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www.pwc.com/nl Financial Services VAT Alert Tracking EU VAT Developments March 2012 Edition 2012/3
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Financial ServicesVAT Alert
Tracking EU VATDevelopments
March 2012Edition 2012/3
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Editorial
Dear readers,
Hereby we present the March FS VAT Alert. In this edition you will find the most
important VAT developments that have occurred over the past month. Especially
interesting is the view of the European Commission that investment management services
should be VAT exempt. We also like to draw your attention to the final decision in the
German GFKL case.
Enjoy reading!
Frans Oomen
Contents
EUROPEAN UNION
1. Commission in favour of exemption fordiscretionary fund management
2. ECJ gives output VAT answer to inputVAT question
3. ECJ rules on VAT treatment of assets
put to private use
4. Subsidies do not affect VAT recovery infully taxable business sector
5. Financial Transactions Tax – latestdevelopments
6. Opinion on temporary private use ofbusiness assets
AUSTRIA
7. The Administrative VAT GuidelinesAmendments Decree 2011
DENMARK
8. Danish Tax Tribunal VAT exemptsmanagement of venture funds as aspecial investment fund
GERMANY
9. The Federal Tax Court decided theGFKL case
ITALY
10. VAT deduction by leasing companies
adopting International AccountingPrinciples
11. Tax Authority clarifies VAT treatmentof pension fund management
12. Reverse charge invoicing rules for
intra-Community supplies of services
13. Community Law – Changes in the timeof supply of services
14. Place of storage of invoices and otherdocuments relevant for tax purposes
PORTUGAL
15. Approval of Madeira VAT rate increaseto 22%
SLOVAKIA
16. Obligatory electronic filing ofdocuments with the Slovak Authorities
postponed to 1 January 2013
UNITED KINGDOM
17. Tax Authority statement on ‘large
business’ relationships
18. ‘Grant funding’ was payment fortaxable services
19. Court of Appeal allows Tax Authority’sappeal in payment handling case
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EUROPEAN UNION
1. Commission in favour
of exemption for
discretionary fund
management
The European Court of Justice (‘ECJ’) has
heard oral submissions in the German case
Deutsche Bank AG (C-44/11), which concerns
the question whether the VAT exemption for
discretionary management of a portfolio of
securities extends beyond the management of
a collective investment fund to managing the
portfolios of individual investors. Based on
an unofficial translation, it appears that the
European Commission is in favour of
exempting such supplies.
Background
The questions referred in this case were:
"Is the management of securities-basedassets (portfolio management), where a
taxable person determines forremuneration the purchase and saleof securities and implements that
determination by buying and selling thesecurities, exempt from VAT;
- only in so far as it consists in the
management of investment funds for anumber of investors collectively withinthe meaning of Article 135(g) of the
Principal Directive 2006/112/EC (‘VATDirective’); or also
- in so far as it consists in individual
portfolio management for individualinvestors within the meaning of Article135(1)(f) of the VAT Directive
(transactions in securities or thenegotiation of such transactions)?
For the purposes of defining principal and
ancillary services, what significance is to beattached to the criterion that the ancillary
service does not constitute for customers anaim in itself, but a means of better enjoying
the principal service supplied, in the
context of separate invoicing for theancillary service and the fact that theancillary service can be provided by third
parties?
Does Article 56(1)(e) of the VAT Directive
cover only the services referred to in Article135(1)(a) to (g) or also the managementof securities-based assets (portfolio
management), even if that transactionis not subject to the latter provision?"
ECJ Hearing
Based on an unofficial translation, theGerman and Dutch governments
considered that the services in questionshould be taxable, but the European
Commission proposed the following answerto the questions referred:
"The management of securities for
consideration by a taxable person usingits own discretion and making decisionson the purchase and sale of securities is
VAT-exempt, according to Article 135(1)(f)of the VAT Directive, extending toindividual portfolio management for
individual investors and sales andnegotiations related to securities.
For the determination of principal and
ancillary services in the context of portfoliomanagement, it is only important that an
ancillary service constitutes for thecustomers not an end in itself but a meansof better enjoying the principal service
supplied. A separate calculation of the valueof additional services or the possibility thatthey could be performed separately by third
parties is irrelevant to the tax treatment ofportfolio management as a whole.
Answering the third question is
unnecessary."
If the ECJ adopts the Commissions view,
this will have a major impact on the assetmanagement industry throughout the EU.
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In this context it is advisable to carry out an
impact analysis in your business.
Frans Oomen
+31 88 792 52 56
2. ECJ gives output VAT
answer to input VAT
question
The ECJ has decided that the questions
referred by the Dutch Supreme Court
concerning the validity of Article 17(6) of
the Sixth VAT Directive (Article 176 VAT
Directive), the input VAT 'standstill' blocking
provision, were not relevant and that the
provision in question is actually a means of
calculating the output VAT due on a deemed
supply of private use of business assets for
the purposes of Article 6(2)(a), (now Article
26(1)(a)). It is therefore for the National
Court to determine whether such a provision,
based on a 'flat rate' approach, is
proportionate and does not give rise to an
unfair tax advantage (TG van Laarhoven:
C-594/10).
Background
The taxpayer owns and runs a tax advisoryfirm as sole proprietor. Under the Dutch
VAT rules, a business can choose to fullydeduct all input VAT incurred on the
acquisition of a car, even if it is to be usedpartly for private purposes. In 2006, thetaxpayer used two cars which were part of
the company’s business assets for private aswell as business purposes. The private useof both company cars exceeded the Dutch
500 km de minimis threshold foradjustment of the input VAT deductedwhich was attributable to the private use of
the car, and the taxpayer was required tomake an adjustment.
