The VAT House is a respected and trusted EU VAT specialist based in Belgium. It is internationally known and works for large multinational companies, smaller companies that are expanding their businesses on a global scale, as well as accounting firms. Frank Borger, Partner and lecturer on VAT at several major institutions, tells us about The VAT House’s beginnings, principal services and priorities towards their clients.
What is the history behind The VAT House?
Established in 1997, The VAT House has a rich history of advising and supporting large companies and SME’s across Belgium and other European countries. We also assist accounting firms with VAT questions of their clients, large non-profit organisations, and government bodies.
It’s a tough task for businesses to remain up-to-date with domestic VAT laws, European VAT directives and jurisprudence, and the domestic VAT laws in other countries. Managing VAT issues and bringing businesses into line with all the different VAT obligations requires a high level of experience and knowledge.
The VAT House’s mission is to help our clients with this difficult task. It has now 5 partners, which all have a deep knowledge of VAT and an experience of 25-30 years on both national and international level.
What are the principal services the company provides and its priorities towards clients?
We have a wide and comprehensive range of services: advice on VAT, negotiations with national and European VAT authorities, performing VAT audits, supervising the implementation of ERP packages for VAT, e.g. helping to determine VAT codes, organising internal VAT training courses for companies and organisations. We are experienced in almost every business sector.
Additionally, we can assist our clients in VAT compliance matters (e.g. VAT registration in Belgium and/or other countries, filing VAT returns in Belgium and/or other countries, filing Intrastat returns, filing VAT refund applications).
Our daily goal is providing our clients with practical solutions at an outstanding price/quality level.
Have there been any recent updates or changes to VAT rules in Belgium and the EU?
VAT rules are constantly changing. An important trigger is the so-called VAT gap, which is the overall difference between the expected VAT revenue and the amount actually collected. The VAT Gap measures the effectiveness of VAT enforcement and compliance measures in each EU Member State. It estimates revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations. For the EU28 the VAT gap is 12.8 % and amounts €152 billion, of which cross-border fraud is estimated on €50 billion. These figures are a strong motivator for governments to take policy measures to improve VAT compliance and enforcement. The European Commission has recently come up with proposals for a far-reaching reform of the EU VAT system. The proposed VAT reform would also make the system more modern, robust and simpler to use for companies and businesses alike.
In the meantime, it is expected that every EU Member State will take internal action to reduce the VAT gap. Businesses must be aware of that and keep an eye on their VAT position.
What are the key issues that your clients face in relation to managing VAT?
One of the main hurdles is definitely the complexity of VAT. As a consumption, tax VAT sits on the skin of the economy. As we know, commercial transactions have become more and more international and complex due to globalisation. VAT rules are moreover not necessary adapted at the same speed as economic life evolves. In that context our clients are happy that they can rely on our knowledge and can trust on our assistance.
What are your recommendations for effective management of VAT?
Always keep ahead of problems. In our practice, clients often call for help when transactions occur. In some cases, it is easy to apply the correct VAT solution. But in some cases, it isn’t and it disturbs the commercial relation between trade partners and the tax position of the company can be influenced.
What upcoming VAT changes should companies operating in Belgium and the EU be aware of?
One should keep up-to-date with the progression of Brexit talks, as well as the major VAT reform that has been proposed by the European Commission.
Contact details:
Email: tvh@vat-house.com
Website: www.vat-house.com
Katia Delfin Diaz is the Managing Director of Brussels-based OmniVAT Consulting. She has been passionate about Tax Law for years and her current role is to assist Belgian and foreign companies to be in line with this complex matter or to optimise the impact of VAT in their business. After working for a few of the Big Four companies, Katia started her own consultancy firm, specialising in VAT, in January 2011. Today, OmniVAT Consulting assists clients from a wide range of sectors in Belgium and across Europe. Finance Monthly speaks with Katia about VAT trends and her tips for effective VAT management.
As an expert with 24 years of experience in VAT matters, what are your recommendations for successful management of VAT?
The best piece of advice that I could give is to be up-to-date with this complex and ever-changing matter. VAT regulations evolve quickly and some updates are absolutely necessary. A good VAT manager must follow the evolution of VAT, both on national and European level. It is crucial for companies to be aware of future changes of regulations and laws, in order to amend their internal processes accordingly.
