Electronic record keeping of sales in the Czech Republic

Each Minister of Finance has the task to secure enough income for the state treasury. Andrej Babiš, the new Czech Minister of Finance is no exception. No wonder that after being appointed to the position, he started pushing through many innovations. One of the most controversial issues is his effort to introduce online record keeping of sales (ORKS) that is to be introduced in the Czech Republic as of January 2016. This record keeping is expected to reduce grey economy and make tax collection more efficient. According to Babiš, it should also balance out the lower income from VAT, which is due to the expected decrease of VAT rate for restaurants from 21% to 15%, rectifying the current illogicality when in the case of buying food the VAT rate is 15% and by subsequent sale of processed food the rate increases to 21%. ORKS advocates also believe it will improve the competitiveness of honest traders in comparison with those who do not duly pay taxes. To what extent these objectives may be actually met depends on many various factors.

According to estimates, introducing ORKS should lead to an increase in the number of VAT payers in tens of thousands. It should concern those business entities that generate their income in the following ways: cash, via credit cards, vouchers, cheques, promissory notes or other means representing money. ORKS thus does not concern those who only invoice and receive money on their banking accounts. So far, no amount after which an entity exceeding this limit would be obliged to introduce ORKS, has been established, which means that the obligations concern all entities – at least for the time being. However, some exceptions are being discussed: ORKS should not apply to maverick sales on marketplaces, but it should involve those selling on such marketplaces regularly. This rule is parallel to the current duty to pay tax. Introducing the ORKS system is primarily aimed at those entities who claim they do not reach the VAT registration threshold, which is currently CZK 1 million (approx. EUR 36,300.00).

The system is to follow the Croatian model, introduced at the beginning of 2013. „The Croatian system is simple, it does not excessively burden business entities and thanks to online connection to the tax office, there is no space for subsequent modifications in actually received and documented income,“ Minister Babiš said after a round of consultations. The truth is the Croatians praise this system, however, the same success is not guaranteed in the Czech Republic with regards to the fact that the Croatians had huge problems with tax collection before the ORKS was introduced, its effect was thus very significant.
Babiš´s department has still not made it clear how expensive such a system will be for the state and for the business entities. Experts estimate that costs of introducing the system will be around CZK 2.5 billion (EUR 90 million). The system is not expected to require any costs on the part of business entities, but common cash registers, mobile phones or tablets connected to the internet and printer should be sufficient. When selling goods or services, the seller will enter the transaction into the system, the transaction will be sent to the central registry and return back with a validation code that will be printed on the receipt issued by the seller. The exact technical solution has not been specified yet, the Ministry of Finance presumes the IT market will work in its favour starting to offer tailor-made packages for business entities. Nevertheless, this reaction will be considerably delayed with respect to the fact that no specifications for software via which business entities will communicate, are not known.

The system has many pitfalls, considered by its opponents to be great risks. These include, inter alia, bad internet connection in some localities (e.g. ski centres), the communication with central registry may lead to system failures and the need to enter transactions into records a posteriori. The greatest threat seems to lie in simply getting around the system, when the seller will not print the receipt when the buyer does not require it, or in more complex frauds of issuing receipts with fake codes (in this connection introducing “receipt lottery” is considered, but this lottery did not prove successful in the Slovak Republic).

Author: Tomas Havlik, Kancelář CATO s.r.o., Prague


Ruling of the European Court of Justice on Inheritance Law

iapa-conference-london-june-2012_150pxOne of the topics of the Annual General Meeting of the IAPA International Association of Professional Advisers on 25 and 26 May 2011 in London was


Ruling of ECJ on Inheritance Tax

Inheritance and gift tax systems are less harmonised in the EU then other tax laws. This often leads to double taxation in cross-border cases. The EU commission describes in its recommendation of 15 December 2011 various reasons for double taxation scenarios. National tax systems of foreign relief of inheritance taxes have in general limitations. And there is a very limited network of double taxation treaties or no regulations in EU law.

