South Korea – VAT on electronic services provided by foreign entities – changes as of 1 July 2015

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Korea joins the group of countries which require non-established companies to register and account for on their B2C sales of electronic service into South Korea.

The VAT law has recently been amended to apply VAT to the supplies of electronic services (e.g. applications, games, music, films, electronic documents, software, etc.) purchased from non-resident service providers (i.e. offshore app developers or through offshore open markets app stores).

If a non-resident or foreign corporation that has no business place in Korea provides local recipients electronic services, as defined in the presidential enforcement decree, which are activated through mobile device, computer, etc., then the relevant electronic services shall be considered as being provided in Korea. Accordingly, the foreign provider is subject to the simplified VAT registration process and VAT return filing through the website of National Tax Service (“NTS”) as well as for VAT payment on these services.

If a non-resident or foreign corporation provides Korean customers with electronic services through a third party (i.e. open market, intermediary for the electronic services, etc.) that is a non-resident or foreign corporation having no business place in the country, the third party is deemed to provide such electronic service in Korea and obliged to the above mentioned VAT requirements.

The timing of supply of electronic service is the earlier of i) the time that a purchaser receives the electronic service from the supplier; and ii) the time that a purchaser completes the payment for the purchase. Some good news that the service providers concerned, will not be required to issue VAT invoices.

Please note that the law would be applied to both business-to-business and business-to-customer transactions. This requirement may not be entirely clear from the legislation, however PwC Korea had further conversations with the Ministry of Strategy and Finance (“MOSF”) and was advised informally that the new rules would cover both B2B and B2C electronic services, provided that they meet the criteria stated in the presidential enforcement decree.

What does it mean for you?

You need to have an action plan to be compliant with the new Korean requirements and get registered by 1 July 2015. The currently applicable VAT rate is 10% in Korea, so you may also want to check if your pricing is right and enable your system to deal with additional reporting requirements.

For further information please contact Changho Jo of PwC Korea or me.

EU – VAT Committee issued its Working Paper on the scope of the notion of electronically supplied services

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The Belgian tax authorities submitted questions to the VAT Committee regarding the notion of electronically supplied services as referred to in the EU VAT Directive and the Implementing Regulation, the possible interaction of this type of services with other services and the issue of VAT exemption of such services.

Considering that we are only shortly after the effective date of the 2015 B2C VAT changes in the European Union, the VAT Committee’s Working Paper provides a very interesting read. The document can be accessed here.

Please note that the VAT Committee was set up to promote the uniform application of the provisions of the EU VAT Directive. However, it is only an advisory body to the EU Commission and its guidelines are merely views of a consultative committee. The Working Papers are not legally binding on the EU Commission or the Member States that are free not to follow these. It can however give some guidance on the application of the EU VAT Directive and for sure influences the interpretation of the rules in various EU Member States.

 

Australia – Webcast invite – 14 May – GST registration obligation for non-established e-service providers

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As indicated in our recent post regarding the Australian government’s plan to introduce new GST measures aimed at overseas companies supplying digital services into Australia, we now invite you to our webcast on this topic on 14 May.

In case that the Australian budget announcement (on 12 May) does not contain any information in this regard, the webcast will be postponed for a later date when further details of the anticipated changes are available.

Joining instructions:

  • Date: May 14, 2015
  • Time: 4:00pm – 5:00pm Pacific (San Francisco)
  • Registration: Click here to access the webcast registration page.

We appreciate that the proposed timing of the webcast does not suit all geographical regions, therefore we will make its recorded version also available.

Japan – legislation passed – foreign providers of electronic services are required to register for consumption tax as of 1 October 2015

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As already anticipated in our previous blog posts here and here the Japanese Diet passed the legislation which requires non-resident electronic service providers to register for Japanese consumption tax (JCT) as of 1 October 2015.

The details

The definition of electronic services (defined as “Provision of Telecommunication Online Services”) includes the following, according to the seminar at Japan Tax Association held on 20 April 2015:

  1. Distribution of e-books, e-newspapers, music, image, software (including various applications such as games, etc.)
  2. Service to make a software or database, etc. available on the cloud
  3. Distribution and posting of advertisement via Internet, etc.
  4. Service to make a shopping site or auction site available on the Internet
  5. Service to make a website for sale of game software, etc. available on the Internet
  6. Reservation of accommodation or restaurant at website via the Internet (those who receive insertion fee from enterprise running a lodging facility or restaurant, etc.)
  7. English conversation class via the Internet

As of 1 October 2015 the place of supply of digital services is deemed to be the place where the recipient is located, i.e. in Japan.

