Week to 19 October 2020
Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments.
If you would like to discuss any of the articles in more detail, please speak with your usual EY indirect tax contact, or one of the people below. If you have any feedback or comments on EY VAT News, please contact Ian Pountney.
The world of tax is changing, with data and technology increasingly becoming a top focus for both tax authorities and tax functions. There is a global trend towards digitalisation of tax authorities, with more and more tax authorities moving to digital ways of assessing and collecting tax and a huge increase in the requirements placed on taxpayers. These requirements, in the areas of increased filings and frequency as well as the provision of larger amounts of data are causing tax functions to consider the quality and availability of their data and the technology tools which underpin their tax management and compliance processes.
The implementation of SAP S/4HANA provides an opportunity to respond to these challenges through optimising the core enterprise resource planning (ERP) functions, additional tax-focused applications and the integration of third-party solutions. In addition, S/4HANA provides greater data insight and reporting capability to improve the effectiveness of the tax function and drive better governance and controls.
EY and SAP are hosting the first of what will be a series of webcasts to understand how S/4HANA migration presents a significant opportunity for the tax function.
Speakers will include:
- Chris Lewis, EY, UK&I Agile Tax – S/4HANA
- Thomas Popp-Masden, SAP, CoE for ERP Financials
- Renaud Heyd, SAP, Chief Financial Officer
Both the risks to and opportunities for the tax function of an S/4HANA implementation will be covered, including:
- A CFO view on how S/4HANA impacts tax and the opportunities it brings
- Key implementation considerations and touchpoints for tax
- SAP tax management applications as a solution to digital tax authorities
- When and how tax should be involved in an S/4HANA programme
Date and time:
21 October 2020 – 11:00-12:00
Please register for this event here.
The UK and EU are introducing changes to the VAT reporting requirements for online sellers and marketplaces, from 1 January 2021 in the UK and 1 July 2021 across the EU. These coincide with the removal of the low value consignment relief in the EU and UK and, of course, the end of the transition period of the UK leaving the EU.
The new rules will significantly impact UK, EU and other non-EU online sellers or marketplaces that deal with the Business to Consumer sale of goods with or within the EU (and the UK), and so this webcast is aimed at finance, tax and VAT teams tasked with managing the associated systems and compliance obligations. Online sellers and marketplaces will need to understand the specific transactional circumstances where the changes will apply. This is particularly the case for online marketplaces, where they will be responsible for reporting and paying the VAT in the various destination countries in which they facilitate online sales.
In this webcast, we will cover the following:
- Background to the EU and UK VAT changes – covering the transactional circumstances, and their impact on those affected
- Practical areas of considerations and recommended actions
The speakers will be:
- Simon Baxter, Associate Partner, Retail Indirect Tax Leader, EY LLP
- Ethan Ding, Senior Manager, Retail Indirect Tax, EY LLP
Please submit any questions you have for the EY speakers either when you register or during the webcast.
Date and time:
21 October 2020 – 11:00-12:00
Please register for this event here.
- Background to the EU and UK VAT changes – covering the transactional circumstances, and their impact on those affected
In this webcast, panellists discuss the latest developments in the taxation of the digitalised economy.
The 90-minute session will provide insight into the latest developments, including the interaction of BEPS 2.0 and country digital services taxes (DSTs), the US presidential election, and the likely next steps for the many stakeholders involved in this global debate.
Please join a global panel of EY tax leaders for a discussion on:
- Global developments related to the proliferation of DSTs, including an update on the US trade actions and EU-level activity
- An overview of the BEPS 2.0 Pillars 1 and 2 blueprints which were released in October
Date and time:
28 October 2020 – 16.00-17.30
Please register for this event here.
- Global developments related to the proliferation of DSTs, including an update on the US trade actions and EU-level activity
From January 2021, UK courts, rather than the Court of Justice of the European Union (CJEU) will be the final arbiter of laws impacting UK businesses. However, in order to promote legal clarity and certainty following the UK's departure from the EU, Parliament, through the EU (Withdrawal) Act 2018 (the 2018 Act) has provided that the EU law the UK has chosen to retain is to be interpreted in line with the principles laid down by, and decisions of, the CJEU, as modified by UK law from time to time, subject to certain exceptions (retained EU case law).
In making this provision, it was also recognised that the way the law is interpreted by UK courts and tribunals does not remain static over time. Departure from the EU has brought with it a change to the context in which the law is considered; UK courts should be able to reflect that in their decisions where appropriate. Without the ability to depart from retained EU case law, there is a risk that the EU law which has been retained in UK law remains tied to an interpretation from the CJEU that is arguably no longer appropriate in the UK.
