CFE Forum 2010Information Across BordersIndirect Tax15th of April, Brussels

Thorsten Lang Director, Worldwide Transaction Taxes (Non US)Hewlett Packard

© 2008 Hewlett-Packard Development Company, L.P. The information contained here in is subject to change without notice

© 2008 Hewlett-Packard Development Company, L.P. The information contained here in is subject to change without notice

©2009 HP Confidential2

Agenda – Exchange of information:

1) Complexity in the VAT system

2) Why Exchange of Information

3) Current reporting requirements

4) Lisbon Agenda

5) Practical problems

6) Current legislation and proposals

7) Foreign VAT reclaim procedure

8) Help to combat VAT fraud? Is there an alternative approach?

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VATVAT

... a simple tax

... in a complicated world !

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Variety of business models

Complex products and services structure

Technological developments

Single Market, Transitional VAT System

New risk areas – organized VAT fraudsters

… lead to big administrative and financial burden for both businesses and tax administrations!

These developments put legislators (Commission, national governments), tax administrations and tax collectors (businesses) under big pressure and one key aspect is the exchange of information across borders

What drives the complexity in today’s VAT world ?

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Exchange of information across borders - Why?

1) Control/ensure the functioning of the VAT system

2) Protect tax revenues

3) Combat tax fraud

Common goals of tax administrations and businesses !

Since the start of the internal market in 1993 a lot of information exchange requirements have been shifted from authorities to economic operators/businesses

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Member State 1 Member State 2

Tax Authorities MS1

Exchange of information across borders

VIES (VAT Information Exchange system)

Tax Authorities MS2

Taxable persons Taxable persons

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What are current VAT reporting requirements for economic operators/taxable persons ?

VAT returns - monthly, quarterly, yearly (Art 250 – 261)

Recapitulative statements - EC Sales list for EU supply of goods and triangulation - quarterly, 2010 monthly (Art 262 -271)

Since 2010 Recapitulative statements for supply of services - quarterly or monthly (Art 262 -271)

Some Member States require EC purchase lists for goods and services (e.g. Spain - Art 268)

Some Member States require separate reporting for domestic supplies (Spain and Belgium)

Intrastat (replacement of customs data reporting before 1993)

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Additional “information” requirements

In the Czech Republic each single transaction must be documented in a separate file („VAT Evidence“)

Validation of VATIDs http://ec.europa.eu/taxation_customs/vies/vieshome.do

Invoice requirements

Self invoices (“Auto-facturas”) in Italy and Spain for services/goods subject to reverse charge

Requirements to proof VAT zero rated EU supply of goods and exports

Others

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Current reporting requirements by economic operators/taxable persons

All those reporting and information requirements are a huge administrative burden for economic operators/businesses

VAT returns

Recapitulativ

e statements Acquistion

lists

Intrastat

Auto

Facturas

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Lisbon Agreement Simplification !

Reduction of administrative burdens in the EU : http://ec.europa.eu/enterprise/policies/better-regulation/administrative-burdens/

VAT is a major „red tape“ topic !!!

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Lisbon Agenda – Simplification check:

Are we reporting the right data?

Are we reporting the data on the same technical VAT basis?

Can tax administrations digest the volume of data? What is currently done with the reported data?

Is the quality of the reported data reliable ?

Quality of VIES system ?

What about harmonized VAT reporting requirements across the EU based on existing best practices ?

Common electronic filing standards ?

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Practical problems related to exchange of Information across borders

1) Different interpretation and implementation of the EU VAT Directive 2006/112 (What and When ?)

What? – Examples:

Leasing Supply of services or supply of goods ? EU Member States have a different interpretation of the VAT treatment in relation to lease contracts

Supply of goods with Installation When do we have a to report an EU sale vs. a domestic supply of goods in the country of installation?

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Practical problems related to exchange of Information across borders

Warehousing services Connected with immovable property ?

Compensation payments Non taxable or influence on taxable base amount ?