Therefore, if you are providing B2C Telecommunication Online Services to Japanese consumers, you are required to register and appoint a local tax agent (representative) to account for JCT in the case where annual taxable sales in the base period (e.g. in the fiscal year that is two fiscal years prior to the fiscal year concerned) exceeded 10 million yen (approx. USD 83,000 at today’s rates) threshold. However, if it is difficult to establish the annual taxable sales in such base period, this can be calculated as four times the value of taxable sales from 1 April 2015 to 30 June 2015.

The input tax credit on a taxable purchase of B2C Telecommunication Online Services from an Offshore Business Person is not allowed, even though it was actually provided to a business person. However, in case that is from a “Registered Offshore Business Person” (defined as a taxable enterprise who submits an application on or after 1 July 2015 and obtains the registration number from the NTA Commissioner), the input tax credit is allowed if the incoming invoice (including the registration number) is retained.

(For the sake of completeness, in B2B relations the reverse-charge mechanism will apply and the Japanese business customer is required to account for consumption tax for the purchase of digital services from foreign digital service providers. However, in this respect the service provider is required to notify its Japanese customer in advance that the transaction is subject to reverse charge. In practice, whether such notification was made, does not affect the reverse charge mechanism.)

What does it mean for you?

You need to have an action plan to be compliant with the new Japanese requirements and get registered by 1 October 2015. As a non-established B2C service provider you would also need to appoint a fiscal representative to account for JCT and to meet your compliance filing obligations. The currently applicable JCT rate is 8% (to be increased to 10% from 1 April 2017), so you may also want to check if your pricing is right.

For further information please contact Kotaku Kimu of PwC Japan or me.

Australia – GST registration obligation for non-established e-service providers

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On 9 April 2015, the Australian Treasurer announced that the government will be introducing new GST measures aimed at overseas companies supplying digital services into Australia. The Treasurer stated that “a company providing intangible services into Australia, such as media services or so on, wherever they are located they should charge GST on those services.”

Specific details of the proposed changes are not available yet, however, they are widely anticipated to be announced in the May 2015 Budget (on 12 May 2015).

What does it mean for you?

Preliminary issues for consideration include how broad the interpretation of ‘intangible services’ will be, what the proxy will be for consumption in Australia, whether the changes will impact B2C transactions only (or also B2B), the date of effect of the changes and whether there will be a registration threshold under which overseas entities will not be required to remit any GST on these types of supplies.

SAVE THE DATE – We plan to have a webcast on 14 May on this topic, which you are welcome to join. Please visit later for the exact time and joining instructions.

For a deeper understanding you can contact Suzi Russell-Gilford (suzi.russell-gilford@au.pwc.com) or Brady Dever (brady.dever@au.pwc.com) of PwC Australia.

PwC’s B2C 2015 Working Group – Next meeting on 29 April 2015 – Brussels

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On 1 January 2015, the new EU 2015 VAT rules came into effect changing the place of taxation in respect of all supplies of telecommunications, broadcasting and e-services to consumers in the EU, from the (single) place where the supplier is located to the (multiple) places where the customers belong.

As a business (EU or non-EU) making cross-border supplies of telecommunication, broadcasting and e-services to consumers in (other) EU member states, you could register for the Mini One Stop Shop by February 10th 2015.

If so, you will have submitted in the meantime your first VAT MOSS return with all the EU VAT collected on your Q1 2015 digital supplies.

If you decided not to register for VAT MOSS and have made digital supplies to EU consumers as from January 2015, you had to VAT register in each EU Member State where your customers belong.

Now the reality of the new 2015 EU VAT rules has kicked in, we will start our meeting with an update on the implementation status in the EU Member States and a brief overview of hot topics and critical issues that we encounter in our daily practice.

We have also built in some time for feedback and reflections from those EU Commission and Revenue officials present.

During the business panel, in house VAT managers will share their implementation journey and views on managing VAT in a post 2015 environment.

In the afternoon sessions, we will also engage with you on :

  • post 2015 implementation reviews and audit approach;
  • BEPS and VAT – the 2015 angle of that being the draft VAT/GST guidelines and the increasing number of EU-countries implementing “2015 style” measures;
  •  other policy developments that are relevant for digital businesses.

The meeting will be held in English and is free of charge. Participation to the meeting is by invitation only. The deadline for registration is 24 April 2015.

  • Date: Wednesday, 29 April 2015
  • Time: 9.30 – 16.00 CET
  • Location: PwC Brussels (address)

For more information on the B2C 2015 Working Group activities or if you are interested in joining our next meeting, please contact me directly.

South Africa – VAT Alert – Budget speech – Proposed amendment to include software supplies to the Electronic Services Regulation

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Following the recent National Budget speech in South Africa, various proposals were tabled for consideration including a proposed amendment to the Electronic Services Regulation No. 37489, dated 28 March 2014.

As previously reported here the National Treasury published regulations on 28 March 2014, prescribing what constituted “electronic services” for South African Value Added Tax purposes.