In the Netherlands, for income taxpurposes the private use of company cars isadded to the taxable income and calculated
by way of a fixed sum which is a percentage
of the catalogue price or the value of thecar. Over the years, this percentage changeda few times. The VAT adjustment for
private use is calculated by adding anamount of 12% of the 'income tax
component' as VAT payable in the lastVAT return of the financial year.
The Dutch Supreme Court also considered
that the changes in the adjustment systemmay have had a negative impact on thedeductibility of input VAT in such a way
that it did not comply with the relevantlegislation and ECJ case law. It thereforereferred the following questions to the ECJ:
"1. Does the second subparagraph of Article17(6) of the Sixth VAT Directive [...]
preclude amendments to deduction-limiting legislation such as that in question,according to which a Member State has
sought to take advantage of the possibility,for which that provision provides, of(retaining) the exclusion of deduction in
respect of certain goods and services if, as aconsequence of those amendments, theamount excluded from deduction has been
increased in most cases, but the approachand scheme of the deduction-limitinglegislation have remained unchanged?
2. If the answer to the first question is inthe affirmative, should the National Courts
refrain from applying the deduction-limiting legislation as a whole, or is itsufficient for them to refrain from applying
the legislation to the extent that it hasincreased the scale of the exclusion orrestriction existing at the time when the
Sixth VAT Directive entered into force?"
Judgment
The ECJ held that the Dutch VATadjustment mechanism was not, in fact, a
standstill restriction on the deduction ofinput VAT. It was, in fact, the mechanismfor calculating the amount of output VAT
due on the deemed supply of private use of
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a business asset under Article 6(2)(a) of the
Sixth VAT Directive. As such, the questionsreferred by the Dutch Supreme Court werenot relevant.
The ECJ did, however, provide guidance tothe Dutch Supreme Court on whether the
Dutch adjustment mechanism wascompliant with Article 6(2)(a).
The ECJ therefore gave the following
judgment:
"Article 6(2)(a) of the Sixth VAT Directive,read together with Article 11A(1)(c) of the
same Directive, must be interpreted asprecluding national fiscal legislation whichinitially authorises a taxable person whose
passenger vehicles are used for bothbusiness and private purposes to deduct
input VAT immediately and in full, butwhich subsequently provides, as regardsprivate use of those vehicles, for annual
taxation based – for determining thetaxable amount of VAT owed in a givenfinancial year – on a flat-rate method of
calculating expenses relating to such usewhich does not take account on aproportional basis of the actual extent of
that private use."
Frans Oomen
+31 88 792 51 56
3. ECJ rules on VAT
treatment of assets put to
private use
The ECJ has held that a Bulgarian taxpayer
would be entitled to recover input VAT
incurred on cars acquired under a lease and
a finance lease. However, the extent to which
deduction would be available would depend
on whether the supplies in question
constituted acquisitions of goods or services,
and then on the extent to which their use was
linked to taxable transactions, either directly
or as overhead cost components of the
Taxpayer's taxable supplies. Any deemed
supplies for private use of a car acquired
under a supply of goods would also affect the
extent of input VAT recovery (Eon Aset
Menidjmunt OOD: C-118/11).
Background
The taxpayer is a Bulgarian business. Itentered into a one-year lease of a car andinto a four-year finance lease of another car
and deducted all the VAT charged to it inrespect of both. Both cars were provided bythe Taxpayer to its managing director and
he used them to travel to and from work.
The Bulgarian Tax Authority sought todisallow recovery of the VAT incurred on
the cars.
The Bulgarian Court referred the following
questions to the ECJ for a preliminaryruling, which the ECJ “rephrased” asfollowed:
“Under which conditions enables Article168(a) of the VAT Directive a taxableperson to deduct VAT paid, first, in respect
of a motor vehicle leasing contract and,second, in respect of the leasing of a motorvehicle under a financial leasing contract,
and at what time those conditions must besatisfied in order to give rise to the right to
deduct”
“the referring court essentially asks whetherArticle 70(1)(2) of the ZDDS, in so far as it
allows the exclusion from the right todeduct of goods and services intended to besupplied free of charge or for activities
outside the scope of the taxable person’seconomic activity, is compatible withArticles 168 and 176 of the VAT Directive.”
Judgment
The ECJ gave the following judgment:
"1. Article 168(a) of the VAT Directive mustbe interpreted as meaning that:
– a leased motor vehicle is to be regardedas used for the purposes of the taxable
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person’s taxed transactions if there is a
direct and immediate link between theuse of that vehicle and the taxableperson’s economic activity and the time
when the right to deduct arises andwhen it is necessary to take into account
the existence of such a link is on theexpiry of the period to which eachpayment relates;
– a motor vehicle leased under a financialleasing contract and placed in thecategory of capital goods is to be
regarded as used for the purposes oftaxed transactions if the taxable personacting as such acquires that vehicle and
allocates it entirely to the assets of hisundertaking, input VAT payable being
fully and immediately deductible, andany use of that vehicle for the taxableperson’s private purposes or for those of
his staff or for purposes other thanthose of his undertaking being treatedas a supply of services carried out for
consideration.
2. Articles 168 and 176 of the VAT Directivemust be interpreted as not precluding
national legislation which provides for theexclusion from the right to deduct of goodsand services intended to be supplied free of
charge or for activities outside the scope ofthe taxable person’s economic activity,
provided that goods categorised as capitalgoods are not allocated to the assets of theundertaking."
Frans Oomen
+31 88 792 51 56
4. Subsidies do not affect
VAT recovery in fully
taxable business sector
The ECJ has ruled that, where a sector in a
partial exemption special method uses all
goods and services wholly for taxable
business purposes, the receipt of a non-
business subsidy does not affect its input VAT
recovery (Varzim Sol – Turismo, Jogo e
Animação SA: C-25/11).
