the issues affecting your organization.

Themes and Trends

VAT changes in the digital world

There is a global shift in the VAT rules for the digital sector. What practical issues are digital companies facing? What could tax teams be doing to meet the challenges of this shifting tax landscape?

Managing indirect tax data

What are the challenges that companies face in dealing with large quantities of data? In this article, we outline the challenges and consider the management and technology tools that can help meet these.

OECD Global Forum on VAT

The recent OECD global forum on VAT endorsed the OECD international VAT/GST Guidelines. In this article, we present an overview of these Guidelines.

Strategically managing indirect taxes in Asia-Pacific

What are the most pressing challenges when it comes to managing indirect taxes across Asia-Pacific?

Indirect tax changes: global update

We summarize some of the recent tax legislation changes from around the world.

 

Country updates

Brazil: How technology is used by the tax authority

Pedro Meneguetti, Assistant Secretary for Finance for the Minas Gerais State Finance office, talks about the role technology plays in collecting indirect taxes and in auditing taxpayer activity in Brazil.

Bulgaria: VAT turbulence around finance leases

Changes to the VAT treatment of finance leases in Bulgaria is causing issues for lessors with their clients.

Canada: Related-party research, development and design costs now dutiable?

Recent case law confirms an aggressive interpretation on duty for related costs by the Canada Border Services Agency.

Mexico: New trade certification rules for VAT credit on goods introduced into customs regimes

New regulations apply to goods destined for several customs regimes from 1 January 2015. This article outlines the implications for Mexican companies.

Russia: VAT fraud – involving “mala fide” taxpayers

What risks are there for bona fide companies who unwittingly do business with those engaged in missing trader fraud?

South Africa: SARS looking for improved compliance and tax collection via data analytics

The South African tax authority’s new approach to data extraction has far-reaching implications for taxpayers. Are you ready to meet the challenges?

South Africa: New VAT rules for foreign suppliers of e-services

Do you supply e-services to South African customers? Are you aware of the new VAT rules being introduced and their implications for foreign suppliers?

Top

The digital world is ever expanding, rapidly changing and increasingly complex. Some commentators estimate that more than 200 new users connect to the mobile web every minute, but we have so far reached only 1% of our connectivity potential. The definition of the “digital economy” is also shifting to encompass a far broader range of industries and sectors than ever before. Tax authorities need to respond to these changes to protect tax revenues and avoid double taxation and nontaxation, a point that has been recognized by the European Commission, the Organisation for Economic Co-operation and Development (OECD)1 and a number of country tax administrations, including South Africa’s.

EY-Jo Crookshank

Jo Crookshank
Tel: +44 20 7951 1662
Email: jcrookshank@uk.ey.com

EY-Charles Brayne

Charles Brayne
Tel: +44 20 7951 6337
Email: cbrayne@uk.ey.com

EY-Jacques Harmse

Jacques Harmse
Tel: +27 11 772 3000
Email: jacques.harmse@za.ey.com

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Dealing with indirect tax data is the key to effective indirect tax management. But the variety of indirect tax data required by different jurisdictions and the sheer quantity of relevant data now generated by large organizations can present a range of logistical issues. In this report, we consider some of the challenges that multinational companies’ tax, trade and finance departments typically face in managing indirect taxes, including large quantities of complex transactional data, and we outline some of the management approaches and technology tools that can help them achieve their goals.

EY-Philip Robinson

Philip Robinson
Tel: +41 58 286 3197
Email: philip.robinson@ch.ey.com

EY-Ros Barr

Ros Barr
Tel: +44 20 7980 0259
Email: ros.barr@uk.ey.com

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The second OECD Global Forum on VAT was held in Tokyo on 17 and 18 April 2014. The Global Forum could be judged to be a great success because it endorsed the OECD International VAT/GST Guidelines as a global standard to address issues of double taxation and unintended nontaxation resulting from inconsistencies in how VAT is applied to international trade.

EY-Bertrand Monfort

Bertrand Monfort
Tel: +49 211 9352 14322
Email: bertrand.monfort@de.ey.com

EY-Claudio Fischer

Claudio Fischer
Tel: +41 58 286 3433
Email: claudio.fischer@ch.ey.com

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Strategically managing indirect taxes in Asia Pacific is no easy task to strategically manage a company's indirect tax burden in the Asia-Pacific region. Unfortunately, there is no "one size fits all" management approach that can be deployed across such a diverse group of different countries and taxes. This article provides an overview of a report recently issued by EY, The evolution of strategically managing indirect taxes in Asia-Pacific, that is available at www.ey.com/indirecttax.

EY-Kenneth Leung

Kenneth Leung
Tel: +86 10 58 15 3808
Email: kenneth.leung@cn.ey.com

EY-Robert Smith

Robert Smith
Tel: +86 21 22 28 2328
Email: robert.smith@cn.ey.com

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Global trade management: high performers move ahead

This report provides the findings from the EY Global Trade Symposium, where top trade executives from some of the world’s largest global traders exchanged ideas about how global trade management can give high performers a competitive edge.

TradeWatch — Global trade

TradeWatch is our global trade quarterly publication that spotlights customs valuation developments and also includes global trade updates from countries and regions around the world.

Worldwide VAT, GST and sales tax guide

Our Worldwide VAT, GST and sales tax guide helps you understand how indirect taxes will affect your company abroad. Chapter by chapter from Albania to Zimbabwe, this guide summarizes consumption tax systems in 110 jurisdictions and the European Union.

TPC Briefing — June 2014

The latest edition of the quarterly Global Tax Policy and Controversy Briefing provides coverage of the latest developments on the OECD’s action plan regarding base erosion and profit shifting (BEPS), as well as detailed updates from various jurisdictions around the world.