Considering that VAT is a European tax, I recommend following the European Jurisprudence that offers a respectable interpretation of the law through the ECJ cases.
In addition to OmniVAT Consulting, we also organise regular seminars through our VAT Academy. The aim is to update practitioners on direct and indirect tax laws, customs matters and Incoterms. The main sessions are French, but we also organise intra-company seminars in English, Dutch and Spanish upon request.
Can you update us on any recent or upcoming updates or changes to VAT rules in Belgium?
This year has been eventful in terms of VAT updates in Belgium. In addition to some slight amendments to the VAT legislation, a few administrative decisions and VAT notes were published in order to help individuals and companies interpret and apply VAT legislation.
One interesting Belgian decision, published this autumn, concerns the application of the VAT exemption on “claims settlement services” rendered by a third party in the name and on behalf of an insurance company. This decision was taken by the Belgian Tax Authorities after the ECJ Court made their decision on the Aspiro case (see C-40/15 arrest dated 17 March 2017).
As of 1st January 2018, the Belgian point of view will follow the conclusion of the ECJ Court - “claims settlement services” made by a subscribing agent in the name and on behalf of a counterparty (insurance company, other subscribing agent, etc.) will have to be subjected to the standard rate of VAT, provided that these are not part of the integrated services. Indeed, Belgian Authorities accepted that the VAT exemption was applied for this kind of services. Furthermore, a transitional period is planned to allow the sector to adapt to the VAT treatment of these services.
The Belgian Tax Authorities underlined that when an individual claim occurs, for example, after 31st December 2017, its assignment to a claims manager will not be exempt from VAT anymore.
What are OmniVAT’s mission and key priorities towards its clients?
Typically, clients come to us when they face a VAT problem within the company or during a VAT inspection. Clients also reach out to us when they need a VAT audit of their transactions or when they would like to receive a confirmation of the VAT treatment on a new sales scheme. The optimisation of VAT transactions is an important concern of our clients. They may also have questions on customs regulation or on Incoterms.
Our key priority is the satisfaction of our clients and we do our best to serve them the best way possible. We keep them informed on important VAT changes and we do our best to keep on top of their needs or questions. I’d say that good communication is essential for a successful relationship with customers.
Website: http://www.omnivat.be
Below David McDonnell, VAT Director at MHA MacIntyre Hudson provides insight into the question, Is HMRC set to tackle the VAT cliff edge?
HMRC could be on the verge of making far reaching changes to the VAT system. The UK has far and away the highest VAT registration threshold of all EU Member States at £85,000. This is more than four times the EU average of £20,000 and a stark contrast to countries like Italy, Spain and Sweden where there’s no threshold whatsoever and VAT registration is effectively compulsory.
The high UK threshold relieves the administrative burden of VAT compliance for small businesses. It also creates very real net savings in not having to charge and account for VAT on income. However, this in itself can cause a problem. Although many small and start-up business begin life outside the VAT “net”, as they grow they will likely need to register. They must then decide whether they can pass the VAT cost on as part of their existing pricing structure, or whether it needs to be adsorbed. This is the VAT “cliff edge” – one day your income is all your own and the next a sizeable chunk is payable across to HMRC.
One of findings of a review by the Office of Tax Simplification (OTS) was that, perhaps unsurprisingly, there are a large number of business “bunched” just below the VAT registration threshold, with a significant fall off in businesses trading just above the threshold. The review stopped short of making firm recommendations to address this, but options include dramatically increasing the threshold to take more businesses out of the VAT net. This obviously reduces Treasury revenues, so much more likely is a dramatic reduction in the threshold, bringing it in line with the EU norm, tipping more businesses over the VAT cliff edge and generating more money for Treasury coffers.
The OTS also made suggestions to “smooth” current VAT registration issues, including a tiered system of registration and changes to the administrative process. It’s difficult to see how these options would achieve anything other than add further layers of complexity and confusion, flying in the face of the stated aim to simplify taxes across the board.