The 2018 Act vested in the UK Supreme Court and High Court of Justiciary in Scotland (in specified cases) the power to depart from retained EU case law, applying their own tests for deciding whether to depart from their own case law when doing so. Parliament also decided, in amending the 2018 Act in the EU (Withdrawal Agreement) Act 2020 (the 2020 Act), that the list of courts which may depart from retained EU case law could be extended further, following consultation.
In July 2020 the Ministry of Justice published a consultation on proposals on the use of the power in Section 6 of the 2018 Act (as amended by the 2020 Act). This sought views on which courts ought to be able to depart from retained EU case law and the extent to which the court is not bound by retained EU case law, the tests that they should apply when deciding whether to depart from retained EU case law, the operation of precedent in these circumstances, and the considerations that the courts, including the UK Supreme Court and High Court of Justiciary in Scotland, ought to take into account in coming to such decisions.
This consultation closed on 13 August 2020 and the Government's Response has now been published. 56% of those responding were against any extension to the courts able to depart from EU case law, compared to 27% who were in favour. Only 2 out of the 75 responses were in favour of extending the power to the Upper Tribunal, High Court and equivalent level courts in other parts of the UK. The Response notes that:
“Those opposed included a large proportion of the legal services sector, legal academics, trade unions and businesses who responded to the consultation.
Respondents cited a range of reasons in support of not making Regulations, but the predominant reason given was the risk to legal certainty if this power were to be extended beyond the UK Supreme Court and High Court of Justiciary in Scotland. They considered that the impact of such legal uncertainty would result in:
- the re-litigation of well-established legal principles
- a divergence in legal approaches across the UK on similar issues; and
- an incoherent legal framework with adverse impacts in key areas such as tax, employment, environment and equalities
They concluded that the cumulative effect of this uncertainty would negatively impact businesses and the UK's international reputation as a reputable forum in which to settle disputes. Many of those who did not support the extension of the power expressed concern about the principle of reliance on the courts to consider diverging from retained EU case law – arguing that this is a matter for Parliament to legislate upon.”
The Government has listened to the views expressed and decided not to follow the majority. The Government is satisfied that it is appropriate to introduce Regulations to extend the power to depart from retained EU case law to:
- The Court of Appeal in England and Wales
- The Court of Appeal of Northern Ireland
- Martial Appeal Court
- The High Court of Justiciary in Scotland when sitting as a court of appeal in relation to a compatibility issue or a devolution issue
- The Inner House of the Court of Session
- The Lands Valuation Appeal Court
- The Registration Appeal Court
The Government considers that extending the power at this level will strike the appropriate balance between the need for legal certainty and for timely departure from retained EU law.
This will help mitigate the operational impacts on the UK Supreme Court and High Court of Justiciary in Scotland which would arise if the power were reserved solely to those courts; and there will be benefits to the UK Supreme Court in being assisted by a prior judicial dialogue on these complex issues from the Court of Appeal or the relevant appellate court in Scotland or Northern Ireland.
By restricting this power to the highest appeal courts, the Government suggests that it will also minimise the risk, identified in the consultation responses, of adverse impacts which may arise out of any legal uncertainty resulting from additional litigation being brought, and the risk of divergence of approach between courts across the UK.
On the question of the tests to be applied by these courts, it is proposed that a single test – that adopted by the UK Supreme Court in deciding whether to depart from its own case law (namely whether it is right to do so, and the doctrine of precedent will continue to apply in the usual way) – was supported by a majority of consultation responses. As that test has already been approved by Parliament in the 2018 Act as the appropriate test for the UK Supreme Court, the Government is confident that this is the appropriate approach, and that in setting the same test for the additional courts to apply, it will promote consistency of approach between the courts to whom this power will be extended. Given the nature of that test, the Government is not minded to specify any additional factors for the courts to consider.
Finally, a number of questions relating to the precedent value of certain decisions were asked in the consultation – the Government's responses to those are set out in detail within the Response document, but, in summary, it will not be making changes in that space.
The Government will now lay in Parliament a Statutory Instrument that will make Regulations to give effect to this policy on the departure from retained EU law by UK courts and tribunals. This will be considered and debated by Parliament in the coming months, and, if approved by both Houses, will come into effect at the end of the Transition Period.
