27 Nov
How European VAT decisions could impact UAE businesses
Written agreement concerning the supply of goods or services, between two VAT-registered persons, could be regarded as a tax invoice for recovering input credit
The European Court of Justice (ECJ) is amongst the leading judicial authorities whose decisions are accepted as authoritative precedents by the tax authorities across the globe. In this week’s tax conversation, let us discuss important ECJ decisions to get global tax insights. I must caution that one has to examine the context and facts of each case to determine if the ECJ’s jurisprudence will also be applicable in the GCC region.
1. A written contract in place of a tax invoice
In Raiffeisn Leasing case, the ECJ held that a written agreement concerning the supply of goods or services, between two VAT-registered persons, could be regarded as a tax invoice for recovering input credit. The contract should contain all the information necessary for the tax authorities to determine that the material conditions for the right to recover VAT credit have been satisfied.
2. Transaction between head office and branch in different countries
In FCE bank case, the ECJ held that transactions between head office and its branches situated in different countries are not to be regarded as a supply for VAT purposes because the head office and its branches form a single legal entity.
However, in subsequent decisions, the ECJ held that if the head office or the branch are a part of a VAT group, the transactions should be recognised as a taxable supply. For VAT purposes, a VAT group should be recognised as a separate taxable person which supersedes the individuality of the group members.
As UAE is an attractive investment and economic destination for multinational companies, the tax compliance of branch operations must be ensured.
3. Place of supply for educational services
In Srf konsulterna AB case, a company based in Sweden provided accounting and management courses in the form of seminars for a price. For the seminars held outside Sweden, the issue arose whether VAT is payable in Sweden or in the country where the seminars were physically held.
Services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events is generally the place where those events actually take place. The ECJ held that the ‘services in respect of admission to events’ include a service in the form of a five-day course on accountancy and management.
With the increase in online courses/events being supplied by suppliers based outside UAE to the people based in the UAE, the ECJ decision could have significant implications on the overseas service providers.
4. Issue of shares by a company
Should the issue of shares by a company be treated as an exempt supply? If yes, the companies would not be able to recover input tax credit on the costs relating to the IPO, share issue, listing and other related costs.
With the ever increasing IPOs activities in the UAE, the aforesaid question gains significant importance.
However, in subsequent decisions, the ECJ held that if the head office or the branch are a part of a VAT group, the transactions should be recognised as a taxable supply. For VAT purposes, a VAT group should be recognised as a separate taxable person which supersedes the individuality of the group members.
As UAE is an attractive investment and economic destination for multinational companies, the tax compliance of branch operations must be ensured.
5. Place of supply of an actor’s services
Though not a decision by ECJ, a UK Tribunal decision holds a special importance. My work experience in the United Kingdom started with the review of this tribunal’s decision on the European taxation.
In Saffron Burrows case, the UK Tribunal examined the place of supply of services by film actors and the VAT implications thereon. The Tribunal held that that the acting services should be treated as supplied in the country where performed, and not at the place of residence of the actor.
Accordingly, if a movie actor based in India or USA performs an acting assignment in the UAE, the actor may be required to pay UAE VAT on his/her acting fee.
Concluding remarks
Taxation is far more intriguing and complex than otherwise perceived in general. It is important that the business owners and their finance teams should ensure that their tax positions are well tested and supported by judicial precedents.
Source:https://www.khaleejtimes.com/business/how-european-vat-decisions-could-impact-uae-businesses
06 Nov
UAE VAT law: Next 5 important changes business owners should know
A supplier is allowed to claim back, from the FTA, the excess output tax charged on a tax invoice in prescribed scenarios
Last week, we discussed the top eight changes in the VAT laws that business owners should know about. Year 2023 will see many more changes in the tax laws and the tax procedures. Considering the significant impact on businesses, we discuss the next five important changes in depth.
14-day time limit for tax credit notes and loss of input credit
A supplier is allowed to claim back, from the FTA, the excess output tax charged on a tax invoice in prescribed scenarios e.g. discounts, sales return, sales cancellation etc. The supplier needs to issue a tax credit note to the buyer/recipient and the buyer/recipient is obliged to reverse the proportionate input tax credit recovered on the original invoice.
Effective January 1, 2023, the supplier could claim back the output tax only if the tax credit note is issued within 14 days from the date when the prescribed scenario took place. Once the 14 days period is lapsed, VAT could become a cost in the value chain. The seller would lose the right to claim back excess output tax paid. The buyer would anyway be able to recover only such input credit as is proportionate to the net amount paid to the supplier.
Globally, the VAT laws often allow to issue credit notes without any VAT adjustment if the seller and buyer are not engaged in any exempt supplies.
2. Issuing tax invoices even if VAT is not charged
Since 2018, any person who receives an amount as VAT pursuant to any document issued by him was rightly obliged to pay the amount to the FTA even if it is not due. The provision has been updated to include that any person issuing a tax invoice in respect of an amount, must pay such amount to the FTA.
Due to ERP restrictions or accounting controls, companies often title their invoices as ‘tax invoices’ even if no VAT is charged on one or more items therein. The updated provision creates an ambiguity on the tax liability in such cases. A clarification from the FTA would help the business community.
3. Invoices for the import of goods
Last week, it was highlighted that the taxpayers will need to receive and retain invoices for any import of service on which reverse charge is applicable. The obligation to receive and retain invoices and import documents will equally apply for the import of goods.
It appears that some taxpayers do not verify the correctness of the import VAT payable under reverse charge that automatically appears in their VAT returns and recovers input credit of the complete amount without verification. The FTA wants a taxpayer to ensure that the credit is recovered only for the verified imports undertaken by the taxpayer.
4. Mandatory voluntary disclosure even if no additional tax payable
The tax procedures are also being amended effective 01/03/2023. Taxpayers would be required to submit a voluntary disclosure to correct an error or omission even if such error or omission does not result in any change in net tax due reported in the original VAT return.
This amendment could cover situations where a taxpayer omitted to report zero-rated supplies, exempt supplies or import of goods/services under reverse charge. Once a voluntary disclosure is submitted, penalties could also apply for the errors in the original VAT returns.
5. Reduction in the maximum amount of administrative penalties
Since 2018, the maximum amount of administrative penalties, e.g. for delay in payment of tax, was restricted to 300% of the tax amount. Effective 01/03/2023, the maximum amount of administrative penalties would be restricted to 200% of the tax amount. However, the minimum threshold of Dh500 for penalties would be removed thereby allowing the FTA to impose penalties less than Dh500 as well.
Concluding Remarks
We alerted in an earlier column about the 4Rs principles for effective tax management: (i) Ready to comply; (ii) React for advice; (iii) Reveal to optimise; and (iv) revolutionise to maximise. Business owners should take note of the upcoming VAT changes and proactively take corrective actions.
Source:https://www.khaleejtimes.com/business/uae-vat-next-5-important-changes-you-should-know