The definition of “electronic services” covers the following broad categories:

  • educational services;
  • games and games of chance;
  • internet based auction service;
  • miscellaneous services; and
  • subscription services.

It is now proposed that the supply of software be included as an electronic service. The proposal seeks to update the Regulations to specifically include software.

The proposed tax amendment in the budget speech reads as follows:

“The regulations prescribing electronic services will be updated to include software and other electronic services and to remove some uncertainties.”

You recall that software which was defined to mean application software, systems software, plugins or any updates to software was initially included in the draft Regulation issued in January 2014 and subsequently excluded in the final Regulation. As a result, foreign suppliers of software (which did not fall in any of the other categories) were not required to register for VAT in South Africa.

We understand that the proposal is meant to further address the issues on Base Erosion and Profit Shifting (BEPS). However, it is uncertain when the proposed amendment will come into effect.

We will follow the developments closely and keep you posted.

If you have any questions please contact Gerard Soverall or Louis Carney from PwC South Africa.

 

Albania – VAT registration obligation for non-established B2C e-service providers

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Albania joined the group of countries which require non-established e-service providers to register for VAT for supplies made to private individuals.

Effective from 1 January 2015 the Albanian VAT legislation deems the place of supply of “telecommunication, transmission and electronic services” to non-taxable persons to be where the non-taxable person receiving the service is “placed, has a permanent address or resides usually”, regardless of the place where the supplier is established.

The services in scope include the supply of

  • telecommunication services;
  • transmission services for radio and television;
  • websites, web-hosting, maintenance of software and hardware;
  • software and their update;
  • images, texts, information and evaluation of databases;
  • music, movies and games, including games of chance and betting games, transmission of political, cultural, artistic, sportive, scientific and entertainment programs;
  • e-learning;

What does it mean for you?

You need to monitor whether you make any such supplies to Albanian private customers / non-taxable persons. If so, you would be liable to VAT register from the first “lek”, as there is no registration threshold. As a non-established service provider you would also need to appoint a fiscal representative to account for VAT and to meet your VAT compliance filing obligations. The currently applicable VAT rate in Albania is 20%, so you may also want to check if your pricing is right.

For further information please contact Loreta Peci, Country Director Albania & Kosovo, at loreta.peci@al.pwc.com.

Luxemburg – e-books are subject to the standard VAT rate as of 1 May 2015

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The Luxemburg tax authorities were rather quick to the react on the ECJ’s recent decision on the VAT treatment of e-books. As reported in our previous post, in the infringement procedure against Luxemburg and France the court held that these countries incorrectly applied reduced VAT rate to the sale of e-books.

It is confirmed in a “Circular” published by the tax authorities on 16 March that Circular 756 is revoked with effect from 1 May 2015, and as of that date the standard VAT rate of 17% should be applied to the sale of e-books. (Please refer to the news update on PwC’s GlobalVATOnline.)

What does it mean for you?

Companies involved in the sale of e-books in Luxemburg have slightly more than a month to re-consider their pricing of e-books, i.e. a price increase or margin reduction taking into account the 14% change in the applicable VAT rate (form 3% to 17%).

Changes in the ERP systems must also be made to ensure that VAT is accounted for the correct rate.

It will be interesting to see whether France, which was also involved in the infringement procedure for similar reasons, will change it its rules with the same speed … (and we should keep an eye on Italy, too)

Argentina – Turnover tax regime for digital supplies suspended by the Tax Authority of Buenos Aires for an indefinite period

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The Tax Authority of Buenos Aires (AGIP) has established a new turnover-based (i.e., provincial sales tax) withholding tax system for foreign suppliers of e-services to Argentinian private consumers located in Buenos Aires (B2C supplies).
According to initial provisions of the new regime, effective February 1, 2015, withholding agents (Argentine credit card companies) that collect payments for such services should withhold 3% turnover tax from the payments made by final consumers to the non-resident service providers. Credit card companies have, however, formally asked the AGIP for additional time to make the necessary amendments to their systems, enabling them to identify whether the payments relate to taxable services to be used in Buenos Aires. As a result, the AGIP has postponed the enactment of the new regime until withholding agents can adequately modify their systems to be able to collect the tax.

What does it mean for you?

The resolution does not provide an exact date of enforcement of the new regime. Non-establsihed businesses that supply e-services to private consumers located in Buenos Aires should monitor these changes closely and consider the impact on profit margins.

It is interesting to note, that in this case we have a provincial sales tax at hand (not even a consumption tax on national level), which clearly demonstrates the complexity non-resident B2C e-service providers face and must consider to set their prices right.

Further information is available from Ricardo Tavieres or Fernando Lopez Menendez of PwC Argentina, and we will keep you posted of the developments on the blog.