Background
The taxpayer operates a casino under an
operating concession arrangement. Itsbusiness is organised, for VAT purposes,in three sectors:
- Gaming, which is exempt from VAT, andinput tax is irrecoverable;
- Catering and entertainment, whereinput VAT is to be recovered accordingto use; and
- Administration and finance, in respect ofwhich input VAT is partly deductible.
The Portuguese Tax Authorities contended
that input VAT had to be deducted on thebasis of a proportion that took into accountthe taxpayer's taxable and exempt activities.
The taxpayer contended that the retainedelement of the profit share was not a
subsidy, and even if it was, it should notaffect deduction of VAT in a businesssector. Alternatively, thetTaxpayer claimed
that the assessments would lead to adistortion in the deduction of VAT inbreach of the Sixth VAT Directive since
subsidies should not restrict the right torecovery of otherwise fully taxablebusinesses.
The Portuguese Supremo TribunalAdministrativo referred the following
questions to the ECJ for a preliminaryruling:
"1. Is Article 23 of the VAT Code compatible
with Article 17(2) and (5) and Article 19 ofthe Sixth VAT Directive?
2. If the answer to Question 1 is in the
affirmative, is the establishment of aspecific deductible proportion of the VATpaid by taxable persons carrying out taxable
transactions only, albeit by actual use,based on non-taxable subsidies to that
sector (‘inputs’), under Article 23 of the
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VAT Code, compatible with Article 17(2)
and (5) and Article 19 of that directive?"
Judgment
The ECJ held that, Member States have theoption to include the value of subsidies not
directly linked to the price of the goods orservices of the denominator.
However, the taxpayer was authorised to
make the deduction according to a methodother than the Article 174 method, i.e. onthe basis of the use of the goods and
services under Article 173(2)(c), andtherefore the provisions of Article 174(1) arenot applicable and cannot limit the right to
deduct in its sectorised method. Thetaxpayer's activities in the catering and
entertainment sectors are all subject toVAT, and so it has the right to deduct all theVAT charged on the input transactions.
In this case, the ECJ has taken thatprinciple one step further by applying it to apartial exemption business sector in which
all goods and services are used solely tomake taxable supplies.
Frans Oomen
+31 88 792 51 56
5. Financial Transactions Tax
– latest developments
We have highlighted the latest developments
in the ongoing debate regarding the
proposed Financial Transactions Tax (FTT)
and provided a brief overview of the
proposed French transaction tax and what
this might mean for the EU's proposals
below.
The EU proposals
In recent weeks, certain countries have
accelerated the process for the introductionof a FTT, together with an increase in the
likelihood of the introduction of a FTT
under the European Union' (‘EU’)'enhanced cooperation procedure'.
The latest position across the Member
States in relation to the EU FTT proposalsis summarised below.
- In favour of an EU wide FTT - 10countries (Austria, Belgium, Finland,France, Germany, Greece, Italy,
Portugal, Slovenia and Spain)
- Opposed to an EU wide FTT - 7countries (Bulgaria, Czech Republic,
Cyprus, Denmark, Malta, Sweden andUK)
- Not formally opposed, but expressed
concerns about its impact - 7 countries(Estonia, Ireland, Latvia, Luxembourg,
Netherlands, Romania and Slovakia)
- No formal opinion expressed to date - 3countries (Poland, Hungary, and
Lithuania).
Discussions amongst EU Finance Ministersare expected to last until March 2012, the
date that Ministers had set themselves as adeadline to reach an agreement on the FTTacross the 27 Member States.
Expectations based on recent statements ofthe German Minister of Finance, are thatthe FTT as currently proposed may very
well not be implemented by the EU.
The French proposal
On 8 February 2012, a Bill was presentedto the French Council of Ministers for a
French transaction tax. It is anticipated thatas France is the first country to present adraft law for a transaction tax to its
National Parliament; this may set aprecedent for other countries, and also theway in which the EU FTT is implemented.
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Potential outcomes
- It seems unlikely that there will beglobal adoption of a FTT in the nearfuture because of the limited support by
countries outside the EU;
- Opposition to the proposals for an EU-
wide adoption of the FTT is evident bythe lack of support from certaincountries in the EU, including the UK;
- Given the opposition of certain EUcountries which would prevent adoptionof the current draft Directive at EU level,
the ultimate outcome may be theintroduction of a FTT amongst at least 9Euro zone countries and possibly a
number of other non-Euro zonecountries under enhanced cooperation;
- Certain countries (e.g. Ireland) haveindicated that they are reluctant tosupport a FTT without the UK in
agreement.
There is some discussion as to whether theFTT proposal should be redrafted to be
closer in form to the French proposal andthe UK stamp duty. This would make itmore difficult for the United Kingdom to
veto a transaction tax that is similar to itsown stamp duty.
France is committed to introducing some
form of financial transaction tax, perhaps inthe hope that other Member States will
follow.
What happens next? Key dates to
June 2012
24April
EU Parliament ECON committeevote on the draft EU Parliamentopinion
12 June EU Parliament Plenary vote
22June
ECOFIN: orientation debate on theFTT
28-29June
EU summit
Frans Oomen
+31 88 792 51 56
6. Opinion on temporary
private use of business
assets
The Advocate General considers that a
business is entitled to opt to recover VAT
incurred on assets which are to be used in the
future for business purposes, even if the
business use is to be preceded by a period of
private use which will give rise to a deemed
supply. However, the intention to use for
business purposes must be objectively
evidenced, the period of private use should
not be overly long, and it is not sufficient to
show that there is a possibility of future
business use (X: C-334/10).
The taxpayer is a general partnership, amarried couple, which ran a wholesalebusiness trading in car paint. In 1999 the
taxpayer bought a warehouse and used itfor the purposes of the business. At thebeginning of 2000, part of the attic of the
warehouse was adapted for temporaryoccupation by the two partners and theirchildren. They occupied the attic as a
dwelling for 23 months, and then the atticwas adapted for business purposes.
