Weekly VAT News

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EY VAT News – week to 17 June 2019

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.

EY Events

Following the success of an earlier event run in London, we are now running this seminar in further locations.

The seminar aims to equip VAT professionals with the knowledge needed to optimise the use of Microsoft Excel for VAT workings: reducing manual intervention, improving digital links and making the Excel process compliant with HMRC's new Making Tax Digital regime. Specifically, the event will cover:

  • Consideration of whether Excel provides a suitable platform for MTD
  • How Excel can be used effectively to prepare VAT returns
  • Examples of a best practice workbook and the types of checks and controls which can be implemented
  • Analysis of the key features of an MTD compliant spreadsheet

A course overview is available here and you can register for an event here:

Newcastle – 26th June 2019 10:00-12:30

Manchester – 27th June 2019 10:00-12:30

Bristol – 5 July 2019 10:00 – 12:30

The seminar will cost £600 plus VAT per attendee.

For further information, please contact Millie Lawrence.

The next EY Indirect Tax Perspectives event will be held on the morning of Wednesday 19 June at 1 More London Place, London SE1 2AF

At this event we will cover:

  • Updates on recent and forthcoming indirect tax news and issues
  • Topical developments in litigation and legislation
  • Progress on Making Tax Digital

If you would like to register for this event, please refer to our Invitation.

Following the success of the previous Developing Tax Practitioners events in 2018 and earlier this year, EY London Indirect Tax is holding the next event on Tuesday, 2 July 2019.

The event is designed for associates working in tax, in order to build their network and develop relationships with those at a similar level. This event will focus on time management, in particular on how creative solutions can help to organise tasks and manage time. Additionally, there will be a brief update on recent indirect tax developments. There will also be the opportunity to network with peers.

If you would like to nominate someone from your business or discuss further, please speak to your usual EY contact or Louise Brown/Isabel Baumann (contact details below).


  • Date: Tuesday, 2 July 2019
  • Location: EY, 25 Churchill Place, Canary Wharf, London, E14 5RB

Timings and agenda

  • 17:00 Registration and Welcome Drinks
  • 17:30 Indirect Tax Developments
  • 18:00 Time Management Session
  • 18:30 Close followed by Drinks and Canapes

If you would like to attend or have any questions please contact Louise Brown or Isabel Baumann.


Ahead of the June European Council (Article 50), the European Commission has taken stock, in its fifth Brexit Preparedness Communication, of the EU's Brexit preparedness and contingency measures, particularly in light of the decision taken on 11 April by the European Council (Article 50), at the request of and in agreement with the UK, to extend the Article 50 period to 31 October 2019.

In light of the continued uncertainty in the UK regarding the ratification of the Withdrawal Agreement, since December 2017 the European Commission has been preparing for a ‘no-deal’ scenario.

To date, the Commission has tabled 19 legislative proposals, 18 of which have been adopted by the European Parliament and Council. Political agreement has been reached on the remaining proposal, the contingency Regulation on the EU budget for 2019, which is expected to be formally adopted later this month. The Commission has also adopted 63 non-legislative acts and published 93 preparedness notices. In light of the extension of the Article 50 period, the Commission has screened all these measures to ensure that they continue to meet their intended objectives and has concluded that there is no need to amend any measures on substance and that they remain fit for purpose. The Commission does not plan any new measures ahead of the new withdrawal date.

The Commission recalls that it is the responsibility of all stakeholders to prepare for all scenarios and strongly encourages them to take advantage of the extra time provided by the extension to ensure that they have taken all necessary measures to prepare for the UK's withdrawal from the EU.

Today's Communication focuses on areas in which continued and particular vigilance is needed in the coming months:

  • Customs, indirect taxation and border inspection posts

    ◾ In the field of customs and indirect taxation, the Commission organised numerous technical meetings, and published guidance notes on customs, VAT and excise ahead of the previous withdrawal date.

    ◾ National administrations have made significant investments in infrastructure and human resources, primarily in Member States that are the main entry and exit points for the EU's trade with the UK. Member States are also working with the Commission in its training and communication efforts to reach out to economic operators and stakeholders in general.

