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

On January 1, 2009 Germany introduced the possibility for German tax payers to install electronic bookkeeping outside of Germany. This enables German companies and subsidiaries of foreign entities to outsource IT infrastructure and accounting and payroll processes to other countries. The limitation to EU/EEA-countries has been abolished by the end of 2010.

Note: This regime only applies to electronic books and records. Paper documents such as annual financial accounts, opening balance sheets but also in- and outgoing invoices have to be kept in Germany. This restricts the possibilities to transfer the entire bookkeeping abroad.

The following requirements apply:

• The taxpayer has to inform German tax authorities where electronic bookkeeping is conducted. If a service provider is assigned to do the bookkeeping his name and address has to be reported to the tax authorities.
• The taxpayer has to fulfil special obligations in regard to participation in tax audits and documenting business transactions.
• Tax authorities must have full access to all electronic books and records.
• Taxation shall not be negatively affected by the transfer of electronic books and records abroad.

German tax authorities may grant permission to transfer electronic bookkeeping abroad. The application has to be made in writing. The following information is required:

• Detailed enumeration and description of electronic books and records to be transferred abroad
• Description of the bookkeeping process
• Description of facts which allows the tax authorities to verify above mentioned requirements

Foreign Service provider who is conducting the bookkeeping for a German company has to follow German accounting standards. Provisions of German commercial and tax law have to be considered. And he has to follow the special regulations of the Principles of proper IT-based Accountancy Systems (Grundsätze ordnungsmäßiger DV-gestützter Buchführungssysteme).

German tax authorities have the right to audit data produced by means of data processing systems (EDP systems). There are three forms of data access:

• Audit of stored data by using the taxpayer’s EDP system (access form: Z 1)
• Computer evaluation by instructing staff of the tax payer using EDP system (access from: Z 2)
• Demanding a data medium such as a CD with tax relevant data, documents and records (access form: Z 3)

In practice only access form Z 3 is used by tax inspectors when auditing smaller companies. The special rules of the Principles of Data Access and Auditability of Digital Records (GDPdU) have to be followed by the foreign service provider.

If the company and/or its service provider is not complying with the requirements under this regime fines in a range between € 2,500 and € 250,000 may be imposed. And the tax authorities have the right assessing taxes based on estimates.

Tax law is a field of scientific research. And there are co-operations of universities from different countries. On 4 March 2011 the second Joint Seminar of the following universities will take place in Hamburg :

• University of Hamburg (Course of studies: Master of International Taxation)
• Universita die Roma Sapienza (Course of studies: Master in Pianificazione Tributaria Internazionale)
• Guardia di Finanza – Corso Superiore die Polizia Tributaria

The seminar will cover the following topics:

• Transparancy and Exchange of Information with “Tax havens”
  • The legal Framework for Exchange of Information
  • Domestic Measures against the improper use of tax havens
• The Domestic Legislation against Tax Havens
  • Constitutional , EU and International Framework of Mutual Assistance in Tax Matters
  • The Single Instruments (New Rules and Critical Issues)

Co-ordinators are the professors Gerrit Frotscher and Pietro Selicato.

Speakers from the IAPA are involved and will cover the following topic:

Domestic Measures against the improper use of tax havens

Official name: Republic of Poland
Population: 38,463,689
Area: 322,575 km²
Official language: Polish
Currency: Polish Zloty (PLN)
Capital city: Warsaw
GDP Per Capita – purchasing power parity : 18,072 USD

Poland is located in Central Europe at the Baltic Sea. It borders on Germany (in the West), Czech Republic, Slovakia (in the South), Ukraine, Belarus (in the East), Lithuania (in the North-East) and Russia (Kaliningrad district – in the North). By area it is the 68th country in the world and 9th in Europe. Poland is divided in 16 voivodships. The main river is Vistula that flows from the mountains in the South to the Baltic Sea.

Poland is a homeland for many persons known worldwide : Nicolaus Copernicus – an astronomer that “stopped the Earth and made Sun moving”, John Paul II – the Pope, Lech Walesa – that played an important role in changing the political system of the countries in Eastern Europe, Frederic Chopin – a composer, many scientists, travelers, soldiers fighting for independency of Poland and other countries.