The taxpayer deducted the VAT charged on
the alteration work in full. However, theDutch tax authorities refused deductioninsofar as it related to the work on the
dormer windows and the vestibule, as itconsidered that only the installation of the
bathroom and toilet served the taxpayer'sbusiness purposes.
The taxpayer appealed and the Dutch Court
referred the following questions for apreliminary ruling:
"Regarding to Article 6(2), first
subparagraph, (a) and (b), Article 11A(1)(c)and Article 17(2) of the Sixth VAT Directive,
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is a taxable person who makes temporary
use for private purposes of a part of acapital item of his business entitled todeduct the VAT levied on expenditure
incurred in respect of permanentalterations carried out exclusively with a
view to that use for private purposes?
For the purpose of answering this question,does it make any difference whether the
taxable person was charged VAT, which hededucted, on the acquisition of the capitalitem?"
Opinion
The Advocate General (‘AG’) began by
pointing out that where there is anintention to use a capital asset for both
private and business purposes, taxpayersare entitled to choose between threeoptions:
- Excluding the asset from the businesswithout recovering input VAT;
- Recovering input VAT only to the extent
that the asset was to be used for businesspurposes; or
- Recovering the VAT in full and applying
output VAT to the extent of the privateuse.
The last option enabled the taxpayer to
adjust the VAT position in the event thatthe ratio of business to taxable use of the
capital item changed. The other two optionswould prevent any adjustment, exceptwhere the asset fell within the capital goods
scheme.
The AG suggested two possibilities:
1. The building and the subsequent work
should be considered to be a singlecapital item and the VAT on the worktreated as VAT incurred on the
building. This was irrespective ofwhether individual items, e.g. the
dormer window, were installed in areas
to be used exclusively for private
purposes; or
2. The subsequent work could be treatedas a capital asset in their own right.
The AG proposed the following answer tothe questions referred:
"A taxable person who makes temporaryuse for private purposes of part of a capitalitem of his business is entitled, under
Article 17(2) of the Sixth VAT Directive, todeduct the VAT levied on expenditureincurred in respect of permanent
alterations carried out exclusively with aview to that use for private purposes andwhich give rise to a separate capital item,
where, at the time when the alterations aremade, the taxable person has the intention,
corroborated by objective evidence, to usethe capital item thereby created for thepurposes of his taxable business
transactions even if that use is to occur onlyafter the private use. That entitlement todeduct VAT exists irrespective of whether
the taxable person was charged VAT, whichhe deducted, on the acquisition of thecapital item to which the alterations were
made."
Frans Oomen
+31 88 792 51 56
AUSTRIA
7. The Administrative VAT
Guidelines Amendments
Decree 2011
The BMF (Austrian Ministry of Finance)
incorporated a number of changes in the
recently published amendment decree 2011 to
the Administrative VAT Guidelines. Below
are some of the main points.
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VAT group
In order to establish a VAT group in Austriaa direct financial link is required. As aconsequence an indirect financial link
between sister companies via the parentcompany is in principle not sufficient.
A VAT group can only be establishedbetween a parent company and sistercompanies (if there is a sufficient financial
link between every sister company and theparent company).
Debt collection
The collection of debt is not VAT exempt.The collection of debts also includes debts
which are not yet due and debts for whichno coercive measures have been taken for
the effective payment. Payment processingservices linked to the settlement orcollection of debts are not VAT exempt.
This amendment follows the decision of theECJ, C-175/09 AXA UK plc.
VAT exemption for underwritingguarantees
Services in connection with the providing of
underwriting guarantees for considerationare exempt from VAT. This amendmentfollows the decision of the ECJ, C-540/09
Skandinaviksa Enskilda Banken ABMomsgrupp.
Christoph Wagner
+43 1 501 88 36 41
DENMARK
8. Danish Tax Tribunal VAT
exempts management of
venture funds as a special
investment fund
In the decision, the Tax Tribunal found -referring to the ECJ case JP Morgan
Claverhouse - that the private equityventure funds were collective investmentundertakings which were comparable to
and in competition with the specialinvestment funds. Therefore themanagement was VAT exempt according
to VAT law and practice.
It is PwC´s opinion that a lot ofmanagement companies can claim VAT
from the tax authorities going 3 years backin time. The claim must, however, be
reduced with the unrecoverable input VATand the liability to a special payroll tax onVAT exempt activities.
Jan Huusmann Christensen
+45 3945 9452
GERMANY
9. The Federal Tax Court
decided the GFKL case
In the aftermath of the ECJ decision "GFKL"
(C-93/10), the Supreme Tax Court (BFH) has
now confirmed that the purchase of non-
performing loans does not constitute an
economical activity of the purchaser.
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In the case at hand, the economical value
and the discount had only been determinedin order to meet the Tax Authoritiesrequirements and were thus to be
disregarded.
Input VAT incurred on the purchase and
the collection of the receivables are notdeductable since they are not linked to aneconomical activity.
The correction of invoices with VAT due forbeing incorrectly shown on them is not ofretroactive effect.
Felix Becker
+49 69 9585 6665
ITALY
10. VAT deduction by leasing
companies adopting
International Accounting
Principles
With Resolution No. 122/E dated 13
December 2011, the Tax Authorities
clarified that leasing companies adopting
international accounting principles may
claim a refund of the VAT paid for the
purchase of depreciable assets leased to their
own clients.
Article 30(2)(c), of Presidential Decree No.
633/1972 states that "the taxpayer mayrequest in whole or in part a refund of the
deductible surplus, if the amount exceedsfive million (2,582.28 Euro), when the tax-return is submitted, limitedly to the VAT on
purchase or importation of depreciableassets.