Please also refer to the Government's Impact Assessment.
For further information please contact Mitchell Moss.
This Guidance provides information for businesses on importing and exporting goods between GB and the EU after 1 January 2021. It has been updated to remove references to Intrastat declarations for exports. You will not have to submit Intrastat declarations for goods exported from GB to the EU.
Intrastat declaration will still be required however for the following:
- Goods imported into GB from the EU – for the whole of 2021
- Goods imported into Northern Ireland (NI) from the EU – for the lifetime of the Northern Ireland Protocol. This will be a minimum of 4 years
- Goods exported from NI to the EU – for the lifetime of the Northern Ireland Protocol. This will be a minimum of 4 years
For further details please refer to HMRC's FAQ document available here.
HMRC letters to VAT-registered businesses in GB trading with the EU and/or the rest of the world, highlighting actions they need to take to continue trading with the EU from 1 January 2021; letter added on 19 October
This HMRC Guidance explains when you should use an individual guarantee or a customs comprehensive guarantee to enter goods into a customs special procedure and defer duty. It has been updated with information on changes to when a guarantee is required from 1 January 2021.
This HMRC Guidance explains how to check if you can operate a facility and meet the conditions to store imported goods temporarily. It also explains how to apply.
It has been updated to confirm that from 1 January 2021, you will not need an inventory linked system in place to become authorised to operate a temporary storage facility in GB (England, Scotland and Wales), but your premises will need to be inventory linked by 1 July 2021. You will need to have control over your facility and keep effective records until then.
You will not need a customs comprehensive guarantee to be authorised to operate a temporary storage facility in GB unless HMRC advises that one is required. You will still need a customs comprehensive guarantee if you operate a temporary storage facility in Northern Ireland.
Movements in Temporary Storage (MiTS) remain unchanged, there is a new temporary facilitation for moving goods from border locations in GB without existing customs control systems.
Find out more about movements to temporary storage facilities from 1 January 2021 to 30 June 2021 here.
This Guidance explains that from 1 January to 30 June 2021, if you import goods which are not controlled into GB from the EU, you can record the goods in your own records without getting authorisation in advance. However, for the goods listed within the Guidance, you must follow normal rules for making import declarations.
In this Press Release the Government urges business leaders to step up preparations for Australia-style arrangements from 1 January and launches the 'time is running out' campaign.
Australia does not have a Free Trade Agreement with the EU, instead it has an agreed ‘Partnership Framework’.
The ‘Time is running out’ campaign will encourage businesses to act now to prepare for the guaranteed changes at the end of the year.
Governments around the world are acting decisively to protect businesses and people from economic disruption being caused by the COVID-19 virus. Whether through tax cuts, investment incentives or changes to filing deadlines, tax systems will play a significant part in helping alleviate the financial and economic turmoil that is now occurring.
Policy changes across the globe are being proposed and implemented daily. The EY Tax COVID-19 Stimulus Tracker provides a snapshot of the stimulus measures that have been announced in countries around the world in response to the ongoing crisis, including indirect tax developments. It will be updated every 48 hours so do please check for the latest update.
(While this document is updated on a regular basis, it has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice)
Court of Justice of the European Union
On 15 October 2020 the Court of Justice of the European Union (CJEU) released its decision in this Polish referral asking whether the VAT Directive, in particular Article 90(2) – having regard to the principles of fiscal neutrality and proportionality, permit the introduction into national law of a restriction on the ability to reduce the taxable amount in the event of partial or total non-payment by reason of the specific tax status of the debtor and the creditor? Does EU law preclude the introduction of a rule in national legislation which provides for the option of taking advantage of ‘bad debt relief’ only on condition that on the date on which the service or goods are supplied and on the day preceding the date on which the tax return adjustment is filed, in order to benefit from this relief: the debtor is not subject to insolvency or liquidation proceedings and the creditor and debtor are both trading and VAT registered?
E. Sp. Zoo Sp.K. (E) is VAT registered and provided tax advisory services to a Polish client. E issued VAT invoices and at the time of providing its services the client was also VAT registered in Poland and was not subject to insolvency proceedings or in liquidation.
Following a period exceeding 150 days from providing the services and raising tax invoices (the statutory period before a claim for Bad Debt Relief can be claimed in Poland), E had not received payment and sought to make a VAT adjustment; at that time the debtor had been placed into liquidation.
The tax authority denied the claim, arguing that pursuant to national legislation the fact that the debtor had been placed into liquidation precluded a claim for Bad Debt Relief, asserting that Article 90 is optional for Member States and therefore this condition is not contrary to the VAT Directive.