The only protection against double taxation is provided by EU freedom rights of the EU treaty. Prohibited are discriminating measures by EU-member states. Not allowed is also legislation or other legal measures of a member state to restrict EU-freedom rights. There is a wide range of ruling of the European Court of Justice (ECJ) concerning taxation of cross-border transactions but only a limited number of rulings regarding inheritance and gift tax. The ruling of ECJ on inheritance and gift tax is based predominately on the violation of the Freedom to transfer capital. Other freedom rights such as the Right of establishment or Freedom of employees do not play a major role in the court’s ruling.

The ECJ is verifying a violation of EU law always in three steps:

  • Did the transfer of capital take place?
  • Was there a restriction of a free transfer of capital?
  • Is there a justification for a restriction imposed by a member state?

The ECJ considers inheritances, legacies, gifts and foundations always as a capital transfer in this respect. Excluded are only cases where a transaction does not have a cross-border connection. A restriction requires that a non-resident is treated less favourably than a resident in a comparable situation or vice versa, or a citizen of another state is treated less favourably than an own citizen in a comparable situation or vice versa. Important is that the situation is comparable based on objective criteria. But the court ruled that negative tax effects of activities abroad alone do not necessary result in a restriction of freedom rights. Reasons for restricting measures by member states can be the Consistency of tax systems, Measures against tax fraud and tax evasion or the Efficiency of tax collection. In recent rulings the ECJ developed as a new reason the Principle of balanced allocation of power to tax between member states. But the restricting measures must meet certain criteria set by the court. Restricting legal measures by member states often do not meet these criteria.

In recent years there were a few cases on inheritance a gift tax

  • Courts case van Hilden – van der Heijden (ECJ 23/02/2006 – C – 513/03): Dutch inheritance tax on citizens for a period of 10 years after leaving the Netherlands and taking residence in Switzerland is in line with EU law.
  • Court case Jäger (ECJ 17/01/2008 – C 256/06): It is not in line with EU law if Germany imposes different regulations on the valuation of domestic and foreign property (real estate).
  • Court case Arens-Sikken (ECJ 11/09/2008 – C – 43/07): It is not in line with EU law if the Netherlands do not allow a deduction of compensation payments to other heirs as estate debt if the deduction is disallowed only for non-residents.
  • Court case Block (ECJ 12/02/2009 – 67/08): A double taxation is in line with EU law if Spain taxes an estate because cash funds and bonds are deposited at a Spanish bank and Germany taxes the same estate because the descendent was resident in Germany at the time of death. Germany was not obliged to credit the Spanish tax against the German tax.
  • Court case Mattner (ECJ 22/04/2010 – C – 510/08): It is not in line with EU law if Germany grants a lower personal threshold for non-residents than for residents.

The court case Block seems curious. The court ruled that the Freedom to transfer capital is not restricted. But obviously the German regulation is meant to restrict a free capital transfer abroad. It seems that this ruling was a political decision. And one can understand the court’s problem. Which member state is breeching EU freedom rights: Germany or Spain or both?

There is no clear outline in the EU which member state has to avoid or minimise double taxation burdens. But the consequence is that one member state alone is not allowed to breech EU law. But two or more member states together can do it without any negative consequences.

Now the problem of double taxation in inheritance and gift tax law has been addressed by the EU commission in its recommendation dated 15 December 2011. The commission states very clearly that double taxation concerning inheritance or gift tax is not supporting the smooth functioning of the internal market. Revenues from inheritance and gift tax especially from trans-border transactions represent a relatively small share of overall tax revenue of member states while double taxation have a major impact in individuals affected. The commission recommends an EU-system which allows avoiding double taxation scenarios. Whether this recommendation has an impact on the ruling of the ECJ remains to been seen.