In this regard, the Tax Authorities
confirmed that:
- To identify the depreciable assets, whosepurchase or importation justify the VAT
refund claim, it is necessary to refer to
the rules provided for income taxes;
- The reference to the ITCT about theamortisation is valid only for the
qualification of goods, it is not relevantthat its cost is actually subject to
amortisation;
- In order to claim the VAT refund, it isnecessary to verify the transfer of
ownership to the subject entitled to thereimbursement.
Leasing companies, adopting the
International Accounting Principles (see inparticular IAS 17), note the asset subject tofinancial leasing on the balance sheet as a
receivable and not as an intangible asset tobe amortised. Therefore, these companies
do not depreciate the assets leased.
Based on the principles described above,the Tax Authorities have determined that
only the leasing company is eligible for therefund in question, as legally it is the ownerof the depreciable asset, even if it does not
recognise the asset depreciation.
Alessia Angela Zanotto
+39 02 91605728
11. Tax Authority clarifies VAT
treatment of pension fund
management
The Tax Authorities have issued a Resolution
which addresses the VAT treatment of
pension fund management services provided
by an external supplier. The Resolution
clarifies that the VAT treatment should be
assessed on a case by case basis.
The Tax Authorities issued Resolution no.
114/E dated 29 November 2011, whichaddresses the VAT treatment of pensionfund management services. The Resolution
references the decision of the ECJ in thecase of Abbey National plc (C-169/04) and
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clarifies that the VAT treatment of pension
fund management services provided by anexternal supplier should be assessed on acase by case basis, based on the terms of the
agreement between the parties.
The Resolution addresses the VAT
treatment of administrative management ofpension funds undertaken by a third party,which supplies the following:
- Keeping and updating customer lists;
- Management of the fund contribution;
- Communication of the balances;
- Management of pension fundtransactions;
- Preparation of reports for obligations
under the Pension Funds SupervisoryCommission;
- Accounting;
- Administrative management related tobank accounts and securities
transactions;
- Call centre management services tocompanies and associates.
The Tax Authorities highlighted thatservices related to the management ofinvestment and pension funds are exempt
from VAT according to Article 10(1)(sub 1),D.P.R. no. 633/1972 (the pension fundmanagement VAT exemption was
introduced following the entry into force ofthe pension reform, legislative Decree
no. 47/2000, which equated the taxation ofpension funds to that of investment funds)and clarified that:
- In order to benefit from the VATexemption in the case of administrativeservices provided by a third party,
divided into differentiated services, theservices should be viewed as, and form, adistinct whole. In this regard, some
items related to the contractualrelationship between the pension fund
and the third party, such as theprovision for a total consideration of the
various types of services provided by a
third party and the delegation toperform the services given through asingle contract;
- It is necessary to check whether theresponsibility of the third party is
limited to the mere material andtechnical supplies (subject to VAT) or isspecific to, and essential for, the
management of special investment funds(exempt from VAT);
- The nature of the services, and not of the
provider, is relevant, and it is irrelevanthow the service is carried out(electronically or manually);
it will be necessary to check, on a case bycase basis, considering what is stated in
the agreement, in order to establishwhether the exemption from VATapplies;
- If the services rendered by the thirdparty are related to only certain phasesof administrative management and
accounting of the pension fund and actas stand-alone services or are merelymaterial or technical in nature, they are
subject to VAT at standard rate.
In the case at issue, in the end, the ItalianTax Authorities considered the services as
VAT exempt.
Alessia Angela Zanotto
+39 02 91605728
12. Reverse charge invoicing
rules for intra-Community
supplies of services
Under new rules on accounting for reverse
charge VAT on intra-Community supplies of
Article 44 services, the requirement to issue a
'self invoice' has been replaced by the concept
of 'integration of the invoice issued by the
supplier'.
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Article 8(2) Law no. 217/2011 ("Community
Law") made some important changesregarding the invoicing and registrationrequirements for services provided by EU
taxable persons (amendments to Article 17,Presidential Decree no. 633/1972), falling
under the general rule (Article 44 VATDirective).
According to the "Community Law", the
requirement of 'integration of the invoiceissued by the supplier' has been introduced(instead of the so-called 'self-invoice') for
'basic rule' Article 44 services provided bysuppliers established in other EU MemberStates, in order for the Italian Taxpayer to
account for Italian VAT under the reversecharge mechanism. This obligation is
already in place for intra-EU acquisitionsof goods.
In case of generic Article 44 services
provided by non-EU suppliers, the issue ofthe so-called 'self-invoice' by the taxableperson established in Italy is still valid in
order to account for VAT under the reversecharge mechanism.
However, clarification from the Tax
Authorities would still be welcome on thefollowing:
- Whether the Italian taxpayer has to wait
for the invoice issued by the supplier topay VAT in Italy;
- Whether it is no longer possible to issuethe self-invoice in order to account forVAT under the reverse charge
mechanism.
In the main, the issue of the invoice by theEU taxable person should not be relevant
(in the past, the Italian Tax Authoritieshave supported the possibility of issuing theso-called self-invoice as an alternative to
the integration of the invoice).
Finally, clarification would be welcome
about the possible extension of the time ofVAT payment, already provided for inrespect of the intra-EU acquisition of goods.
On the whole, it is not entirely clear
whether, in case of non-receipt of theinvoice within the month following the timeof supply, the taxpayer has an obligation to
account for VAT under the reverse chargemechanism by self-invoicing within the
following month.
Alessia Angela Zanotto
+39 02 91605728
13. Community Law – Changes
in the time of supply of
services
Effective 17 March 2012, the time of supply of
international services is no longer the time of
payment, but the time of completion of the
service. Special rules apply to continuous
supplies of services.
Article 8(2) Law no. 217/2011 ("CommunityLaw"), in order to harmonise national
legislation with the VAT Directive, madesome important changes regarding- thetime of supply of services rendered to and
received by EU and non EU taxable persons(amendments to Article 6(6), PresidentialDecree no. 633/1972). These changes are
effective from 17 March 2012.