When? - Chargeability of taxable events (Art 62–71 of Dir 2006/112)

EU acquisition of goods: Art 68 and Art 69 of Directive 2006/112 and ECJ case Teleos Nr.42

EU supply of Services> different interpretation of EU Member States > see new Art 222 (Invoicing Directive): Invoice no later than the 15th day of the month following that in which the chargeable event(?) occurs

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Practical problems related to exchange of Information across borders

Timing problem - Reconciliation problem

Reporting gaps are “normal” – lead to increased requests – vicious circle and bureaucracy multiplier

Different interpretations and implementations of Directive 2006/112 have an influence on “what” for information is reported in which (“when”) VAT returns and Recapitulative statements Decrease of data quality !

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Practical problems related to exchange of Information across borders

2) VIES Data Base

Differences by Member State in information confirmed and keeping information up to date

Maintenance of data: Validity of VATIDNrs some Member States make VATIDs invalid with retrospective effect. Issue for non qualified VATID checks.

VAT ID check: http://ec.europa.eu/taxation_customs/vies/vieshome.do Consultation Nr and Date is an improvement for non qualified VATID checks

Only 1 address per VAT registration

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Exchange of Information across borders between Member States – what is the status quo from a legislation perspective?

Administrative cooperation in the field of VAT:

1) Council Regulation 218/92 (27 Jan 1992)

2) Council Regulation 1789/2003 (7 Oct 2003)

3) COM (2009) 427 Proposal for Recast of Council Reg 1789/2003 (18 August 2009)

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COM (2009) 427 Recast of Council Regulation 1789/2003 (18 August 2009)

“The key objective of this proposal is to combat cross-border VAT fraud”

BUT it actually proposes:

“The scope of multilateral controls should be extended with regard to both legitimate and fraudulent businesses”(Art 1 ... any information that may help to effect a correct assessment ...)

Why ? What further burdens will this impose ? Why not deal with legitimate businesses in a partnership frameworkinstead ? Target oriented approach required which

does not burden legitimate businesses !

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COM (2009) 427 Recast of Council Regulation 1789/2003 (18 August 2009)

Opinion of the European Data Protection Supervisor (30.10.2009):

Proposal does not sufficiently specify ...

Kind of data that is exchanged

Purpose for which the data is exchanged

Necessity of data exchange

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Foreign VAT reclaim procedure (Art 170 and Art 171 of VAT Dir 2006/112)

VAT reclaim within the EU before 2010:

8th EU VAT Directive Since Beginning of 2010:

Directive 2008/9/EC

Electronic filing to tax authorities in Member State of establishment Electronic copies of invoices (if more than € 1.000,-; Fuel €250,-) No need a for certificate confirming the taxable status of the applicant Member States must decide within 4 months

Simplification! Very positive for businesses !

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YES (?) , the exchange of information does help to combat Missing Trader Fraud but it is only one piece out of many aspects

There will always be „natural“ mismatches

Time is money - Even in a perfect world of information exchange, Missing Trader Fraud requires at least 3 to 4 months for identification

Need for a special EU task force / police which can act quickly

Does the exchange of information across borders between Member States help to combat VAT fraud?

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Partnership with businesses based on trust and transparency

Effective communication process with honest businesses

Better risk management processes

Better business understanding – client relationship manager approach

Exchange of Information – timely and target oriented

More focused VAT audits

VAT audits much closer to the respective periods audited („flash“ audits)

Is there an alternative approach to combat VAT Fraud?

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… business is the key partner for a Tax Authority …

… not to be confused with …

Summary: Common goal

© 2008 Hewlett-Packard Development Company, L.P. The information contained here in is subject to change without notice

© 2008 Hewlett-Packard Development Company, L.P. The information contained here in is subject to change without notice

Thank you !

Thorsten LangDipl.-Finanzwirt, Steuerberater Director, Worldwide Transaction Taxes (Non US)

Hewlett-Packard Europa Holding B.V.Niederlassung DeutschlandHerrenberger Str. 140D-71034 BöblingenTel: +49(0)7031/14-2908E-mail: thorsten.lang@hp.com