Another uncertainty is whether cases with connection to non-member states will be protected by EU law. This is due to the fact that the Freedom to transfer capital is not restricted to the EU. In theory also citizens or residents of non-member states are protected by Article 63 EU treaty. And also property outside of the EU might be protected. The ECJ will be able to clarify whether the Freedom to transfer capital will also be applicable in cases with connection to non-member states. The Bundesfinanzof (highest German fiscal court / BFH 15/12/2010, II R 63/09) asked the ECJ whether business property situated in Canada can be valued for inheritance tax reasons at a higher level than property situated in Germany.

Unclear is also whether Swiss citizens can claim the same rights as EU citizens based on the non-discrimination clause of the Agreement of free movement and settlement between Switzerland and the EU.

Author: Peter Scheller Hamburg www.somannscheller.de


EU: VAT-news

European Commission – Further Developments regarding the One Stop Shop aimed for 2015

On 13 January 2012 the Commission accepted a proposal regarding the broadening of the one stop shop for non-established taxable persons (both EU and non-EU) supplying telecommunication, broadcasting and electronic services to non-taxable customers.

As previously reported, from 2015, all telecommunications, broadcasting and electronic services are to be taxed in the Member State in which the non-taxable customer is established, or has his permanent address, or usual residence, regardless of where the supplier of the services is established.

However, as is currently the case for non-EU suppliers providing electronically supplied services to non-business customers in the EU, taxable suppliers would have the option to make use of a special scheme, i.e. the One Stop Shop. This would allow the taxable suppliers to only account for the VAT in the EU Member State in which they are established, without having to register for VAT in various other EU countries where their customers are located.

Austria – Limitation to the application of the reverse charge mechanism for non-established suppliers organizing fairs, exhibitions, conferences or congresses

With effect from 1 January 2012, non-established suppliers that organize a fair, exhibition, conference or congress in Austria and charge attendance fees will no longer be able to avail of the extended domestic reverse charge mechanism in Austria with respect to the event registration / attendance / entry fees.

Events with only selected attendees (events not open to the public) are not affected and therefore, the extended domestic reverse charge mechanism continues to apply on such event registration / attendance / entry fees.

Cyprus – Increase standard VAT rate by 2% from 1 March 2012

The standard VAT rate of Cyprus will increase to 17%, from 15%, and will come into force from 1 March 2012. There will be no change to the reduced VAT rates of 5% and 8%.

France – President Nicolas Sarkozy is to raise the VAT rate to 21.2%

The French President has announced an increase in the standard VAT rate from 19.6% to 21.2%, which will be due to come into force in October 2012, It has been approved by Parliament on 29 February 2012 and now still needs to be validated by the Constitutional Council.

France – Clarification on the application of the new reduced rate of 7%

The new reduced rate of 7% will apply to all goods and services that were previously subject to the 5.5% VAT rate, with the exception of foodstuff, gas and electricity, energy supply networks, and goods and services for disabled persons that will remain at the 5.5% VAT rate.

The increase in the reduced VAT rate is effective from 1 January 2012, except in relation to paper books which has been delayed to 1 April 2012.

The French Government have also clarified that prepared food ready for consumption (sandwiches, pizza) will be subject to the new 7% VAT rate.

Norway – VAT Updates

A significant change has been introduced in Norway in respect to VAT refunds through the refund scheme available to businesses involved in international transport services. Pursuant to a statement issued by the Ministry of Finance, companies without an establishment in Norway that carry out cross- border transport services are liable to register for VAT in Norway, subject to the standard registration thresholds.

In light of the above businesses will no longer be entitled to recover input VAT incurred in Norway via the refund scheme. Instead, Norwegian VAT incurred will only be deductible via local VAT returns by businesses who successfully register for Norwegian VAT purposes.

Despite this statement being announced by the Ministry of Finance only recently, the changes apply retrospectively with effect from 1 January 2010.

With effect from 1 January 2012 the online submission of VAT returns has become mandatory in Norway.  The Norwegian VAT authorities will no longer issue paper based VAT returns but in special cases taxable persons may be allowed to continue submitting paper returns if they can convince the tax authority that they cannot make electronic filings due to practical considerations.