The CJEU noted that Article 90(1), which covers cases of cancellation, refusal or total or partial non-payment, requires Member States to reduce the tax base and, therefore, the amount of VAT owed, each time, after the conclusion of a transaction, part or all of the consideration is not paid. This provides for the fundamental principle that the tax base constitutes the consideration actually received.
Under Article 273, Member States can provide for the obligations they deem necessary to ensure the correct collection of VAT and to avoid fraud. However, neither Article 90(1) nor Article 273 specify the conditions for setting such obligations, consequently Member States have some discretion in this regard. The CJEU noted that in exercising such discretion, Member States must not interfere with the objectives and principles of the VAT Directive in such a way that it would call into question the neutrality of VAT. It is for national courts to verify that Member State's do not exceeded their limits of discretion.
The CJEU noted that Article 90(2) allows Member States to derogate from Article 90(1), but only in certain circumstances where, due to the legal situation existing in the Member State concerned, it may be difficult to verify whether the consideration is simply delayed, and therefore only provisional. It follows that the exercise of such a derogation must be justified; while it is relevant for Member States to be able to combat uncertainty about the non-payment of an invoice or the finality of an invoice, such a power of derogation cannot extend beyond this uncertainty.
The CJEU held that a limitation of the adjustment of the tax base, in cases where it is practically certain that the agreed consideration will not be paid, as in the immediate case, is not proportionate. Article 90 does not allow Member States to exclude adjustment for bad debts in such circumstances.
The CJEU also considered the tax authorities concerns that, once the adjustments of the tax base and deductible VAT have been made, the VAT owed by the debtor may not be paid to the State because the debtor is the subject of insolvency or liquidation proceedings. In this regard the CJEU noted that the correlation between the adjustment of the tax base and that of the deductible VAT does not necessarily imply that these must take place at the same time. Thus, this correlation does not prevent Member States, in view of the absence of a time criterion in Article 185(2), to require the adjustment of deductible VAT as soon as the debtor is in default and even before insolvency or liquidation procedures are open, in order to prevent any risk of financial loss to the State.
In summary, the CJEU held that Article 90 must be interpreted as precluding national rules which make the reduction of the taxable base, and VAT due, subject to the conditions that on the day of delivery of goods or provision of services, as well as on the day preceding the day of submitting the correction of the tax declaration aimed at taking advantage of this reduction, the debtor is registered as a VAT payer and was not in bankruptcy or liquidation proceedings, and the creditor was still registered as a VAT payer on the day preceding the day of submitting the corrected VAT return.
Comments: This decision follows earlier judgments which have found that Member States cannot rely on formal conditions to limit a taxpayer's claim to Bad Debt Relief and that derogation under Article 90(2) can only be implemented in situations where non-payment is not certain or final. The CJEU has also sought to address the argument that the State assumes the burden for the VAT in situations of liquidation and insolvency, suggesting that Member States ‘can’ consider the timing of adjustments to VAT recovery, i.e. when should a recipient of a supply adjust its VAT recovery where it has failed to make payment or has only made part payment; a quicker requirement for adjustment presumably limiting the number of occurrences where the State assumes the risk. In the UK it is six months before a supplier can make a claim for Bad Debt Relief and the requirement to make an adjustment to input tax for the customer is also six months. Any business challenged regarding adjustments in similar circumstances should consider whether the decision should be reviewed.
This case is not available in English
The CJEU has a procedure whereby, if it believes that the answer to a referral is sufficiently clear (e.g. the answer may be clearly deduced from existing case-law), it can determine the case by the issue of an Order, without the need for a full Court hearing or a written Advocate General's Opinion.
The procedure has been used by the CJEU in relation to this Slovakian referral asking whether Articles 167 and Article 168(e) of the VAT Directive must be interpreted as meaning that the right to deduct the VAT which a taxable person is required to pay on imported goods is conditional on a right of ownership in respect of the goods or on the right to dispose of the goods as owner? Does the right to deduct only arise if the imported goods are used for the purposes of the taxable person's taxable transactions in the form of the sale of the goods in the national territory or the supply of the goods to another Member State or the export of the goods to a third country?
