India – Invite to the webcast on the Indian Union Budget 2015 – 4 March 2014

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The government in India announced its Budget (including tax and policy proposals) on February 28, 2015. As this is stated to be the first serious Budget for the new government after being elected 8 months ago, the government likely will push through significant policy measures to revive economic growth and boost foreign investment. There is also high expectation from foreign investors and multinational companies for the government to address several long standing and pressing tax issues.

Speakers

  • Ketan Dalal, Senior Tax Partner & Member India Leadership Team, PwC India
  • Nitin Karve, Partner, International Tax Services, PwC India
  • Puneet Arora, Partner, Financial Services, PwC LLP
  • Lindsey J Bristow, Partner, International Tax Services, PwC LLP

Date & Time:

Wednesday, 4 March 2015 at 5.00 pm CET / 11.00 am EDT (Duration: 60 minutes (including Q&A)

For further information and registration please follow the attached links:

Union Budget 2015

Registration

Partial revision of the VAT Law in Switzerland – Lower VAT registration threshold for e-service providers is proposed

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The Swiss Federal Council has published its commentary to the partial revision of the VAT Law. If the draft legislation is approved by the Swiss parliament, the changes will come into effect on 1.1.2016. Among other changes we set out below those which are most relevant for ebiz & e-commerce.

Change of VAT registration threshold for e-service providers

According to the proposal businesses, which provide electronic services to private individuals (B2C) in Switzerland, are to be liable for tax in Switzerland, if their worldwide (i.e. Swiss and non-Swiss) turnover exceeds the threshold of CHF 100,000. By way of example, if you sell e-services to US customers in excess of CHF 100,000 and you have only one Swiss private customer who pays CHF 100 for your services, you will be required to register Swiss VAT.

This is a significant change, as currently the VAT registration threshold of CHF 100,000 is calculated for Swiss turnover only.

Changes for e-commerce

In on-line trading, up to now small deliveries with a tax amount of less than CHF 5 (e.g. books up to CHF 200) have been exempt from import VAT. In future these sales are to be taxable in Switzerland, if the non-established supplier with such deliveries generates turnover of more than CHF 100,000.

Change for electronic newspapers

The draft legislation also proposes to extend the application of the reduced VAT rate of 2.5% to electronic newspapers and magazines (without advertising character). It should be noted that e-books would continue to be taxed at the standard rate of 8%.

What does it mean for you?

You should keep monitoring the legislative changes, so that you are able to act on time to address all matters which the above changes may trigger for you (i.e. VAT registration application, pricing review, system changes etc.).

USA – Texas comptroller finds software licensed to Texas customers created nexus for sales and use tax purposes

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The Texas Comptroller of Public Accounts has recently determined that electronically downloaded software licensed by a Utah corporation to Texas customers constituted physical presence in Texas sufficient to establish sales and use tax nexus. According to the decision, nexus was established because the software was characterized as tangible personal property and the Utah corporation retained all property rights in the software, which was physically present and generating revenue in Texas. The Comptroller upheld an Administrative Law Judge (ALJ) determination that the corporation had an obligation to charge and collect use tax from customers, and denied refund claims of sales tax paid and an interest waiver. [201409970H; SOAH Docket No. 304-13-5657.26; CPA Hearing No. 106,632, Texas Comptroller of Public Accounts (9/19/2014)]​

In detail

A Utah corporation (Petitioner) licensed computer programs and digital content that was downloaded through the internet to Texas customers. The license agreements provided that the licensed products were property of and proprietary to Petitioner. Petitioner otherwise had no significant contacts with Texas. The Business Activity Research Team (BART), part of the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller), conducted an examination of Petitioner’s activities to determine whether it had nexus with Texas and should have collected and reported sales and use tax on its sales to Texas customers. BART concluded the licensing of software downloaded over the internet to Texas customers established substantial nexus for sales and use tax purposes because the software was tangible personal property and Petitioner retained title to the software, which was physically present and generating revenue in Texas.

Electronically delivered software is characterized as tangible personal property in Texas

The ALJ analyzed whether the licensed software and digital images constituted tangible personal property for sales and use tax purposes. In Texas, electronically downloaded software is statutorily categorized as tangible personal property. The ALJ noted that while this characterization is not in and of itself determinative that there is the requisite physical presence in Texas, what was ultimately determinative was that Petitioner did not challenge this characterization. Consequently, Petitioner’s software was treated as tangible personal property for the purposes of applying the Supreme Court’s bright-line test requiring substantial physical presence.

Petitioner retained property rights in the licensed software constituting substantial physical presence

The ALJ noted that “nexus is not automatically conferred by the statutory characterization of a computer program as taxable tangible personal property. The substantial physical presence requirement is determined by the character of the rights and interest Petitioner retained in the software and digital images downloaded by users located in Texas.” The ALJ concluded that the record established Petitioner had retained all property rights in tangible personal property, and as a result, the software established substantial physical presence in Texas.

The takeaway

In recent years, Texas has adopted increasingly assertive positions on software and computer servers for sales and use tax nexus purposes. Under Texas law, a retailer that owns or uses tangible personal property located in the state, including a computer server or software, is considered engaged in business within Texas and hence may be responsible for collecting and remitting Texas sales and use taxes. The Comptroller’s decision expands the scope of Texas sales and use tax nexus to specifically include taxpayers retaining property rights over software electronically delivered to Texas customers. The ALJ assumes that electronic software statutorily defined as tangible personal property for sales tax purposes also necessarily constitutes a ‘physical presence’ for constitutional nexus purposes. Further, the ALJ concluded Petitioner’s physical presence was substantial based on the (undisclosed) amount of revenue generated from the licensing agreements. Although this is an administrative level decision and likely subject to further proceedings, Texas may consider companies licensing software in any form to Texas customers to have established Texas sales and use tax nexus.