Which way will the Government jump? In the challenging pre-Brexit environment they may decide to keep the status quo, for now at least. But the issue is now firmly on the agenda and we shouldn’t be surprised if the Chancellor acts quickly to shake things up.
(Source: MHA MacIntyre Hudson)
Next up we spoke to Alok Chugh - Partner with EY’s Middle East practice, which is based in Kuwait. He leads the EY Kuwait tax practice and Government and Public Sector tax practice for EY Middle East. Alok has lived and worked in Kuwait for over 23 years and has been involved in a number of consulting assignments (including cross-border planning, application of double tax treaties and the efficient handling of tax and commercial affairs) for project due diligence, business paper preparation or review, and structuring operational activities).
Could you tell us a bit about the hottest topics being discussed in Kuwait in relation to tax at the moment?
At the moment, there are some very important and bold regulatory changes in Kuwait. Some of the hottest topics for discussions are:
- Value Added Tax: All the 6 countries in the Gulf Cooperation Council (GCC) have signed the Master framework Agreement for implementation of Value Added Tax (VAT) in the GCC. Based on our understanding from discussions with the government officials, the 5% GCC VAT shall be applicable on goods and services by 2018.
- Tax Registration Number and update forms: Recently, the Ministry of Finance has set up a Tax Development Follow-Up Unit (TDFU) within the Department of Inspection and Tax Claims (DIT). The TDFU is setup as a set towards the e-filing module. The TDFU has issued new registration forms that needs to be submitted by all the taxpayers. The department shall use the information in the forms to create their centralized database of taxpayers. Further, all the taxpayers are issued a Tax Registration Number (TRN), which is mandatory to be mentioned on all the correspondence with the DIT.
- New Tax Card Further, the TDFU has started issuing Tax Cards to every company valid for each year and should be renewed on a yearly basis valid for another one year. Tax Cards are compulsory and is now mandate for every company to enter into a contract in Kuwait.
- Business Profit Tax: Kuwait is looking to introduce the New Business Profit Taxes. Based on our understanding, all Kuwaiti and foreign companies operating in Kuwait may be subject to 10% business profit tax under the proposed Business Profit Tax (BPT) law. The BPT is yet to be approved by the Kuwait Parliament. However, considering the recent developments in the GCC relating to the introduction of Value Added Tax (VAT), it is our current understanding that BPT is not likely to be approved before 2019.
What do you anticipate for the sector in 2017? Do you believe that there is potential for any significant legislative developments in the next twelve months? In what ways would these affect Ernst & Young?
The VAT law is expected to be implemented by January 2018. Accordingly, the businesses have only 10 months to prepare for the VAT implementation and ensure the contracts have been amended to that effect and the IT systems are updated to ensure compliance with the laws. It affects EY in the way that we, as consultants need to be ready with our teams of professionals, for pre and post implementation phase of VAT. Considering the integrated model that we operate in, as a global firm, it gives us an edge in the market. In this respect, we have already mobilized our team of experts in the indirect taxes from around the world and we are already assisting many of our clients with the first phase of VAT impact assessment, assisting them in reviewing their contracts and IT system as part of VAT readiness.
Have there been any recent regulatory changes or interesting developments?
The Kuwaiti authorities are working on implementation of the economic diversification strategy. This task has become quite pressing, taking into account the current financial position of Kuwait. A number of fiscal and regulatory reforms being implemented aim at reducing the economic burdens of doing business in Kuwait. The two new regimes: Kuwait Direct Investment Promotion Law and Institutionalized Public – Private Partnerships may contribute to this process both in terms of attracting foreign investment in to the country and for diversification of economy.
You joined Ernst & Young in 1994 - how would you evaluate your role and its impact thus far?
Within a couple of years of my joining the firm, I realized the business prospect for our practice to grow and for my career professionally. With the support of the management, I was able to grow to an Executive quickly and then eventually, I became a Partner in 2008. Over the years, our tax practice has grown to a strong team of 46 professionals, with a market size of 65%- 70% of the tax practice in the country.
When you first joined EY, what were your goals in driving change within the company? How have these evolved in the past 23 years?
As I mentioned, when I joined EY, I realized the potential in the market for our practice. I was certain that we would go through changes in the way our clients would require our support and the manner in which we would serve our clients.