Weindel Logistik Service (WSL) as consignee and declarant, imported into the Slovak Republic goods from Switzerland, Hong Kong and China for the purpose of repackaging them. When the goods were released for free circulation, WSL became liable to pay VAT. Once the goods had been repackaged, they were exported or supplied from the territory of the Slovak Republic to a third country and the repackaging services were invoiced to the customer. Ownership of the goods remained with the foreign customer the entire time.
WSL paid the VAT and claimed a right of deduction. The Tax Office refused on the ground of non-compliance with domestic legislation:
- WSL was not the owner of the goods and did not have the right to dispose of the goods as owner
- The cost of the goods was not directly and immediately linked with WSL's economic activity and it had not incurred costs in the purchase of goods that would then be included in the price of downstream transactions subject to tax
- WSL had not sold the goods in the national territory, or supplied them to another Member State of the EU, or exported them to a third country, and so it had not used the goods for the purposes of its own economic activity as a taxable person
WSL asserts that it is entitled to deduct the VAT, since the right of ownership, and more specifically the transfer of the right to dispose of the goods as owner, relates exclusively to the supply of goods to a purchaser. It is not a purchaser and so that condition cannot apply in its case. When goods are imported, the liability to pay the tax and the right of deduction are not conditional on there being a right of ownership or a right to dispose of the goods as owner. The goods were imported for the purposes of its principal economic activity.
The tax authority argues that when goods are imported, one of the pre-conditions for exercising the right to deduct VAT is the acquisition of a right of ownership or of the right to dispose of the goods as owner, along with the requirement that there be a direct and immediate link with the economic activity, the incurring of costs in the purchase of the goods and their use for the supply of goods or services in the context of the pursuit of an economic activity. In the immediate case WSL fails to meet these requirements.
The CJEU noted that the referring Court asks whether Article 168(e) of the VAT Directive must be interpreted in the sense that it opposes the granting of a right to deduct VAT on imported goods where the importer does not own the goods and does not use them for the purposes of his taxable operations, and where the cost of the property has no direct and immediate connection with his economic activity.
Article 168 provides that the importer can deduct from the amount of VAT for which he is liable, the tax due on imported goods when they are used for the purposes of his taxed transactions. However, according to the case law of the Court, Article 168 generally requires that upstream transactions be directly and immediately linked to downstream operations. This presupposes that the expenditure incurred to acquire the goods or services forms part of the price of the taxable output transactions giving rise to the right to deduct.
However, the Court noted that a right to deduct is also allowed where the cost of the services in question forms part of the taxable person's overheads and are, as such, constituent elements of the price of the goods or services supplied. Such costs have a direct and immediate link with the taxable person's entire economic activity.
The referring Court had identified that WSL intervenes only as a service provider, without having acquired the imported goods or bearing the cost of importing them. This suggests that in the immediate case, the link between the payment of import VAT and the price of services provided by WSL is lacking. This is a matter for the referring Court to establish and confirm.
If it is found that the value of the goods imported does not form part of the costs constituting the price charged by a carrier whose activity is limited to transporting those goods for remuneration, the conditions of Article 168 are not satisfied. Those who import goods without owning them are not in a position to benefit from the right to deduct VAT, unless they can establish that the cost of the importation is incorporated in the price of the particular output transactions or in the price of the goods or services supplied by them in the course of their economic activities.
The Court noted that in this regard the VAT Committee has taken a consistent approach through its guidelines; a tax payer designated as liable for the payment of VAT on import is not entitled to deduct VAT when two conditions are met, namely, on the one hand, when the subject does not obtain the right to dispose of the property as an owner and, on the other hand, when the cost of the goods is not directly and immediately related to his economic activity.
Comments: This Order confirms that Article 168 must be interpreted as precluding the right to deduct VAT for an importer where he does not have the right to dispose of the goods in the same way as an owner and where the import costs are not incorporated in the price of particular output transactions or in the price of the goods and services supplied by the taxable person in the course of his economic activities. It essentially refuses the right to deduct where the importer will never take title but potentially leaves it open for the situation where title may pass to the importer after importation.
This Order follows the recent Revenue & Customs Brief 15 (2020): VAT – Conclusion of review of Import VAT deducted as input tax by non-owners (please also see Revenue and Customs Brief 2 (2019) ). We are currently discussing the concept of ‘ownership’ per the Brief with HMRC. Any businesses importing goods should consider the implications of this Order and HMRC Brief and review supply chains in order to establish whether arrangements need to be altered or tightened to cover any potential challenge around ownership of the goods.