    ◾ In the field of sanitary and phytosanitary controls, the EU27 Member States have set up new Border Inspection Posts or extending existing ones at entry points of imports from the UK into the EU.
  • Citizens' residence and social security entitlements
  • Medicinal products, medical devices and chemical substances
  • Transport
  • Fishing activities
  • Financial services

A full press release with access to further links is available here.

Step by step Guidance explaining what needs to be done now to make sure businesses are able to send goods from the UK to the EU, if the UK leaves the EU without a deal.

Step by step Guidance explaining what needs to be done now to make sure businesses are able to receive goods from the EU, if the UK leaves the EU without a deal.

For further information, please contact Andy Bradford.

Court of Justice of the European Union

C-185/18 Oro Efectivo

This case is not available in English

On 12 June 2019 the Court of Justice of the European Union (CJEU) released its decision in this Spanish referral asking whether the VAT Directive and the principle of fiscal neutrality preclude a national practice under which a business is required to pay an indirect tax other than VAT (in the present case, tax on capital transfers) for the purchase of property such as gold, silver or jewellery from a private individual, when the goods are to be used for the taxable activity of that business, without having the possibility of deducting the tax paid?

Oro Efectivo (Oro) acquired items with a high gold and/or precious metal content and following its extraction supplied it to businesses producing various items. The tax authorities considered the acquisitions to be subject to an indirect tax (distinct from VAT) provided under Spanish legislation (tax on transferred assets) as the suppliers were private individuals as opposed to taxable businesses.

Oro appealed the decision, asserting that the tax was contrary to the EU law principle of fiscal neutrality, as the tax is not deductible, and that the transactions should not be subject to the tax since they were carried out in the course of its business activities with VAT chargeable.

The CJEU considered that under Article 401 of the VAT Directive, Member States are permitted to introduce, inter alia, taxes which are not characterised as ‘turnover taxes’ provided that the collection of such taxes does not give rise, in trade between Member States, to formalities connected with the crossing of borders. EU law therefore permits competing systems of taxation and such taxes may be levied even where their collection interacts with VAT on a single transaction.

Whilst Article 401 provides the condition that any such tax cannot be comparable to a ‘turnover tax’, the CJEU noted that it does not provide a definition of such a tax. However, it is substantially identical to Article 33 of the Sixth Directive. In this regard, the CJEU has previously held, with similar taxes to the tax on capital transfers, that such taxes are not ‘turnover taxes’ where they do not apply to all transactions for goods or services and they are not collected in the context of a production and distribution process which provides that, at each stage of the process, the amounts paid in the previous stages of the process may be deducted.

In conclusion, a tax such as that at issue in the main proceedings cannot be regarded as having the characteristics of a ‘turnover tax’ within the meaning of Article 401 of the VAT Directive.

Considering the fiscal neutrality argument, the CJEU noted that the neutrality of the common system of VAT must be guaranteed at all times. However, the principle of fiscal neutrality with regard to VAT imposes this neutrality only within the framework of the harmonized system set up by the VAT Directive. As regards, in the present case, a non-harmonized tax, the neutrality of the common system of VAT is not liable to be infringed.

Comments: A specific set of circumstances applicable to taxation in Spain which may provide a read across to similar taxes in other Member States.

C-420/18 IO (TVA – Activité de membre d'un conseil de surveillance)

This case is not available in English

On 13 June 2019 the Court of Justice of the European Union (CJEU) released its decision in this Dutch referral asking whether a member of a Supervisory Board of a Foundation, who is in a subordinate position in regard to that Board for his employment and remuneration conditions, but who is otherwise not in a subordinate position, carries out his economic activities independently within the meaning of Article 9 and Article 10 of the VAT Directive?

IO is a member of a Supervisory Board of a Foundation which provides housing to those in need and receives a gross remuneration of €14,912 per year. The remuneration is set by national law which standardises the salaries of senior public and semi-public sector employees and is not based on participation at set meetings or standardised hours.