I have learnt and experienced that it is important for any organization to continue to learn and adapt itself to the change in the market. As they say, “to improve is to change, to be perfect is to change often”. Given that we are part of the professional world, we need to anticipate the changes outside the organization and be prepared internally ahead of those changes.
Written by Kamlesh Chauhan, Senior VAT Manager at haysmacintyre
Most businesses in the financial sector are not entitled to reclaim the full amount of VAT that they incur on costs because they are partly exempt for VAT purposes. This is a complex area of VAT, and as the VAT year end approaches for most, now is a good opportunity to take stock of your VAT position. We often find many businesses are not minimising their VAT costs effectively, and are unaware of the requirements around their VAT year end (which is usually March, April, or May).
To complicate matters, rules governing VAT are continually changing due to new legislation, updates in HMRC’s guidance, and various case law precedents released over time. In the current climate, with the need to increase tax revenues, the corporate finance sector is an area that could easily be targeted by HMRC. A simple error, such as treating the VAT treatment of a transaction incorrectly can have knock on effects on your VAT recovery and your annual adjustment figures, leading to a significant amount of VAT being at stake, especially if the errors occur consistently over time as HMRC can assess going back for a four-year period.
For those that receive exempt income, (typically firms that arrange corporate transactions such as M&A activity, debt restructuring, divestments, IPOs or debt and equity private placements) an annual adjustment must be carried out at the end of each VAT year. This requires you to apply the normal VAT recovery method using annual data, rather than on a quarter-by-quarter basis. The difference between what can be reclaimed on an annual basis, compared to with what was claimable in the individual VAT return periods, then forms the annual adjustment which may be in your favour.
Many businesses simply fail to carry out an annual adjustment, or just get the calculations wrong which can lead to being penalised by HMRC, so it’s important to check you are doing it correctly – seeking professional help will of course aid this. It is crucial that you have applied an annual adjustment for each of the last four years.
If you are partly exempt there is an additional adjustment required for the VAT recovery claimed on expenditure relating to capital assets, including any commercial property (purchase and/or refurbishment) costing over £250,000 and computer hardware costing over £50,000. This is dependent on the change in the annual adjustment recovery rate, from the rate applied to the original year of purchase, and use of the asset to the rate calculated in each subsequent adjustment year for a period of 10 years (an adjustment period of 10 years is applied for all commercial property capital assets). If an asset is disposed of within the 10-year adjustment period, the remaining periods will be calculated based on the VAT treatment applied to the disposal.
In terms of the implications for non-compliance (whether intentional or not), HMRC will seek to charge penalties and interest. The amount will range from 15% to 30% of the VAT owed for a “careless” error identified by HMRC. Deliberate or concealed errors will attract even higher penalties. The actual penalty amount is subject to HMRC’s assessment of whether the business took “reasonable care” or not in making the error.
It is worth considering applying for the use of a special method of partial exemption. For most businesses in the financial services sector, this needs to be agreed in writing with HMRC, otherwise a method based on turnover must be applied. A more beneficial method can be based on the number of projects or transactions being worked on, or based on a sectorised approach with different methods for VAT recovery in each part of the business. Although it can be difficult to agree the method the benefits can be significant. For those with a special method already in place, it is always worth reviewing whether it is still reasonable for the business as this may have been agreed with HMRC some time ago, after which business operations have changed.
It is crucial to keep on top of your VAT position, with regular annual reviews. Failing to do so can leave the business at a disadvantage. We would encourage all partly exempt businesses to seek specialist advice to ensure that they not only avoid the pitfalls, but also take advantage of potential improvements to their VAT recovery position. Regular reviewing of your VAT position by external advisers also demonstrates, if any errors do arise, that “reasonable care” is being taken by the business, which will help mitigate and reduce any penalties that HMRC may seek to apply.
Kamlesh Chauhan is a senior VAT manager at haysmacintyre. He can be contacted on +44 20 7969 5584 or by email: kchauhan@haysmacintyre.com.