First, the time of supply (i.e. when therights/obligations for VAT purposes arise)
is no longer the time of payment, but thetime of completion in case of:
- The supply of services, which fall underArticle 7-ter, Presidential Decree no.633/1972 (i.e. generic supply of services
taxable where the business customer isestablished) rendered by EU and non-EU taxable persons to taxable persons
established in Italy;
- The supply of services other than thosereferred to in Articles 7-quater e 7-
quinquies, Presidential Decree no.633/1972 (in the main, the services
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falling under Article 7-ter), rendered by
a taxable person established in Italy toEU and non-EU taxable persons.
Secondly, in case of periodic or continuous
supply of services, the time of supply is thedue date for payment (date of maturity of
the consideration).
If, prior to the above events (i.e.completion/maturation as applicable), the
consideration is paid in whole or in part,the supply of services is considered carriedout, limited to the amount paid, upon the
payment. This does not seem to be in linewith the VAT Directive.
Finally, under new Article 6(6), Presidential
Decree no. 633/1972, which relates tosupplies made by non-EU taxable persons,
supplies of services performed continuouslyover a period longer than one year (and ifno payments are made, even partially, in
the same period), shall be consideredcarried out at the end of each calendar yearup to completion of such supplies. Before
the change, this provision applied only toEU taxable persons.
Alessia Angela Zanotto
+39 02 91605728
14. Place of storage of invoices
and other documents
relevant for tax purposes
The Italian Tax Authorities have clarified the
rules on the place of storage of invoices and
other documents relevant for tax purposes
for Italian taxable persons. The new rules do
not apply to EU businesses that have a direct
VAT registration.
Circular Letter no 5/2012, issued by theItalian Tax Authorities 29 February 2012,has provided clarification on the place of
storage of invoices and other documents
relevant for tax purposes for Italian taxable
persons.
In detail, the Italian Tax Authorities,adopting a restrictive approach, have stated
that the e-archiving of tax and accountingdocuments outside Italy (except for
countries for which no legal instrumentrelating to mutual assistance exists) isallowed only for:
- Electronic invoices issued in accordancewith the client's agreement according toArticle 39 of the Presidential Decree
no. 633/1972;
- Electronic invoices issued without theclient's agreement and sent by paper,
which are then e-archived (e-archivingcarried out according to specific Italian
provision, i.e. 23 January 2004).
The e-archiving (according to 23 January2004) abroad is instead not allowed for
other tax documentation (e.g. scannedpurchase invoices, delivery notes,accounting documents etc.), which have
to be stored (also via server or opticalsupports) in Italy.
The Italian Tax Authorities have to be
notified also about the location of e-archiving by filing a specific form (i.e.AA7/10).
The above restriction about the place ofstorage does not apply to EU taxable
persons who are VAT registered in Italy viadirect VAT identification. They are indeedallowed to keep the VAT documentation
outside Italy.
Alessia Angela Zanotto
+39 02 91605728
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PORTUGAL
15. Approval of Madeira VAT
rate increase to 22%
The Council of Ministers has issued a notice
announcing the approval of a draft Bill to
alter VAT and excise duty rates in the
Madeira Autonomous Region. The standard
VAT rate will increase from 16% to 22% with
effect from 1 April 2012, and the reduced VAT
rates will also increase.
The proposed changes will be implementedas part of the Economic and Financial
Adjustment Program signed betweenMadeira and the Portuguese State on27 January 2012.
Changes to the VAT rates, to apply from1 April 2012, are:
- Increase of the standard rate from 16%
to 22%;
- Increase of the reduced rate from 9% to
12%;
- Increase of the super reduced rate from4% to 5%.
Mario Braz
+351 213599652
SLOVAKIA
16. Obligatory electronic filing
of documents with the
Slovak Authorities
postponed to 1 January
2013
The obligation to file all documents with theSlovak Tax and Customs authorities wasagain postponed to 1 January 2013.
As we informed you previously any taxpayer who is a Slovak VAT payer or is
represented by the tax advisor, lawyer or
other representative will be obliged to fileall documents with the Slovak Authoritiesonly in the electronic form.
Valeria Kadasova
+421 2 59 350 626
UNITED KINGDOM
17. Tax Authority statement
on ‘large business’
relationships
The UK Tax Authority, HMRC, has published
information on its approach to large
businesses. It addresses how 'large business'
is defined, how HMRC engages with large
businesses, the roles of the customer
relationship manager (CRM) and customercoordinator (CC), and what HMRC intends
to deliver by 2015.
The documents published by HMRC are allavailable via the link to the HMRC website
and will be of interest to all largebusinesses, which HMRC defines asbusinesses which have:
- Turnover - annualised, aggregated,attributable and world wide - of £30
million or more; and/or
- More than 250 employees (100employees where the business is foreign
owned).
HMRC also treats as large businessespartnerships which have any of the
following:
- Ten or more partners;
- Five or more partners and a turnover of
£5 million or above; or
- A turnover exceeding £15 million.
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HMRC's model for managing relationships
with large businesses features:
- CRMs to manage the relationship withthe 2,000 largest businesses in order to
improve the handling of issues;
- CCs (introduced in June 2010) to
provide a single point of contact forthe remainder of large businesses;
- Risk assessments of customers against a
published framework and resourcing tothe highest risks; and
- A non-statutory business clearance
process to provide customers with pre-filing decisions on the tax treatment oftransactions to increase certainty.