Thursday 22 October
Opinion – C-581/19 Frenetikexito – A Portuguese referral asking, where a business provides a fitness service and secondary ancillary health, nutrition and dietary advice, for the purpose of Article 2(1)(c) of the VAT Directive must the health, nutrition and dietary advice be regarded as ancillary to the fitness service with the effect that the ancillary supply must be given the same tax treatment as the principal supply, or, on the contrary, must the services be regarded as independent of and distinct from one another with the effect that the tax treatment established for each of those activities will apply to that activity? For the purposes of applying the exemption under Article 132(1)(c), must the services listed in that article be supplied, or is it sufficient in order for that exemption to apply that they are merely made available, so that use of those services depends solely on the wishes of the customer?
Opinion – C-593/19 SK Telecom – An Austrian referral asking whether Article 59a(b) of the VAT Directive is to be interpreted as meaning that the use of roaming services in a Member State in the form of access to the national mobile telephone network for the purpose of establishing incoming and outgoing connections by a ‘non-taxable end customer’ temporarily resident in that Member State, constitutes ‘use and enjoyment’ in that Member State which justifies the transfer of the place of supply from the third country to that Member State, even though neither the mobile telephone operator providing the services nor the end customer are established in the Community territory and the end customer does not have his permanent address and does not usually reside in the Community? Is Article 59a(b) as amended by Article 2 of Directive 2008/8, to be interpreted as meaning that the place of supply of telecommunications services as described in Question 1, which are outside the Community may be transferred to the territory of a Member State even though neither the mobile telephone operator providing the services nor the end customer are established in the Community territory and the end customer does not have his permanent address and does not usually reside in the Community, simply because the telecommunications services in the third country are not subject to a tax comparable to VAT under EU law?
Thursday 12 November
Judgment – C-42/19 Sonaecom – A Portuguese referral asking whether VAT can be recovered on advisory fees attributable to market research for the purpose of acquiring shares where the acquisition does not actually take place? Can VAT be recovered on costs incurred in organising a bond loan, taken out with a view to integrating the financial structure of affiliated companies, and which, since those investments failed to materialise, was ultimately transferred to the parent company of the group?
Opinion – C-703/19 Dyrektor Izby Administracji Skarbowej w Katowicach – A Polish referral asking whether the concept of a ‘restaurant service’ to which a reduced rate of VAT applies, pursuant to Article 98(2) and point (12a) of Annex III of the VAT Directive, covers the sale of prepared dishes where: the seller makes available to the buyer the infrastructure which enables him or her to consume the purchased meal on the premises (separate dining space, access to toilets); there is no specialised waiter service; the ordering process is simplified and partly automated; and the customer's ability to customise the order is limited? Is the way in which the dishes are prepared relevant? is it sufficient that the customer is potentially able to use the infrastructure offered or is it also necessary to establish that, for the average customer, this element constitutes an essential part of the service provided?
Judgment – C-734/19 ITH Comercial Timişoara – A Romanian referral asking whether, inter alia, Articles 167 and 168 of the VAT Directive and the principles of legal certainty, the protection of legitimate expectations, non-discrimination and tax neutrality permit or preclude the right of a taxable person to deduct VAT in relation to certain investment expenditure which the taxable person incurs with the intention of allocating it for the purpose of carrying out of a taxable transaction – should the right to deduction be forfeited in the event that the planned investment is subsequently abandoned?
This Order provides that the Charter Trustees named in article 2 are specified for the purposes of section 33 of the Value Added Tax Act 1994. The effect of this Order is that the specified Charter Trustees are able to claim refunds of VAT charged on supplies to them, or acquisitions or importations by them, where those supplies, acquisitions or importations are not for the purpose of any business carried on by them but for their statutory non-business activities.
A Tax Information and Impact Note relating to this Order will be published on the HMRC website here.
This order follows a period of Consultation which closed on 28 July 2020.
This Guidance explains what happens if you underpay import or export duties and who is responsible for the debt.
A customs debt is the amount owed for import or export duties. Import duty is any customs duties payable on goods imported into the UK or EU, including:
- Anti-dumping duties (ADD)
- Common Agricultural Policy (CAP) charges
- Import VAT
This Guidance explains how to hire a person or business to deal with customs for you. It has been updated to advise that if you are established in the UK and import goods into GB you can ask someone to act directly using their own authorisation, to make declarations using either simplified declaration procedure or entry in the declarant's records.
For further information please contact Charlotte Prescott.