The VAT rate on nutrients/foodstuffs has been increased from 14% to 15% with effect from 1 January 2012.

UK – Registration threshold to become NIL

Effective from 1 December 2012, non-established businesses will be required to register immediately if they make taxable supplies in the UK as the UK VAT registration threshold, currently £73,000, will no longer apply to non-established businesses.

Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu


EU: VAT-news

Czech Republic – Proposal to bring single 19% VAT rate from 2012 defeated

Proposal from Czech Finance Minister, Miroslav Kalousek, to bring in a single 19% higher VAT rate from start 2012 has been defeated. The proposal to rush in a higher rate of VAT than under a previously agreed timetable was challenged by junior member of the coalition. Under the existing timetable, two rates of higher VAT at 20 percent and 14 would be introduced next year with a single 17.5 percent rate coming in 2013. Kalousek had been proposing a single 19% higher rate to come in from start of 2012.

France – New 2011 taxation rules for conference and event organisers in France

On the 28 March 2011 the French Tax Authorities published an official guideline on the new VAT place of supply rules for event related services
This guideline is clarifying the impact of the VAT changes that were introduced by the Directive 2008/8/EC dated 12 February 2008 and came into force on the 1st January 2011, and deals in particular with services supplied in connection with conferences, congresses, trade fairs, etc. The information in this administrative guidance can be very useful for taxable persons who are either attending, or organising events in France. It brings some level of response to the uncertainty created by the new EU VAT taxation rules in this area, and also sheds some light on the implementation of those rules in France by featuring specific examples and solutions for various situations.

The information in this guideline is focusing the following items:

  • VAT place of supply rules for services in respect of admission to an event
  • VAT place of supply rules for event organisation services
  • VAT place of supply rules for rental of exhibition space
  • VAT place of supply rules for a complex package of services supplied within the frame of an event

However this guideline is also dealing with other questions such as VAT taxation rules for services rendered by Professional Congress Organisers („PCO“) or the VAT place of supply rules for training services.

Greece – VAT rate on food and drinks supplied for immediate consumption to increase from 1 September 2011

The VAT rate applicable to non-alcoholic beverages and to the supply of food for immediate consumption in restaurants, as well as on some connected services is to increase from 13% to 23% (16% in the Agean Islands) from the 1st of September 2011.

This change will not affect food and beverages supplied in canteens used by medical, educational or social welfare organisations. Also, this change will not affect food intended for mass consumption that are ready to eat and are sold in packages in the restaurant/take-away.

Hungary – Hungary’s VAT regulatory practices not compliant with EU VAT Directive

The European Court of Justice found that Hungary’s practices are incompatible with EU law and need to be modified. The current situation allows taxable persons to deduct the input VAT of their acquisitions from the amount of VAT payable. If the amount that is deductible is greater than the VAT payable the excess can then be reclaimed, except where the taxpayer has not paid the consideration.

This means that for certain taxpayers the opportunity to reclaim VAT is postponed for several tax periods, this was considered by the ECJ in its decision on 28th July 2011 to be  contrary to the EU VAT Directive.

Ireland – Introduction of a new reduced VAT rate of 9%

The Minister for Finance has announced that a second reduced VAT rate of 9% will be introduced in respect of certain goods and services (mainly related to tourism) for the period 1 July 2011 to 31 December 2013 under the “Jobs Initiative 2011”. The new VAT rate is effective from the 1st of July 2011.

Ireland – Update on the deduction rules for Car related expenses

The information used to prepare this update is contained in the VAT Leaflets published on the Irish Revenue website: http://www.revenue.ie/en/tax/vat/index.html

1. Purchase of cars

The purchase of a car in Ireland is subject to Irish VAT. VAT incurred on this purchase is usually not deductible. However, a VAT registered trader may deduct VAT if the car is used 100 % for business and if it belongs to category B or C, i.e. commercial vehicles.