HMRC intends to develop its large businessrelationships so that, by 2015, it will be able
to deliver the following objectives:
- To continue to invest in a resource-intensive, relationship-managed service
for the largest customers, because themoney and complexity involved makethis the most cost-effective way of
getting the right tax agreed early;
- All parts of HMRC to work with acommon set of risk priorities to focus on
the highest risks. HMRC will allocateresources according to risk bycustomers' behaviour, by threats to
regimes and by size and complexity;
- In dealing with those who 'bend the
rules', HMRC will prioritise upstreameffort to resolve the problem at source:first aiming to change behaviour through
policy design and disclosure, thenthrough rigorous case work and wherepossible within established
relationships, and finally, whereappropriate, through litigation;
- HMRC will always seek to work through
issues in real-time with all customers nomatter what their tax strategy. This
provides earlier certainty for thecustomer but also allows HMRC todetect avoidance more quickly;
- HMRC customers should have or buy in
the skills to fulfil their ordinary day today tax compliance requirements.HMRC will provide assistance to resolve
uncertainty around complex orsignificant issues and commercial
transactions; and
- All processing for large businesscustomers will be via the normal
channels. All contact, complianceinterventions and exceptions will becoordinated through the CRM and CCs,
ensuring a coherent approach tocustomer management.
The ways in which these objectives are
designed to affect HMRC's relationshipswith those businesses with CRMs and those
with CCs are then set out in more detail.
Jamie Randell
+44 207 213 8253
18. ‘Grant funding’ was
payment for taxable
services
The First Tier Tribunal (FTT) has held
that amounts paid by a local authority
to a joint venture leisure trust constituted
consideration for taxable supplies of services
rather than grant funding (Aberdeen Sports
Village Ltd [2012] UKFTT 80 (TC)).
Background
Aberdeen Sports Village Ltd (ASV), the
Appellant, is a private company withcharitable status and a joint venture ofAberdeen City Council (ACC) and Aberdeen
University (AU). ASV was set up to supportACC in meeting its statutory obligation for
leisure facilities to be provided in itsjurisdiction, and to develop new sportsfacilities which would be used by AU's
students as well as the general public. Themain objective of the Appellant is the
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provision of sport and recreational facilities
and the organisation of sports activities forthe students and staff of AU and ACC. ASVallowed discounted membership rates to
certain groups of ACC constituents and toAU students.
In the first year, it was agreed that ASVwould not be able to fund the developmentfrom its own resources and therefore it was
agreed that ACC and AU would makeannual payments to ASV. These weredescribed, and treated for VAT purposes, as
Annual Grant Funding, intended to ensurethat all running costs were covered bymembership income and the payment
arrangement between ACC, AU and ASV.The Annual Grant Funding became a
feature of the joint venture agreementbetween the parties, which regulated theway in which ASV operated the sports
facilities.
The dispute with the Tax Authority(HMRC) concerned whether the Annual
Grant Funding received by ASV wasconsideration for a supply of servicesprovided by ASV to ACC and to AU and
therefore whether VAT should be accountedfor in respect of the Annual Grand Funding.
The FTT emphasised that the manner in
which the payments were described wasirrelevant and, in order to determine the
issue, it would be necessary to consider thefollowing three issues;
1. Was there a supply of services by ASV
to ACC and AU?
2. If there was a supply of services, whatwas the consideration?
3. If there was a consideration what wasits nature, i.e. was it a donation or wasthere a direct link between the payer
and recipient sufficient to incur aliability to VAT?
Judgment
1. The FTT decided that there was asupply of services by ASV to ACC andAU. In reaching its decision, the FTT
considered that there were a number ofcommercial factors that supported this
analysis:- the joint venture/operatingagreement negotiated by the parties;
- there is priority availability to usethe sport facilities in favour of AUstudents;
- ACC and AU have effective financialcontrol over ASV;- ASV must produce monthly
management accounts and auditedaccounts for AU and ACC in their
capacity as its shareholders, and- As in the earlier case of EdinburghLeisure, there are specific requirements
which ASV has to meet and it iscontractually bound by theserequirements.
2. With regard to the consideration, it wasclear that from the findings and thereasons above, the Annual Grant
Funding was a payment for theseservices and the consideration was thesums paid, which included the VAT
assessed by HMRC.
3. From the findings of fact, the FTT was
satisfied that the Annual Grant Fundingwas not a donation but considerationfor services rendered, as there was a
clear and direct link between theservices and the Annual Grant Funding.
Jamie Randell
+44 207 213 8253
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19. Court of Appeal allows Tax
Authority’s appeal in
payment handling case
This case returned to the UK Court of Appeal
(CA) after the ECJ's ruling that VAT
exemption did not extend to a service of
transferring payments between patients and
dentists because the service went beyond
payment processing and encompassed debt
collection. The Taxpayer sought to persuade
the CA that the ECJ had mischaracterised the
transaction as debt collection rather than
payment handling and/or that the case
should be referred back to the ECJ for
clarification. However, the CA considered
that the ECJ's judgment was correct and
allowed HMRC's appeal, holding that the UK
law on exemption could be interpreted in
accordance with the EU law even though the
exclusion of debt collection had not been
transposed into UK law. It remains to beseen whether the Taxpayer will seek leave to
appeal to the Supreme Court (Axa UK plc
[2011] EWCA Civ 1607).
Background
The CA had asked the ECJ to clarify the
scope of exemption under Article 13B(d)(3)of the Sixth VAT Directive, now Article135(1)(d) of the VAT Directive:
"Transactions, including negotiation,concerning deposit and current accounts,payments, transfers, debts, cheques and
other negotiable instruments, but excludingdebt collection and factoring".
The phrase "but excluding debt collectionand factoring" is referred to in this case as"the carve out", i.e. it carves out from the
financial services exemption services ofdebt collection and factoring. The carve outdoes not feature in item 1 Grp 5 Sch 9 VAT
Act 1994:
"The issue, transfer or receipt of, or anydealing with, money, any security for
money or any note or order for the paymentof money."