Until 01.01.2013, IO was not considered as a taxpayer for VAT purposes, based on a national rule that members of a Supervisory Board who held a maximum of four supervisory directorships were excluded. However, by a decision of 27.06.2012, following a request by the European Commission, this approval was withdrawn with a transitional arrangement until 01.01.2013. According to the Commission, these types of services, even if only for one board, should be regarded as an economic activity.

The CJEU noted that, focused on ‘independence’ in the exercise of an ‘economic activity’, the terms used in Article 9(1) provide a wide definition to the concept of ‘taxable person’ in the sense that all persons who, in an objective manner, fulfil the criteria set out in that provision must be regarded as subject to VAT. However, Article 10 specifies that the condition that the ‘economic activity’ be carried out ‘independently’ excludes from taxation employees and other persons to the extent that they are linked to their employer by a contract of employment, hiring of work or any other legal relationship creating subordinate relationships regarding working conditions and remuneration and the responsibility of the employer.

On the ‘economic nature’ of the activity, it was not disputed that an activity such as that in question must be described as ‘economic’ since it is of a permanent nature and is carried out against remuneration received. On the ‘independent exercise’ of that activity the CJEU noted that it is necessary to determine whether IO is an employee or other person related to his employer by a contract of employment or by any other legal relationship creating a relationship of subordination with regard to the conditions of work and remuneration and the responsibility of the employer.

In this regard the CJEU considered that the legal relationship between the Foundation and IO fell short of creating an employee status for IO who does not operate on the basis of a contract for the hire of work but on that of a contract for the provision of services.

However, following previous decisions of the Court, to determine whether a person pursues an economic activity independently, it is necessary to determine whether there is a relationship of subordination in the exercise of this activity. To assess the existence of this relationship, it is necessary to check whether the person concerned carries out his activities in his own name, on his own behalf, on his own account and under his own responsibility, and whether he bears the economic risk associated with the exercise of these activities.

IO, as member of the Supervisory Board, cannot individually exercise the powers conferred on that Board and acts on behalf of and under the responsibility of the Board. IO does not bear any liability arising from the representation of the Foundation or damages caused to third parties. Consequently, IO does not act under his own responsibility. The situation of a member of a Supervisory Board, unlike that of a contractor, is characterised by the absence of any economic risk arising from the activity carried on. IO receives a fixed remuneration and has no significant influence on revenue or expenses.

The CJEU considered that a person who does not bear such an economic risk cannot be regarded as carrying out an economic activity independently within the meaning of Article 9 of the VAT Directive.

Comments: Whilst specific to a member of a Supervisory Board of a Foundation, this case may be of interest to others challenged on ‘employee/contractor’ status and could provide an opportunity to revisit previous decisions.

Monday 17 June

Hearing – C-211/18 Idealmed III – A Portuguese referral asking whether Article 132(1)(b) of the VAT Directive precludes a hospital owned by a private company, which has concluded agreements for the provision of medical care with the State and with legal persons governed by public law, from being deemed (under certain conditions) to have started to operate under social conditions comparable with those applicable to bodies governed by public law, as referred to in that provision?

Thursday 20 June

Hearing – C-276/18 KrakVet Marek Batko – A Hungarian referral asking whether the VAT Directive, particularly the requirements for the prevention of jurisdictional conflicts between Member States and double taxation, should be interpreted as precluding tax authorities from one Member State from attributing to a transaction (distance sales) a qualification differing from that of another Member State, and which therefore gives rise to the double taxation of the taxable person? Secondly, how should the concept of ‘transport by or on behalf of the supplier’ be interpreted where the buyer is able to opt for a carrier with which the seller cooperates or for another carrier? Is there an abuse of rights where the taxpayer circumvents the application of the distance selling arrangements by arranging transport in this way?

Judgment – C-291/18 Grup Servicii Petroliere – A Romanian referral asking whether Article 148(c) of the VAT Directive, in conjunction with Article 148(a) is to be interpreted as meaning that exemption from VAT applies, in certain circumstances, to the sale of offshore jackup drilling rigs?