Commenting on the European Commission proposal to simplify rules on value-added tax (VAT) for cross-border e-commerce, Ian Young, ICAEW International Tax Manager, said:
“According to a forthcoming ICAEW-EGIAN survey of more than 170 tax professionals from 29 European countries, which is the first of its kind, VAT is seen as the single most complex tax category for businesses with 2 in 3 companies struggling to comply with VAT rules. The proposals to simplify the rules are good news but ultimately a more stable and simple tax system is what is wanted by companies of all sizes across Europe.
“The public is rightly concerned about tax avoidance and the European Commission is actively pursuing change through a variety of reform measures. These, however, need to ensure that they bring real and genuine simplification.
“The abolition of the low value consignment relief may help counter avoidance but the collection of VAT on the import of millions of small value packages may prove onerous. The EC proposal to introduce a de minimis threshold will enable the smallest businesses to treat cross-border online sales under €10,000 as if they had been sold domestically – something that has been a significant barrier to intra-community trade by small businesses. Additionally, it will be down to each government to decide if it will implement the proposal to align VAT rates between electronic and hard copy publications.”
(Source: ICAEW)
Tax professionals already anticipate an expected onslaught of VAT changes resulting from the United Kingdom’s exiting the European Union, according to a recent poll by Avalara EMEA, a leading provider of cloud-based tax compliance automation for businesses of all sizes. 51 percent project increased complexity in VAT compliance, and paying more in VAT and customs (68%). While 53 percent of those polled expect substantial impact on their businesses, more than half have not yet begun planning for Brexit at all (54%).
“Now more than ever, VAT automation becomes key to ensure businesses are prepared for the new requirements of Brexit,” said Richard Asquith, VP of Global Indirect Tax, Avalara EMEA. “While the timing remains uncertain, businesses can start to prepare now by ensuring they are set up with the right technology. VAT automation platforms ensure organisations remain compliant with regulations and do not suffer the burden of huge losses in the midst of navigating a new trade environment. Updating systems now can ensure a seamless transition once Brexit arrives.”
The poll also uncovered the following findings:
- 49% predict Brexit will happen by the end of 2020, a ‘soft exit’
- Half anticipate the UK will adopt a Canadian trade model (World Trade Organization/Free Trade Agreement)
- Poll respondents believe that the highest risks Brexit will bring for the industry include:
- 63% - Preparedness of HM Revenue & Customs
- 55% - Increases in customs and other border costs
- 45% - Adapting internal enterprise resource planning (ERP) systems
EU VAT Implications
Avalara anticipates many areas of shared VAT practices will be reviewed and revised as Brexit negotiations take place. Some of those include the following:
- Legislation - Upon completion of the exit negotiations, the UK will no longer be required to follow the EU VAT Directive or European Court of Justice (ECJ) rulings. Instead, the UK’s VAT Act will take supremacy. The UK government will be free to amend the Act to reflect its fiscal policy objectives.
- Exit from the single market - The major VAT change for UK companies following Brexit will be the loss of their intra-community trading status. Instead of zero-rating B2B sales to EU companies, transactions will be treated as imports into the EU, and subject to EU VAT.
- UK to join the EEA? - It is possible that the UK could become a member of the European Economic Area, which participates in the Single Market encompassing the free movement of goods, services, people and capital. This would give the UK many of the benefits of free trade with the EU, although it would lose the right to have a veto or vote over any EU laws passed that are imposed on EEA members. The EEA does not cover indirect tax, so the UKwould remain outside of the EU VAT regime.
- Freedom to set UK VAT rates - The UK will no longer be constrained by the EU VAT Directive on setting its VAT rates. The UK will therefore be uninhibited to change reduced VAT rates on key products like domestic fuel, women’s sanitary products and e-books.
- EU VAT recovery - UK companies will lose the right to use the simplified 8th Directive online VAT recovery system for their EU VAT reclaims. Instead, since they will be non-EU companies, they will have to resort to the paper-based 13th Directive regime. This is slower, and prone to challenges from the tax authorities.
For more information on Avalara and ongoing news on Brexit and the tax industry, please visit www.vatlive.com.
Poll conducted on 13th September 2016 at Avalara’s VAT Summit with 60 VAT specialists.
