The start of 2015 will bring the biggest single change to the EU VAT regime that telecom operators, broadcasters and others that provide eservices have seen in decades.
The legislation is expected to have a profound impact on e-services providers, particularly on their pricing and commercial strategy. As providers of these services take steps to adapt to the new legislation, the result will be either a sharp increase in the prices charged to many consumers or a cut in suppliers’ profit margins – neither of which is a desirable outcome.
In practice, companies based in the EU will be affected the most, as the rules change mostly for those suppliers. The changes will also affect non-EU suppliers. The legislation is expected to have a profound impact on eservices providers, particularly on their pricing and commercial strategy
Stephen Dale, Martin Blanche and Johnathan Davies provide an overview on the changes the new EU VAT rules will bring to telecom operators, broadcasters and other providers of eservices from 1 January 2015. Their article “EU: small change, big impact” (originally published in Tax planning international – Indirect taxes: Volume 11, Number 10, October 2013) focuses on possible outcomes for eservice providers.
With the availability of high speed Internet access, smart phones, and tablets, it is not surprising that the global retail industry is experiencing a fundamental shift in how individual consumers research, select, and eventually purchase products. Individuals are shopping through a variety of different channels, some physical, some virtual, making for an easier and more streamlined shopping experience. E-commerce has quickly become a key channel for retailers to reach their customers. This embrace of digital technology and social media is creating a new landscape for retailers as they ensure that their policies and practices support these changes. These shifting business models are creating unique consumption tax issues for global retailers selling within and into the United States.
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On October 18, 2013, in a 6-1 decision, the Illinois Supreme Court ruled that the state’s click-through nexus law is pre-empted by the federal Internet Tax Freedom Act’s ban against ‘discriminatory taxes on electronic commerce.’ The court did not reach the issue regarding whether the click-through nexus provision violated the US Commerce Clause. [Performance Marketing Association, Inc. v. Hamer, Ill. Sup. Ct., #114496 (10/18/13)]
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The EU Commission has published practical guidelines on the mini-one-stop-shop to prepare businesses for the new B2C VAT rules for telecoms, broadcasting and eservices, which will enter into force with 1 January 2015.
The aim is to help businesses to be fully prepared on time for the change-over, whereby VAT will be charged in the country where the customer is based.VAT will have to be collected by all providers of telecom, broadcasting and eservices, regardless whether they are established inside or outside of the EU. Find out more
“Today’s tax systems were conceived in a pre-computer age. So it is no surprise that they often clash with the modern, digital economy. Taxation must not be an obstacle to all that is good about the digital revolution. Yet, we must also ensure that the digital sector plays fair and pays fair.” These are the words of Mr. Šemeta, EU Commissioner for Taxation, Customs, Statistics, Anti-fraud and Audit, published in the recent press release of the European Commission.
“The digital sector must contribute fairly to public finances. Currently corporate tax avoidance and aggressive tax planning are particularly problematic in the digital economy. This is due to the global and intangible nature of these companies, and the fact that today’s tax rules were not designed with e-commerce in mind. As a result, the taxes paid by the digital economy are frequently not in line with the presence and profits of this sector in the EU.”
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The special VAT regime (taxation of the margin) that applies to travel agents and to tour operators (incl. of on-line travel agencies) – the TOMS – has just recently been commented on in detail in eight judgments handed down by the Court of Justice of the European Union. The eight decisions all relate to the issue of whether the special VAT regime must only apply in a transaction between a travel agent and a “traveler” or whether the regime must apply to any transaction falling within the scope of that scheme between a travel agent and any client. One of the decisions involving Spain also dealt with a few separate issues – mostly specific to Spain – apart from the calculation of the margin itself.
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As from 1 January 2014, companies doing business in France, will be faced with a new obligation, the compulsory electronic submission of the accounting entry journal, so called “FEC” (“Fichier des écritures comptables”).
This obligation is applicable in case of tax audits as from 1st Jan 2014 with a back-dated effect to Fiscal Years 2011/2012/2013.
The e-file must include all the lines of accounting entries: no centralised/no aggregated entries. Find out more
The Implementing Regulation on the B2C 2015 place of supply changes, which was adopted last June, has now been published on the Council’s website. It amends/complements VAT Implementing Regulation 282/2011 on the place of supply of services. The regulated provisions concerning the B2C 2015 VAT changes have effect as from 1 January 2015.
You will find the regulation in English (here), in German (here) and in French (here). It is also available in many other official languages of the European Union.
For more information, we refer to our previous post here.
Further to our previous blog post, the South African Revenue Service (“SARS”) is planning to implement new VAT legislation which targets eservices provided by foreign (non-established) businesses to customers located in South Africa.
We have mentioned that at the end of August PwC South Africa was going to have a meeting with SARS and the National Treasury on this topic, in respect of which we are now pleased to provide you with an update. All parties agreed at the meeting that there are a number of issues that need to be addressed in respect of the proposed amendments. Nevertheless, there was consensus that the amendments need to proceed as a matter of priority, to ensure that there is no loss of tax revenue on these types of supplies, particularly as this is an area where trade is growing.
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A few months ago we have started to monitor the up- and down-times of the VIES application (as explained in more details here). While VIES had its “ups and downs” in the past its performance has increased substantially in August.
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