EY Global Tax Alerts
UK – On 8 October 2020, the Government released a comprehensive update on its Border Operating Model that will be effective from 1 January 2021. This was supplemented in the same week by additional guidance on specific types of goods movements, in particular products subject to excise duty.
All businesses moving goods between the EU and GB (and also from the EU to Northern Ireland via GB) from 1 January 2021 will need to review the relevant sections of the Border Operating Model guidance to understand the impact to their flows and Brexit preparations.
Please refer to our alert for relevant links and further details.
Ireland – The coalition Government has delivered its first budget. Finance Bill 2020 is expected to be published on 22 October 2020 and signed into law by mid-December. Indirect tax and environmental measures include:
- Reduction in the VAT rate for hospitality and tourism sectors: In response to the impact of COVID-19 on the hospitality and tourism sectors, the Minister has announced a temporary reduction in the VAT rate for these sectors from 13.5% to 9% (to apply from 1 November 2020 to 31 December 2021). In addition to the relief applying to catering services, hotel and guest house accommodation, it will also extend for admission to cinemas and promotion and admission to live performances, museums and exhibitions. Hairdressing services and printed matter such as brochures, catalogues and maps, etc., will also benefit from the reduction.
- Farmer's flat-rate addition: Farmers are scheduled to benefit by an increase in the flat-rate addition (from 5.4% to 5.6%)
- The usual increase in tobacco excise duty has been announced (50¢ per packet of 20, with a pro-rata increase on other tobacco products)
- Revamp of the Vehicle Registration Tax – The carbon dioxide based VRT and motor tax regimes will transition to the more robust Worldwide Harmonized Light Vehicle Test Procedure (WLTP) emissions system from January 2021. The WLTP system will also apply to used imported cars
- In light of the much lower VRT rates for low-emission cars, VRT reliefs for Plug-in Hybrid Electric Vehicles and hybrids will be allowed to expire. The relief for Battery Electric Vehicles will also be tapered
- The Nitrogen Oxide (NOx) surcharge bands will be adjusted to ensure that higher NOx emitting vehicles will pay more
- The rate of carbon tax will increase from €26 per ton/CO2 to €33.50 per ton. The increase will apply to auto-fuels from 14 October and to other fuels from 1 May 2021. This increase is expected to add €1.28 to the cost of a 60L tank of petrol, €1.47 to the same amount of diesel as well as adding €0.90 to a bag of coal and €0.20 to a bale of peat briquettes. VAT is also chargeable on increased prices
Luxembourg – The Minister of Finance has submitted the draft budget law for 2021 to the Luxembourg Parliament. Indirect tax measures include:
- Introduction of a carbon tax to be levied on energy products such as fuel or natural gas. The carbon tax will increase over the next three years (20 euros, 25 euros and 30 euros, respectively, per ton of CO2 emitted), thus also triggering an increase of diesel and petrol prices
- Taxable persons whose annual turnover during a given calendar year has not exceeded 30,000 euros benefit from a VAT franchise. With a view to extending the benefits of the administrative simplification represented by this VAT franchise regime to a greater number of taxable persons, the Draft Budget Law 2021 proposes to increase the threshold to 35,000 euros
- Mandatory electronic filing of tax returns extended
Spain – The law on Digital Services Tax (DST) has been published in the Spanish Official Gazette after its prior approval by the Spanish Congress and Senate (See EY Global Tax Alert, Spain sends bill on Digital Services Tax to Parliament for approval , dated 3 March 2020).
The DST main features are similar to the DST initially proposed by the European Commission on 21 March 2018, with a rate of 3% imposed on gross income derived from certain digital services for which user participation is essential for creating value; namely, targeted online advertising, online intermediation services and the sale of user data. Only companies with worldwide revenues of at least €750 million per annum, with a total amount of taxable revenues earned in Spain exceeding €3 million per annum, will be subject to the DST.
The EU accounts for approximately 15% of the world's trade in goods and is implementing a new customs pre-arrival security and safety programme, underpinned by a large-scale advance cargo information system – Import Control System 2 (ICS2).
The programme aims to contribute towards establishing an integrated EU approach to reinforce customs risk management under the common risk management framework (CRMF) whilst facilitating free flow of legitimate trade across the EU external borders. It will have a direct impact on all Economic Operators (EO's) involved in the dispatch, transport and handling of international freight, express or postal consignments. It will also indirectly affect all manufacturers, exporters and individuals from outside the EU who send goods to or through the EU. They will have to provide the necessary information to directly affected EO's.