There is an exception to this rule, Motor dealers and driving schools may recover VAT incurred on the purchase of a wider range of vehicles.
From the first January 2009 a trader can also recover some of the VAT incurred in relation to the purchase of category A vehicles, i.e. saloons, estates, hatchbacks, convertibles, etc. However there are conditions;

  • Vehicles must have been registered on or after the 1st Jan 2009
  • CO2 emissions must be less than 156g / km (Co2 emission bands A, B or C)
  • At least 60% of the vehicle’s use must be for business
  • The car must be used for business purpose for at least 2 years

Where those conditions are fulfilled it is possible to recover up to 20% of the VAT paid.

2. Hire and leasing of cars

VAT is recoverable on the hire and leasing of cars under the same conditions than above, i.e. full deduction of VAT may be possible if the car is category B or C and 100% used for business purposes and up to 20% deduction is possible for cars belonging to category A where the conditions described above are fulfilled.

3. Repairs and servicing of cars

VAT is recoverable on repair and servicing of cars under the same conditions than above, i.e. full deduction of VAT may be possible if the car is category B or C and 100% used for business purposes and up to 20% deduction is possible for cars belonging to category A where the conditions described above are fulfilled.

4. Petrol and diesel

VAT registered traders are not entitled to recover VAT incurred on the purchase of petrol.

VAT is fully recoverable on diesel by VAT registered traders if the vehicle is used 100% for business.

5. Toll bridges and car parking

VAT registered traders are entitled to deduct VAT incurred on toll bridges and “off-street” car parking. VAT should be fully recoverable by VAT registered traders if the vehicle is used 100% for business. VAT on “on-street” car parking is exempt.

The Irish revenue has created categories of vehicles ; A, B, C, D, M, M1, M2 etc. only commercial vehicles in categories B and C open right to VAT deduction, Category A is for vehicles such as estates, saloons, convertibles, etc., that are not designed as commercial vehicles.

United Kingdom – HMRC will target businesses who have not registered to pay VAT

HMRC has launched a campaign to target businesses that are trading above the VAT registration threshold (73,000 GBP) but are not registered for VAT.

Under the terms of the VAT Initiative, those who have not registered to pay VAT can come forward any time up to 30 September to tell HMRC that they want to take part. If they make a full disclosure, most face a low penalty rate of 10 per cent on VAT that has been paid late. After 30 September, using information pulled together from different sources, HMRC will investigate those who have failed to come forward. Substantial penalties or even criminal prosecution could follow. HMRC uses new technology and legislation to gather and analyse data, from internal and external sources, to identify people who should come forward.

United Kingdom – Businesses call for VAT cut

Fears that the UK economy has flatlined in the nine months since October have led to the Federation of Small Businesses (FSB) to call for yet another VAT rate change urging the government to drop VAT to 5% in certain sectors. While this approach has been adopted in other jurisdictions such as France, Germany and most recently Ireland there is little evidence of a positive impact and in some cases questions over whether these reductions were being passed on to end consumers at all.

United Kingdom – HMRC continue to move VAT on-line – Consultation Document Released

HMRC has just released a consultation document covering the changes to the operation of VAT and moving of more transactions on-line. HMRC proposes that from 1st of April 2012, for businesses with a turnover below £100,000, it will be compulsory to file VAT returns on-line and make electronic payment of any VAT due. On-line filing is currently optional for these smaller businesses, however, all new businesses that registered for VAT since 1 April 2010 and larger businesses, with a turnover of £100,000 or more are obliged to file and make VAT payments on-line.

Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu


EU: New rules for electronic VAT invoicing

The council of the European Union agreed on 13 July 2010 on a general aproach on a draft directive aimded to simplifying VAT invoice requirements, in particular concerning electronic invoicing.