Thursday 27 June

Judgment – C-597/17 Belgisch Syndicaat van Chiropraxie and Others – A Belgian referral asking whether Article 132(1)(c) of the VAT Directive should be interpreted as meaning that exemption is restricted to practitioners of a medical or a paramedical profession that is subject to national legislation governing the healthcare professions and who meet the requirements laid down by that national legislation? Also, are persons who do not meet those requirements, but who are affiliated to a professional association of chiropractors or osteopaths, and who meet the requirements laid down by that association, excluded from exemption?

Should Articles 132(1)(b),(c),(e), 134 and 98 of the VAT Directive, and the principle of fiscal neutrality, be interpreted as meaning that they preclude national legislation which provides for a reduced VAT rate to be applied to medicinal products and medical aids supplied in connection with an operation or treatment of a therapeutic nature, whereas medicinal products and medical aids supplied in connection with an operation or treatment of a purely aesthetic nature, and closely related thereto, are subject to the standard VAT rate?

Wednesday 3 July

Judgment – C-242/18 UniCredit Leasing – A Bulgarian referral asking whether, in the event of termination of a financial leasing agreement, Article 90(1) of the VAT Directive allows for the reduction of the taxable value of the supply and for the VAT to be refunded?

Judgment – C-316/18 The Chancellor, Masters and Scholars of the University of Cambridge – A UK referral from the Court of Appeal asking whether any distinction is to be made between exempt and non-taxable transactions when deciding whether VAT incurred for the purpose of such transactions is deductible? Where management fees are incurred only in relation to a non-taxable investment activity, is it nonetheless possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income which is produced as a result of the investments? To what extent is it relevant to consider the purpose to which the income generated will be put? Is any distinction to be drawn between VAT that is incurred for the purpose of providing capitalisation for a business and VAT that produces its own income stream, distinct from any income stream derived from downstream economic activity?

Wednesday 10 July

Judgment – C-273/18 Kuršu Zeme – A Latvian referral asking whether the VAT Directive precludes a refusal of the deduction of VAT where the refusal is based solely on the grounds that the taxpayer is knowingly involved in fictitious transactions, but it has not been established how those transactions are detrimental to the Treasury?

Thursday 11 July

Opinion – C-400/18 Infohos – A Belgian referral asking whether Article 132(1)(f) of the VAT Directive covering cost sharing groups, permits Member States to attach an exclusivity condition to the exemption provided for therein, whereby an independent group which also supplies services to non-members is also liable in full to VAT for the services supplied to its members?

Opinion – Joined cases C-469/18 and C-470/18 Belgische Staat – Belgian referrals asking whether Article 47 of the Charter of Fundamental Human Rights of the European Union, in cases of VAT, precludes in all circumstances the use of evidence obtained in violation of the right to respect for a private life, as guaranteed by Article 7? Do Member States have discretion to introduce regulations under which national courts are able to decide whether such evidence can be used as the basis for a VAT assessment?

  • C-242/19 CHEP Equipment Pooling NV – A Romanian referral asking whether the transport of pallets from one Member State to another, for the purpose of subsequently being leased in the latter Member State to a taxable person established and registered for VAT purposes in Romania, is disregarded as a transfer in accordance with Article 17(2) of the VAT Directive?
  • C-276/19 European Commission v UK – Proceedings brought against the UK. The Commission claims that by introducing new simplification measures that extend the zero-rating and the exception to the normal requirement of keeping VAT records provided for by the original VAT (Terminal Markets) Order 1973 (Order) without applying to the Commission with a view to seeking the Council's authorisation, the UK has failed to fulfil its obligations under Article 395 of the VAT Directive

    On 28 December 1977, the UK notified special measures including the Order that permits commodity futures to be traded on certain markets in the UK free of VAT and the appropriate record keeping requirements. The Order was subsequently amended several times to add to its scope a number of commodities markets that were not listed in the original notification. The Commission claims that the amendments enlarged the scope of the original derogation and should have been notified pursuant to Article 395.

  • C-288/19 Finanzamt Saarbrücken – A German referral asking whether Article 56(2) of the VAT Directive is to be interpreted as meaning that ‘hiring of a means of transport to a non-taxable person’ should include the authorisation of an employee to use a company car (including for private use) if the employee does not remunerate the employer for such authorisation?