ICS2 will collect data about all goods entering or transiting through the EU prior to their arrival. EO's will have to declare safety and security data to ICS2, through the Entry Summary Declaration (ENS). The obligation to start filing such declarations will not be the same for all EO's; it will depend on the type of services that they provide in the international movement of goods and is linked to the three release dates of ICS2:
- Release 1 (15 March 2021) – will apply to express carriers and European based postal operators and third-country postal operators shipping to Europe. Express carriers and designated postal operators established in the EU (destination posts) will be required by the Union Customs Code to provide the minimum set of advance electronic data, in the format of the electronic ENS to the ICS2, for all goods in consignments they are responsible for bringing into the EU customs territory. The electronic ENS will be mandatory for all express and postal consignments destined to enter the Union customs territory.
- Release 2 (1 March 2023) – Will apply to Postal operators, express and air carriers and freight forwarders. Operators will have to complete the ENS dataset for all goods in air transport. More precisely, all goods transported by air in postal, express and general cargo consignments will be subject, in addition to pre-loading filing requirements, to pre-arrival ENS data requirements.
- Release 3 (1 March 2024) – will apply to Operators carrying goods on maritime and inland waterways and roads and railways. Operators will have to complete ENS datasets for all goods in these sectors, including postal and express consignments. More precisely, maritime, road and rail carriers will have to submit ENS data to ICS2. This includes postal and express carriers who transport goods using these modes of transport as well as other parties, such as logistic providers, and in certain circumstances also final consignees established in the EU, will have to submit ENS data to ICS2.
Advance cargo information and risk analysis aim to enable early identification of threats and help customs authorities to intervene at the most appropriate point in the supply chain. ICS2 aims to introduce more efficient and effective EU customs security and safety capabilities that will:
- Increase protection of EU citizens and the internal market against security and safety threats
- Allow EU Customs authorities to better identify high-risk consignments and intervene at the most appropriate point in the supply chain
- Support proportionate, targeted customs measures at the external borders in crisis response scenarios
- Facilitate cross-border clearance for the legitimate trade
- Simplify the exchange of information between EOs and EU customs authorities
Every EO directly affected needs to align its business processes with the regulatory requirements implemented via the new system. If EO's are not ready on time and do not provide the necessary ICS2 data, consignments and freight will be stopped at the EU customs borders and the goods in question will not be cleared by the customs authorities.
Furthermore, inadequate declarations will either be rejected or subject to intervention, with penalties imposed for non-compliance. Those directly affected are:
- Postal operators inside and outside the EU
- Express carriers
- Air cargo carriers
- Freight forwarding and logistics companies
- Final consignee established in the EU (for goods received by sea)
- Sea, rail and road transport carriers
- Representatives of all the above-mentioned actors
For further information please contact Charlotte Prescott.
The World Trade Organization (WTO) has allowed the EU to impose tariffs on up to $4 billion worth of imports from the US as a countermeasure for illegal US subsidies to Boeing. The decision builds upon the WTO's earlier findings recognising the US subsidies to Boeing as illegal under WTO law.
In October 2019, following a similar WTO decision in a parallel case on EU Airbus subsidies, the US imposed retaliatory duties that affect EU exports worth $7.5 billion.
Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis, said that the EU will continue to engage with the US with the aim of the US dropping its tariffs on EU exports so that the EU does not have to impose its own tariffs.
The EU's press release can be accessed here.
The Public Accounts Committee (PAC) has issued its report on ‘Tackling the tax gap’ and called on HMRC “to give a more honest picture of the likely levels of the so called tax gap”; the difference in the amount of tax that should be paid on the UK's economic activity and the tax that HMRC actually collects – whether caused by deliberate evasion of various kinds or accidental taxpayer error.
HMRC's most recent estimate of the tax gap is £31 billion in 2018–19, however there is significant uncertainty in the estimate. The PAC wants HMRC to publish the range of its estimate of the tax gap, rather than suggest there is a single figure. It also wants HMRC to provide a detailed breakdown in areas such as the tax gaps for the four nations of the UK and set out the relative size of the tax gap for different sectors of the economy. The report also notes that the extent of legal ‘but undesirable’ tax planning by wealthy individuals would be useful information. The PAC is also concerned about how HMRC will tackle fraud in relation to the COVID-19 support measures, and how it will increase its compliance activity back up to its previous levels following the pandemic.
HMRC has written to the PAC to provide its initial view that it considers the Committee's characterisation of the HMRC's work in this area to be “wholly unfair and unsubstantiated”.