Indirect Tax in 2014

How do you keep pace with today’s rapidly changing indirect tax landscape? Our highlevel overview of global trends and developments will help.

Tax Insights

This periodical magazine focuses on the dynamic tax environment faced by companies operating across the globe. The theme of this edition is the future of tax.

Worldwide Corporate Tax Guide

This guide summarizes the corporate tax regimes in 161 countries.

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Sergio Fontenelle, EY Indirect Tax leader for South America Region and Brazil, met recently with Pedro Meneguetti, Assistant Secretary for Finance for the Minas Gerais State Finance Office. They talked about the role of technology in helping Brazil’s Minas Gerais State collect indirect taxes and audit taxpayer activity.

EY-Sergio Fontenelle

Sergio Fontenelle
Tel: +55 11 25 73 3169
Email: sergio.fontenelle@br.ey.com

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In November 2013, the Bulgarian Parliament voted for fundamental changes in the VAT treatment of finance leases. The draft law did not raise much discussion in Parliament, but it has already caused turbulence among lessors. The new rules, effective 1 January 2014, stem from an interesting Bulgarian referral to the European Court of Justice (CJEU) with consequences for lease companies with both individual and business clients.

EY-Milen Raikov

Milen Raikov
Tel: +359 2 81 77 100
Email: milen.raikov@bg.ey.com

EY-Iva Dimitrova

Iva Dimitrova
Tel: +359 2 81 77 100
Email: iva.dimitrova@bg.ey.com

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In one of the most important customs cases in years1 (referred to in this article as Skechers Canada) the Canadian International Trade Tribunal (CITT) confirmed an aggressive interpretation by the Canada Border Services Agency (CBSA) concerning additions to the transaction value for intercompany payments made outside of the invoice amount or transfer price that relate to design and development costs allocated to the importer.
As part of a recent enforcement trend of the CBSA toward assessing customs duty on intercompany management or other fees not included in the transfer price, the CBSA determined that the total research and development (R&D) intercompany fees paid by the Canadian company were part of the value for duty allocated over the goods actually imported. In a potentially far-reaching decision, the CITT endorsed this decision for cases where the importer cannot demonstrate that the payments are unrelated to the goods.

EY-Dalton Albrecht

Dalton Albrecht
Tel: +1 416 943 3070
Email: dalton.albrecht@ca.ey.com

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On 1 January 2014, the Mexican tax authorities finally published1 regulations related to attaining the certification required to benefit from a VAT credit. As of 1 January 2015, the regulations apply to goods destined for several customs regimes, including the temporary importation of goods for the elaboration, transformation or repair in an IMMEX2 or exports programs.

EY-Edwin Solano

Edwin Solano
Tel: +13 05 415 1526
Email: edwin.solanoleiva@ey.com

EY-Rocio Mejia

Rocio Mejia
Tel: +52 55 5283 8672
Email: rocio.mejia@mx.ey.com

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A large problem for the VAT system in Russia and for entrepreneurs operating in the country is the large number of “mala fide” taxpayers in the supply chain who are engaged in missing trader fraud involving VAT and tax evasion. In this article we outline the current situation in Russia concerning mala fide or “missing trader” taxpayers and risks for bona fide companies. We also provide some guidance for legitimate companies to help mitigate the risks associated with dealing with missing traders.

EY-Vitaly Yanovskiy

Vitaly Yanovskiy
Tel: +7 495 664 7860
Email: vitaly.yanovskiy@ru.ey.com

EY-Toon Beljaars

Toon Beljaars
Tel: +7 495 664 7866
Email: toon.beljaars@ru.ey.com

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For a number of years, the South African Revenue Service (SARS) has been undertaking a modernization program. In connection with this program, and the authority’s more recent 2013-2014 Strategic Plan, SARS is embarking on becoming a world-leading revenue authority, making use of increasingly sophisticated systems-based audits and data analytics. In this article we look at Form IT14SD, which SARS is using to reconcile taxpayer data across a wide range of direct and indirect taxes. This new approach to data extraction has far-reaching implications for taxpayers in South Africa who will need to understand not only the new form but also how they can prepare to meet any challenges to their data.

EY-Folkert Gaarlandt

Folkert Gaarlandt
Tel: +27 11 772 5220
Email: folkert.gaarlandt@za.ey.com

EY-Henk Sweers

Henk Sweers
Tel: +27 11 772 3760
Email: henk.sweers@za.ey.com

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In common with many other countries, South Africa is grappling with the issue of how to apply VAT to new ways of doing business, facilitated by online trading and the internet. Effective 1 July 2014, South Africa will apply VAT to supplies of electronic services (e-services) made by foreign suppliers to South African customers. In this article, we consider the scope of new rules and some of the issues associated with them.

EY-Folkert Gaarlandt

Folkert Gaarlandt
Tel: +27 11 772 5220
Email: folkert.gaarlandt@za.ey.com

EY-Jacques Harmse

Jacques Harmse
Tel: +27 11 772 3000
Email: jacques.harmse@za.ey.com

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Contacts:

Global Director — Indirect Tax

Philip Robinson
+41 58 286 3197

Americas

Jeffrey N. Saviano
New York: +1 212 773 0780
Boston: +1 617 375 3702

Jean-Hugues Chabot
+1 514 874 4345

Asia-Pacific

Robert Smith
+8621 2228 2328

Europe, Middle East, India and Africa (EMEIA)

Gijsbert Bulk
+31 88 40 71175

Global Trade

William M. Methenitis
+1 214 969 8585

Neil Byrne
+353 1 221 2370

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