Avalara EMEA, a leading provider of cloud-based transactional tax compliance automation for businesses of all sizes, held its second annual VAT Automation Summit, sponsored by Brewer Morris. The summit brings together leading indirect tax professionals to discuss topics affecting the industry, including EU VAT fraud and the future of tax compliance automation. A central theme of the summit is focused on the need for businesses to adopt tax automation solutions to combat fraud and ensure greater compliance. This topic is timely, due to recent news released by the European Commission regarding the ‘VAT Gap’, or the staggering €160 billion in lost EU VAT revenues in 2014. .
“Moving to real-time tax reporting will help to increase transparency in the VAT system and can prepare businesses for tax authorities’ demands for more, live data,” said summit speaker Richard Asquith, vice president of Global Indirect Tax, Avalara EMEA. “VAT automation systems are a valuable solution for managing complex VAT processes, such as cross-border sales for businesses trading in countries with different regimes or regulatory requirements.”
In addition to the EU VAT Gap, the summit is addressing major developments shaping domestic and international trade, including the UK’s initiative to streamline the tax reporting process through its 2020 ‘Making Tax Digital’ initiative. Through this new system, HM Revenue & Customs aims to eliminate the tax return over the next five years. Instead, businesses will be required to track tax compliance digitally and update HMRC at least quarterly via a digital account. The goal of this proposal is to create a more efficient tax reporting process; with further regulatory change on the horizon, such as Brexit, its implementation is paramount.
Across the globe, countries such as China, India, Egypt and the Gulf Cooperation Council (GCC) states, are placing increased emphasis on VAT collections or introducing new regimes. These new systems lead to further changes in international VAT requirements, and thus further complexity.
New regulations and the need to mitigate fraud present a prime opportunity for tax automation services that help businesses to comply with country VAT rates and eliminate errors which are costing firms millions in tax penalties.
Blockchain technology
While VAT automation services offer a more immediate solution to address these recent trends, a longer term opportunity for accountants lies in blockchain technology. This public ledger system records and validates each and every transaction. Entries are registered and cryptographically sealed, making them nearly impossible to falsify or destroy.
“Blockchain technology has massive implications for tax professionals,” said Kid Misso, Senior Director of Solution Consulting, Avalara EMEA. “The fact that it is a validated agreement between two or more parties means it cannot be repudiated or invalidated. The indelibility, speed, and synchronization of this technology can lead to greater accuracy and transparency, helping to reduce the likelihood of fraud in the future.”
For more information on Avalara and video from the 2016 VAT Automation Summit, please visit www.vatlive.com.
Law enforcement and prosecution authorities from Germany and the Netherlands, supported by Eurojust and Europol, have dismantled a gang responsible for defrauding Member States of approximately €150 million in a joint action targeting VAT fraud. Nine individuals were arrested and 26 premises searched.
The coordinated action was initiated by the Prosecution Office for Serious Fraud and Environmental Crime in Zwolle and the Fiscal Information and Investigation Service in Almelo in the Netherlands, in close cooperation with the Public Prosecutor’s Office of Augsburg and the Bavarian State Criminal Police Office in Germany. In total, 11 territories were involved, including nine Member States.
This action is part of a large-scale investigation on organised VAT fraud named Operation Vertigo, formed by the Czech Republic, Germany, the Netherlands, Poland, Eurojust and Europol.
Combating carousel fraud is an EU priority in the fight against serious and organised crime. Following the operation, Mr Michael Rauschenbach, Head of Operations for Serious and Organised Crime at Europol, said: “This action sends the clear message that Europol and its partners are determined to pursue criminals involved in organised VAT fraud. Europol strongly supports EU Member States’ investigations in this area and, for the past six years, has had a fully dedicated team of specialists to tackle this form of crime. Operation Vertigo is an example of how working in close cooperation with EU Member States and partners such as Eurojust from the early stages of the investigations achieves excellent results and operational successes. Europol will continue to offer its unique capabilities and full assistance to eradicate carousel fraud.”
Carousel fraud is financial fraud that is an abuse of the VAT system resulting in the fraudulent extraction of revenue. It may involve any type of standard-rated goods or services. As with acquisition fraud, goods or services are acquired zero-rates from the European Union, with the acquirer then going missing without accounting for the VAT due on the onward supply.