Upper Tribunal

Northumbria Healthcare NHS Foundation Trust

The Upper Tribunal (UT) has released its decision in this appeal concerning the recovery of VAT on car lease costs. Northumbria Healthcare NHS Foundation Trust (NHNFT) acquired cars which it provided to employees (and to employees of other NHS Trusts in the same divisional VAT registration) under a salary sacrifice arrangement. Following the Astra Zeneca judgment, from 1 Jan 2012, HMRC restricted the Trust's VAT recovery to 50% of the VAT incurred. NHNFT sought a judicial review following HMRC's refusal to refund the additional 50% VAT.

Historically, NHS Trusts typically reclaimed 100% of the input tax incurred on leased and maintained cars (without accounting for output tax on the salary sacrificed amount) under the Cost of Services (COS) Direction. Following the Astra Zeneca CJEU judgment which confirmed that salary sacrifice payments are consideration for VAT purposes, HMRC issued Revenue and Customs Brief 28/11 setting out changes from 1 Jan 2012. The Brief stated that the Astra Zeneca judgment did not impact salary sacrifice leased cars where the 50% input tax block serves to tax private use. As the NHS industry norm was for Trusts to reclaim 100% of the VAT, HMRC subsequently issued guidance to many NHS Trusts requiring them to reflect the private use of leased vehicles used in salary sacrifice arrangements either i) by restricting the VAT reclaimed to 50% or ii) by reclaiming 100% of the VAT incurred on leased costs but accounting for output tax on the private use.

From 1 January 2012, NHNFT continued not to account to HMRC for output tax on the salary sacrifice arrangements but recovered only 50% of the VAT it incurred. However, it considered that it was entitled to reclaim 100% of the VAT incurred and submitted a claim to HMRC. Its main argument was that where an employer provides for the use of a leased car by way of a salary sacrifice scheme, it is ‘de-supplied’ for VAT purposes by the De-Supply Order – the supply is deemed not to have taken place and is outside the scope of VAT. The consequence it argued, was that no output tax should be due on the provision of a car by the employer to the employee.

The UT agreed with NHNFT that the provision of the cars by NHNFT to employees under a salary sacrifice scheme cannot be regarded as a supply of services because the supplies have been de-supplied under the De-Supply Order. The leasing of the cars could not therefore be seen as an economic activity because that requires a supply of services to have been made. Since the effect of the De-Supply Order is that any ‘business’ or ‘economic activity’ relating to the leasing arrangement is ignored for VAT purposes, NHNFT is deemed to be, or reverts to being, a purely non-business operation. In those circumstances, the condition in s41(3)(a) of VATA94 and paragraph 3 of the COSD is satisfied and 100% of the VAT incurred on the supplies of leased and maintained cars is recoverable. If this is not the intended purpose of the Order, the UT stated that it should be amended by Parliament.

Comments: Although HMRC may appeal the decision, Trusts that have not claimed VAT in full on leasing arrangements may wish to consider submitting a 4-year claim. Commercial businesses offering salary sacrifice arrangements to employees may also wish to consider submitting claims where VAT has been accounted for on the private use of those vehicles.

For further information please contact Russell Moore – NHS Contact or non-NHS Mitchell Moss.


A number of CJEU cases have determined that the current UK exemption for the management of Special Investment Funds (SIFs) is not as wide as is required under EU law. In the absence of changes to the scope of the UK exemption, HMRC policy has been to allow businesses to choose whether to exempt their fund management services by relying on the direct effect of EU law or to continue to tax them under UK VAT legislation. This includes fund management services provided to certain types of pension funds and state regulated property funds. HMRC's intention had always been that this would be a temporary solution, subject to a full-scale review of the fund management exemption and a subsequent redrafting of the UK VAT provisions. In January 2019, SI 2019/43 The Value Added Tax (Finance) (EU Exit) Order 2019 (the Finance Order) was laid.

This Order now revokes the Finance Order which would have extended the scope of the UK's VAT exemption for the management of SIFs to fully reflect the scope of the exemption under EU law with effect from the UK's exit from the EU. Whilst this would have ensured that UK taxpayers could continue to exempt their supplies under UK law once they were no longer able to rely on the direct effect of EU law, a smaller group of taxpayers would have had to exempt their supplies for the first time.