EU-member states shall be obliged to abolish less favourable treatment of e-invoices compared to paper invoices. The proposal also includes deadlines for the issuing of invoices in order to speed up the information exchange on intra-community supplies.

The directive will be adopted by the Council once the European Parliament has given its opinion.

More information:  

Author: Peter Scheller, Editor-in-Chief


German Taxation: Tax legislation not in line with EU law?

Politically Germany is one of the driving forces of European unification. But all good intentions seem to vanish if money is involved. In this respect Germany’s finance minister is no different from others. He is responsible for drafting tax laws with doubtful EU-comparability.

A good indication that German tax law is not in line with EU law is the sheer number of cases in front of the European Court of Justice. No other European country produces more cases in regard to direct taxes. In the last ten to fifteen years Germany lost a lot of cases. And it looks as though many more are to follow. A German professional magazine publishes every year a list of tax provisions which might not be in line with EU law. This year’s list names 146 different provisions! And this list does not contain potential cases on indirect taxes such as Value Added Tax (VAT) or excise taxes on energy, tobacco or alcohol.

German tax law discriminates in certain cases against foreign enterprises as well as individuals. Anti-discrimination provisions of the EU-treaty are

  • General freedom right/Right to choose residence
  • Freedom for employees
  • Freedom of trade
  • Freedom to conduct services
  • Right of establishment
  • Freedom to transfer capital funds

For business activities e.g. the following German regulations can be subject to court cases:

  • Deduction of foreign losses
  • German thin capitalisation-regulations
  • Capital gains taxation if assets are transferred abroad
  • Taxation at source of dividends and profit distributions
  • German CFC-regulations
  • German restructuring regulations

The following German taxation of individuals may breech EU freedom rights:

  • Deduction of foreign losses
  • Deduction of personal allowances
  • Taxation of foreign investment funds
  • Extensive double taxation concerning inheritances and gifts

Enterprises and individuals from other EU-countries have good chances to argue against discriminating tax regulations. For enterprises and individuals resident in non-EU countries such as the USA or Switzerland, it is much more difficult to achieve protection of EU anti-discrimination jurisdiction. But it is not impossible. This is due to the fact that the Freedom to transfer capital funds provides cover to respective world-wide activities. Companies and individuals from non-EU countries who are subject to German taxation and feel discriminated by German tax legislation should always check whether appeals against tax assessments could prove to be successful.

But to be fair it has to be said that in recent years a lot of German tax provisions have been brought in line with EU law by the German government. But in many cases it was only after Germany lost cases in front of the European Court of Justice or German fiscal courts.

Glossary

Finance minister Finanzminister
European Court of Justice Europäischer Gerichtshof (EuGH)
Value Added Tax (VAT) Umsatzsteuer (USt)
Excise taxes Verbrauchsteuern
Thin capitalisation-regulations Zinsschranke
Controlled foreign corporation (CFC)-regulations Hinzurechnungsbesteuerung
Restructuring regulations Umwandlungssteuerrecht
General freedom right/Right to choose residence Allgemeines Freiheitsrecht/Recht auf freie Wohnsitzwahl
Freedom for employees Arbeitnehmerfreizügigkeit
Freedom of trade Warenverkehrsfreiheit
Freedom to conduct services Dienstleistungsfreiheit
Right of establishment Niederlassungsfreiheit
Freedom to transfer capital funds Kapitalverkehrsfreiheit
Inheritance and gift tax Erbschaft- und Schenkungsteuer

Author: Peter Scheller, Somann & Scheller, www.somannscheller.de


The first post

This is the first post from IAPA. In the future there will be blog-like information in this section. Everything around our claim „Audit, Tax and Accounting in Europe. And worldwide.“

You will find posts from Austria, Belgium, the Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden and Switzerland.

The information comes from dozens of Chartered Accountants and Tax Advisers from numerous European IAPA members. Have fun with their posts. Comments are deactivated but, please, feel free to contact any individual author or other member of IAPA for questions or further assistance.