For more information on this topic, please contact Jennifer Jensen, Director of PwC US (email: jennifer.jensen@us.pwc.com, tel: +1 202 414 1741).

Online shopping – PwC’s Total Retail Survey 2015

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Fifteen years ago, in the heyday of the e-business boom, Internet promised to change industries and business models very quickly, first of all in the retail sector. When these promised changes did not realise that quick, it resulted in the burst of the dot-com bubble.

However, even if change took longer than expected, now it is already part of our lives and not only in the developed countries, but all around the world. New online business models have a disruptive effect on long established businesses, as the fate of firms, such as Blockbuster, Borders and quite recently, RadioShack shows.

PwC prepared a Global Survey of online shopping behaviour, analysing the disruptive effects of mobile and online shopping on traditional retail shopping. 15,000 customers around the globe were asked of their opinion about online buying behaviours, effects of social media on purchases, use of mobile payment and virtual currencies.

If you are interested, the report can be accessed here, where you can also find further information related to the survey.

There is also an interactive map with country results and a few interviews with retail executives around the globe. You may want to look around and watch some of the videos.

Iceland – increase of reduced VAT rate applicable to e-books from 7% to 11%

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In Iceland the reduced VAT rate applicable to e-books and electronically published music increased from 7% to 11% as of 1 January 2015. Therefore, it must be ensured that you account for VAT on such sales at the appropriate rates. You can access further information of the overall Icelandic tax rules in 2015 here.

Providing B2C e-services to Iceland?

The fact that Iceland is not part of the EU is sometimes overlooked. However, it is rather important, since Iceland also taxes the B2C supply of e-services. If you are a non-established entity, providing e-services to private individuals in Iceland and its value exceeds the applicable registration threshold, you are required to register and account for Icelandic VAT on your transactions. It should also be noted that the registration threshold of ISK 1,000,000 (approx. USD 7,500) in any 12 months period is relatively easy to exceed. Therefore, you may want to double-check whether Iceland “is on your map” and your local VAT matters are compliant.

Finland – Supreme Administrative Court decision on the VAT treatment of non-printed books after the ECJ decision (K Oy – C-219/13)

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2015 seems to start with book related VAT news in the EU. After the ECJ’s judgment in the K Oy case (C-219/13) which we previously discussed, the Finnish Supreme Administrative Court (“SAC”) delivered its ruling at the end of December. The SAC held that the standard Finnish VAT rate (currently 24%) applies to books on other physical means of support such as a CD, CD-ROM or memory stick.The ECJ left it to the national courts to decide whether fiscal neutrality (i.e. the same VAT treatment) is applicable to printed books and books published on other physical means. Even though the ECJ judgment also appreciated that this can also be impacted by the level of penetration of new technologies in the various EU Member States.

The SAC followed the argumentation of the ECJ and held that books on other physical means of support are not similar to printed books. According to the Finnish court the other physical means do not satisfy the same needs of the average consumer and therefore they cannot be subject to the reduced VAT rate. The SAC argues that books on physical means of support have a closer link to e-books downloadable from the internet, to which reduced VAT rates cannot be applied based on the EU legislation. As a result the SAC concluded that the different VAT treatment of printed books and books on other physical means of support does not offend the principle of fiscal neutrality.

What does it mean?

Considering the above decision, Italy’s recent move to apply the reduced VAT rate to e-books, as well as the pending French and Luxembourg infringement procedures indicate that the VAT treatment of the non-printed books remains an increasingly important area. It will be interesting to see how these will further develop, in light of the arguments used by the ECJ and the Finnish Supreme Administrative Court.

Italy – reduced VAT rate of 4% on e-books from 1 January 2015

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The Italian Parliament passed the 2015 Finance Law on 22 December, which applies the 4% VAT rate to e-books as of 1 January 2015. According to the legislation any publication that is identified by an ISBN code (International Standard Book Number) and transmitted through any physical or electronic means, should be considered as a book and as a result subject to the 4% reduced VAT rate.

This is a rather interesting move in light of the on-going infringement procedures which were initiated by the EU Commission against France and Luxemburg for treating e-books and physical copies in the same way by applying the reduced VAT rates also to e-books.

For further information you can contact Luca Lavazza (Partner), Alessia Angela Zanatto (Director) or Davide Accorsi (Senior Manager) of PwC Italy.

Luxembourg – increase of VAT rates from 1 January 2015

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As already anticipated in 2013 Luxemburg will increase its VAT rates as of 1 January 2015 to balance the loss of VAT resulting from the new B2C 2015 changes. Subject to the Luxemburg Parliament passing the proposed changes VAT rates will be increased as follows:

  • the standard rate from 15% to 17%;
  • the intermediary rate from 12% to 14%and
  • the reduced rate from 6% to 8%.

You can find further information on the VAT and other tax changes here or you can contact Mr, Laurent Grençon at laurent.grencon@lu.pwc.com or +352 49 4848 2060

Bitcoin – the rise of virtual currencies and their VAT implications

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In the last couple of years virtual currencies become more popular. Recently we can see that more and also well established businesses are accepting this as payment method every day, e.g. Dell, Overstock.com or Expedia – just to name a few completely different businesses. We already posted some updates on virtual currencies (here, here , here and here). In this update we focus on bitcoin, being one of the most widely known virtual currency and the VAT questions it has already triggered.
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Czech Republic – introduction of reduced VAT rate from 1 January 2015

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The Czech Republic is going to introduce a new VAT rate into its VAT legislation with effect from 1 January 2015.

On 6 November, the president of the Czech Republic signed the amendment to the current VAT law introducing a VAT rate of 10% from 1 January 2015. As a result of this, the Czech VAT law will have two reduced VAT rates.
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