Since the Finance Order was laid, businesses which currently tax these supplies under UK law have said that they need time to take the necessary legal and commercial steps to implement the mandatory exemption. Also, EU Exit Day has been postponed and affected businesses have raised concerns about the lack of certainty as to when VAT exemption for these services will become mandatory because the commencement date of the Finance Order is linked to EU Exit Day.

So as to provide businesses with certainty as to when the changes will come into effect and also to provide an adjustment period, the Finance Order is being revoked so that new legislation can be laid at a later date that will make the changes that the Finance Order would have made, but with effect from 1 April 2020 rather than EU Exit Day. If the UK leaves the EU before the replacement SI is in force, HMRC will exercise its statutory discretion to enable businesses to continue to exempt their supplies.

For further information, please contact Janet Waweru.

HMRC Material

This Brief clarifies that HMRC's policy on the scope of the VAT zero-rate for transport services has not changed following the Upper Tribunal (UT) decision in Jigsaw Medical Services Limited (Jigsaw).

This case concerns the supply of emergency ambulance services supplied by Jigsaw and the recovery of VAT on the acquisition of a number of new ambulances. Jigsaw sought to recover the VAT as attributable to services which it considered qualified as zero-rated whilst HMRC refused the claim on the basis that Jigsaw's services were exempt from VAT. The First-tier Tribunal (FTT) held that as the services provided by Jigsaw qualified for both zero-rating and exemption, in accordance with s30(1) VATA94, the former took priority and were therefore zero-rated. However, the UT considered the supplies to be exempt, concluding that whilst the general principle that exemptions from VAT should be strictly construed, the wide interpretation to zero-rating given by the FTT would be applicable in many other circumstances not intended by the legislation. The UT considered its narrow construction to be overwhelmingly the clearest one mandated by the wording of the statutory provisions

Please note that the Court of Appeal has granted Jigsaw leave to appeal and the case will be heard on 20 or 21 November 2019.

For further information please contact Stewart Mathieson or Russell Moore.

The Government has introduced legislation (SI 2019/1015 – The Value Added Tax (Section 55A) (Specified Services) Order 2019), to introduce a domestic reverse charge for supplies of gas and electricity certificates in the UK (renewable energy certificates). This is in response to a perceived threat of missing trader intra-community fraud in those supplies. The domestic reverse charge will apply to all supplies of renewable energy certificates between VAT-registered businesses established in the UK.

The purpose of this Brief is to provide guidance on how the domestic reverse charge will operate. It should be read with Notice 735: VAT domestic reverse charge on specified goods and services by businesses registered or liable to be registered for VAT which buy or sell renewable energy certificates.

The reverse charge is effective from 14 June 2019 but HMRC will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as businesses are trying to comply with the new legislation and have acted in good faith.

For further information, please contact Lynne McHugh.

Policy Paper – VAT: reverse charge for renewable energy certificates

SI 2019/1015 – The Value Added Tax (Section 55A) (Specified Services) Order 2019

Explanatory Memorandum

Domestic reverse charge procedure (VAT Notice 735)

HMRC has issued Agent Update: issue 72 which covers the period from June to July 2019. Indirect tax updates include:

  • Building and Construction Services Reverse Charge
  • Making Tax Digital for VAT
  • Manuals and Publications

This Notice explains when a VAT registration is required and the procedures for making an application. It has been updated at paragraph 11.4 with information on the criteria used to decide whether an individual is a fit and proper person to act as a VAT representative for a non-established taxable person. It has also recently been updated to reflect changes to the VAT rules for supplies of digital services and the eligibility for non-EU businesses to use the VAT Mini One Stop Shop (VAT MOSS). These changes apply from 1 January 2019.

EY Global Tax Alerts

OECD – The Organisation for Economic Co-operation and Development (OECD) held its annual tax conference in Washington, DC, on 3-4 June 2019. This year a significant part of the discussion at the conference focused on the Workplan released by the OECD on 31 May 2019 laying out its plans for reaching a global agreement on new international tax rules for taxing multinational businesses. In addition, there were sessions on the OECD's other ongoing work on transfer pricing, tax treaties, cooperative compliance, and mutual agreement procedure.