The ECJ considered the detailed questions
referred by the CA together and gave thefollowing ruling on the effect of the carveout with regard to the Taxpayer's service:
"Article 13B(d)(3) of the Sixth VATDirective is to be interpreted as meaning
that the exemption from VAT provided forby that provision does not cover a supplyof services which consist, in essence, in
requesting a third party’s bank to transferto the service supplier’s account, via thedirect debit system, a sum due from that
party to the service supplier’s client, insending to the client a statement of thesums received, in making contact with
the third parties from whom the servicesupplier has not received payment and,
finally, in giving instructions to the servicesupplier’s bank to transfer the paymentsreceived, less the service supplier’s
remuneration, to the client’s bank account."
The case returned to the CA for it to applythe ECJ's ruling. Although the appeal to the
CA was originally an appeal by HMRCagainst the High Court's judgment thatthe supply was exempt, the CA pointed
out that the Taxpayer effectively becamethe Appellant once the ECJ had given itsadverse decision. The Taxpayer therefore
pursued its appeal on the followinggrounds:
- The transposition of the exemption intoUK law does not include the carve outand therefore the UK cannot rely on the
Directive to levy VAT on the Taxpayer'ssupply;
- The limits on the extent to which a UK
provision can be construed by a UKCourt in accordance with the EUlegislation do not permit interpreting
item 1 as incorporating the carve out, asthe extent of any carve out would be a
matter for Parliament, not for theCourts, as there is no clear distinctionbetween which, of many types of
transactions, were included in the carveout;
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DID YOU KNOW
UNITED KINGDOM
Tax Authority legislates to replace
Insurance Premium Tax (‘IPT’)
concession
Article 2 of the Enactment of Extra-
Statutory Concessions Order 2012 (SI
2012/266) replaces ESC 4.2, in respect of
the de minimis limit (
less than 10% liable to IPT) which applies to
a taxable insurance contract providing cover
for both IPT-exempt and non-exempt
matters. The new legislation is effective 1
March 2012.
Jamie Randell
Tel: +44 2074213 8253
- The carve out of debt collection should
exclude only the collection of existingdebt on behalf of a creditor, as opposedto the handling of payments as they fall
due;
- Alternatively, whilst the ECJ had given
its decision on the scope of the carve out,as opposed to answering the questionsreferred, the CA was still required to
decide whether the services consideredby the ECJ were the same as thosesupplied by the Taxpayer, and the
Taxpayer considered that the ECJ hadmisinterpreted those services as debtcollection;
- The services in question had been heldby the Tribunal, on the facts, to be
payment handling, akin to theprocessing of payments between banks,and not debt collection; and/or
- The ECJ had misunderstood ormisinterpreted the facts and the caseshould be referred back to it for
clarification.
Judgment
The CA held that a UK Court was requiredto construe item 1 in accordance withArticle 13B(d)(3) and the carve out of debt
collection. The ECJ's ruling, whilst not fullydefining all the transactions within and out
the scope of the carve out, was sufficientlyclear to enable the CA to decide this case.The ECJ clearly considered that the term
"debt collection" could apply to some"transactions concerning payments", andthe CA considered that the ECJ may have
been seeking to distinguish between exempt"transactions concerning payments" such asretail banking transactions, and other
services involving debt collection whichwould fall within the carve out.
The CA did not agree that the ECJ had
misunderstood or misinterpreted the facts.All the facts had been set out before the ECJin the reference, and the ECJ had, in the
CA's opinion, clearly understood that theservices were payment handling and not
debt collection in the usual sense.
Jamie Randell
+44 207 213 8253
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Contact
For more information, please do not hesitate to contact your local PwC Indirect Tax expert or one of the expertsmentioned below:
AustriaChristoph Wagner
tel: +43 1 501 88 36 [email protected]
GreeceMary Psylla
tel: +30 210 687 [email protected]
PolandMarcin Chomiuk
tel: +48 22 523 [email protected]
BelgiumKoenraad de Bie
tel: +32 2 710 43 14
HungaryTamas Locsei
tel: +36 14 619 358
PortugalMario Braz
tel: +351 213599652
BulgariaNevena Haygarova
tel: +359 2 9355 162
IrelandJohn Fay
tel: +353 1 792 8701
RomaniaDiana Coroaba
tel: +40 21 202 8693
CyprusChrysilios Pelekanos
tel: +357 22 555 280
ItalyAlessia Angela Zanatto
tel: +39 02 91605728
SlovakiaValeria Kadasova
tel: +421 2 59 350 626
Czech RepublicMartin Diviš
tel: +420 25115 2574
LatviaIlze Rauza
tel: +371 6 7094512
SloveniaMarijana Ristevski
tel: +386 1 583 6019
DenmarkJan Huusmann Christensen
tel: +45 3945 [email protected]
Lithuania / BelarusKristina Krisciunaite
tel: +370 5 239 [email protected]
SpainMiguel Blasco
tel: +34 9 1568 [email protected]
EstoniaTanja Kriisa
tel: +372 614 1977
LuxembourgMarie-Isabelle Richardin
tel: +352 49 48 48 [email protected]
SwedenLars Henckel
tel: +46 8 5553 3326
FinlandJuha Laitinen
tel: +358 9 2280 1409
MaltaDavid A. Ferry
tel: +356 2564 6712
SwitzerlandTobias Meier Kern
tel: +41 58 792 43 69
FranceStéphane Henrion
tel: +33 1 56 57 41 39
The NetherlandsFrans Oomen
tel: +31 88 792 51 56
United KingdomJamie Randell
tel: +44 207 213 8253
GermanyFelix Becker
tel: +49 69 9585 6665
NorwayYngvar Engelstad Solheim
tel: +47 95 26 06 57
United StatesEvelyn G Lam
tel: +1646 204 1094
Disclaimer. Clients receiving this Alert should take no action without first contacting their usual PwC Indirect Taxes Advisor. This publication has been prepared for general
guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining
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