US – The US President has announced that the US will indefinitely suspend the previously announced punitive tariffs on all goods imported from Mexico. The tariffs were set to be implemented on 10 June at a 5% rate and would have escalated to 25% over a four-month period. The US State Department issued a formal announcement stating Mexico and the US reached a deal to address concerns over migrants entering the US in violation of US law. The indefinite suspension will be followed up by a review and may be revisited in 90 days.

Also, on 4 June 2019, the Office of the US Trade Representative announced it was granting a new set of exclusions to one 10-digit Harmonized Tariff Schedule code and 88 products subject to a 25% punitive tariff as part of the 818 tariff lines covering US$34 billion worth of imports from China annually. The announcement continues the agency's process of reviewing claims by companies that their imports are not available outside of China and that the tariffs otherwise harm US interests.

Please also refer to EY Global Tax Alerts, US announces new import tariffs on Mexico, delays tariff increase on certain China goods and formalizes removal of India from GSP, dated 3 June 2019, US grants limited exemptions from Section 301 duties and announces annual special review of 301; continued uncertainty ahead, dated 2 January 2019, US grants additional tariff exclusion status to limited set of imports from China, dated 25 March 2019 and USTR initiates actions to implement up to 25% tariffs on remaining products from China under Section 301; China retaliates with its own tariffs against most recent actions, dated 15 May 2019.

Argentina – Law 27,506 establishes a promotional regime for the knowledge-based economy. The regime will be in force from 1 January 2020 to 31 December 2029 and its objective is to promote knowledge-based and digital activities that result in the manufacturing of goods, the provision of services or the improvement of processes.

The regime will introduce a number of tax benefits which from an indirect tax point of view include:

  • An exemption from VAT withholdings and reverse withholdings
  • A tax credit bond equivalent to 1.6 times the amount payable as Social Security contributions, which could be used to offset federal taxes, such as VAT and income tax, without subjecting the obtained savings to income tax

Companies participating in the promotional regime will be subject to reporting obligations and audits conducted by the tax authorities and will be required to pay a fee that will not exceed 4% of the tax savings obtained from the regime.

In addition, the law requires companies to pay an annual contribution not exceeding 1.5% of the tax savings obtained from the promotional regime. The annual contribution will go towards a fund for the development of entrepreneurship.

Turkey – Certain provisions of the Customs Regulations regarding the proof of origin documents for goods which are subject to Additional Financial Duty (AFD) and Additional Customs Duty (ACD) have been amended.

According to the amendments, a ‘certificate of origin’ may not be required if documents evidence the status of the goods with respect to free circulation via an A.TR Movement Certificate, during the importation of the goods that are subject to AFD and/or ACD.

Costa Rica – The Customs General Directorate has announced proposed changes to six sections of the General Customs Law Regulation. The proposed changes include:

  • Redefining some competencies and functions of the Technical Management Directorate and the Statistics and Registries Department, both part of the Customs General Directorate
  • Modifying the list of documents that must be submitted with an authorisation request to become a Customs Public Function Assistant (Auxiliar de la Función Pública Aduanera), including a plan of the area where the activities will be carried out, duly approved by the Engineers and Architects Federated College
  • Simplifying the inspection of facilities for free trade zones

New Zealand – Moving closer to imposing Goods and Services Tax (GST) on low-value imported goods, Parliament's Finance and Expenditure Select Committee completed its review of the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill (Bill) on 31 May 2019. The Committee recommends the Bill should be enacted with some amendments, notably delaying commencement of the imposition of GST on low-value imported goods from 1 October 2019 to 1 December 2019 to allow non-resident suppliers more time to prepare.

Council of the European Union

ECOFIN has adopted a Report to the European Council which provides an overview of the progress achieved during the term of the Romanian Presidency, as well as an overview of the state of play of the most important dossiers under negotiation in the area of taxation.

The report details the state of play of relevant Council work and covers various issues mentioned in previous European Council conclusions.

The report notes that ECOFIN has:

  • discussed the proposal for a Digital Services Tax Directive and digital taxation in the international context;
  • adopted Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes on 12 March 2019;
  • reached a general approach on the VAT e-commerce implementing package;
  • reached a partial general approach on the legislative proposal as regards the Fiscalis Programme;
  • adopted a Decision as regards the Joint Committee established by the EU-Norway Agreement on administrative cooperation, combatting fraud and recovery of claims in the field of VAT;
  • exchanged views on the Commission communication "Towards more efficient and democratic decision making in EU tax policy" where the Commission proposes transition to qualified majority voting under the ordinary legislative procedure in the area of EU tax policy.

It also notes that the Code of Conduct Group (business taxation) has further continued its work on the various matters falling within its mandate, including on the EU list of non-cooperative jurisdictions for tax purposes. It suggests that there will be an update in the ECOFIN meeting

The Romanian Presidency has devoted particular attention to digital taxation, functioning of new VAT rules for e-commerce, rules on mandatory transmission and exchange of VAT relevant payment information, simplification of VAT rules for small enterprises, recast of EU general arrangements in the area of excise duties and intra-EU movements of excise goods, update on the EU rules on structures of excise duties on alcohol, as well as the revision of the EU list of non-cooperative jurisdictions for tax purposes.

The report provides detailed information and the current position on a number of initiatives which include, from an indirect tax point of view:

  • Digital taxation package including a proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services.
  • Developments at an international level with regard to digital taxation.
  • Definitive VAT System – It has been agreed that the best way forward is to continue to focus on key elements and options. the next step could be to continue further exploring accompanying measures, also taking into consideration, where appropriate, possible broader application of new technologies. It seems appropriate to consider various options to agree a VAT system better than the current ‘temporary one’. Member States also agree that the discussion on the definitive VAT system should remain one of the priorities in the area of VAT. Nevertheless, this debate should not prevent or slow down efforts to improve, as appropriate, the current VAT system, which will remain in place until agreement is reached on the definitive regime.
  • VAT rate reform – Some Member States see the need that the proposal for reform has to be discussed also in the context of the legislative proposal for a Definitive VAT system, as both legal texts, once agreed, are part of a coherent system of VAT.
  • VAT e-commerce implementing package – On 12 March 2019, the Council reached a general approach on the Council Directive amending the VAT Directive as regards provisions relating to distance sales of goods and certain domestic supplies of goods and the Council Implementing Regulation amending Implementing Regulation (EU) No 282/2011 as regards supplies of goods or services facilitated by electronic interfaces and the special schemes for taxable persons supplying services to non-taxable persons, making distance sales of goods and certain domestic supplies of goods. The Council will adopt these legislative acts at its forthcoming meeting, subject to receiving the opinion of the European Parliament and legal-linguistic revision.
  • Mandatory transmission and exchange of VAT-relevant payment information – Exchange of views have demonstrated that further work at the Council and its preparatory bodies will be required, before a final agreement on this dossier can be reached among Member States.
  • Simplification of VAT rules for small enterprises – Further work at the Council and its preparatory bodies will be required, before a final agreement on this dossier can be reached among the Member States.
  • Joint Committee established by the EU – Norway Agreement on administrative cooperation, combatting fraud and recovery of claims in the area of VAT – At the working party of 21 March 2019, the Commission updated delegations on the establishment of the Joint Committee and on the contents of the agenda of the first meeting thereof.
  • Campione d'Italia and the Italian waters of Lake Lugano – The Council on 18 February 2019 adopted the Directive (EU) 2019/475 amending the VAT Directive and 2008/118/EC as regards the inclusion of the Italian municipality of Campione d'Italia and the Italian waters of Lake Lugano in the customs territory of the Union and in the territorial application of Directive 2008/118/EC.
  • Amendment of EU rules on VAT and excise duties as regards EU defence effort – This legislative proposal was presented by the Commission at the WPTQ on 16 May 2019, where Member States also indicated, subject to further scrutiny, their initial views on the text, signalling an overall support of the aim of this legislative proposal. The examination of the Commission proposal is ongoing

Please refer to the report for more detailed information on each of the dossiers.

Further information

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