The history of Poland reaches the year 966 when Mieszko I, the first ruler, accepted Christianity. Poland became a kingdom in 1025 and entered into a Commonwealth with Lithuania.  During the majority of its history Poland was independent, multiethnic and multireligious.  

In 1795 Poland was divided between three invaders: Kingdom of Prussia, Russia and Austria. It regained the independency in 1918 after the First World War. During the Second World War it was occupied by The Third Reich and Soviet Union. After the war Poland became a socialist republic, politically and economically dependent on the Soviet Union. In 1989 the political system was changed and it became a parliamentary democracy. After very difficult reforms in the early nineties it returned to a market economy. Poland is a member of the European Union since 2004.
Poland is a fast developing country. The GDP in 2009 reached the level of 1,7% and it was the only positive number in the EU (average – minus 4,1%). The economy is mixed in terms of ownership. 25% of GDP is generated by state-owned-companies, what is a level similar to France and Norway. It is an attractive place for investments – good geographical location, internal stability, participation in the EU. It is however not ideal – unclear law, significant bureaucracy, high administration charges, not enough developed infrastructure and high unemployment are the most important problems for the entire society.

Author: Tomasz Wikliński, THOMAS sp. z o.o., www.thomas.pl

Corporate Taxation

Introduction

From 1 May 2004, Hungary is a Member State of the European Union. Important features of the Hungarian tax system have been harmonized with EU tax law, including direct taxes, VAT, excise duties, mutual assistance and administrative cooperation.

Companies are subject to corporate income tax, social security contributions, VAT, property tax and excise taxes. Municipal authorities are authorized to levy local taxes, including local business tax and real estate taxes.

Corporate Income Tax

Corporate profits are subject to corporate income tax. The general rate of corporate income tax is 19%. If certain conditions are fulfilled, a rate of 10% is applicable to the part of the taxable base which does not exceed HUF 50 million, while any excess is taxable at the general rate.

Value Added Tax

The standard rate is 25%. A reduced rate of 5% applies to text books and specified medicines, medical materials and supplies. An additional reduced rate of 18% applies to certain basic foodstuff, hotel services and district heating.

Non-residents are taxable in the same manner as residents if they carry out any taxable transactions in Hungary.

EU resident registered taxpayers who are not established in Hungary are entitled to reclaim VAT according to provisions implementing the relevant EU directives.

Non-EU resident registered taxpayers who are not established in Hungary may be entitled, on the basis of reciprocal arrangements, to reclaim the VAT paid on domestic supplies of goods (including the importation of goods) and paid on services used in Hungary for their business activities. Hungary currently has reciprocity agreements with Liechtenstein and Switzerland.

Local taxes

The municipalities are authorized to levy a local business tax at rate of maximum 2% on corporate taxpayers that have their legal seat or permanent establishment within their jurisdiction. This tax is generally levied on the turnover, decreased by the acquisition costs of goods sold, costs of mediated services and material.

Immovable property situated in Hungary may be subject to municipal real estate taxes, including building tax and land tax. The owner is the taxable person. The building tax is HUF 900/m2, while the land tax is HUF 200/m2. These taxes are deductible for corporate income tax purposes.

Payroll tax

Employers’ social security contributions on top of the gross salary are:

• pension and health insurance contributions at 27%; and
• vocational training contribution at 1,5%.

The above contributions are deductible for corporate income tax purposes.

Withholding taxes

Dividends paid to (resident and non-resident) corporate shareholders are not subject to withholding tax. Only dividends paid to (resident and non-resident) individual shareholders are subject to withholding tax.

A 30% withholding tax is levied on interest, royalties and certain service fees (including fees for business consulting and advisory, advertising, marketing, etc.) paid to non-resident companies if Hungary does not have an income tax treaty with the country of residence of the recipient.

Transfer tax

Transfer tax is levied on the transfer of ownership (for consideration) of immovable property and rights. The tax is payable by the transferee. The taxable base is the fair market value (generally the sales price), not reduced by debts. The regular rate of the transfer tax is 4%.

Transfer tax is also due on the acquisition of vehicles. The acquisition of shares and other securities for consideration is not subject to transfer tax.

Property tax

A property tax applies to owners of water vehicles, aircrafts and heavy duty passenger cars.

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

After World War II Germany became an immigrant country. Today more than 10 million people of Germany’s population are immigrants or second generation children of immigrants. Immigration has also its tax impacts.

A special tax problem occurs quite often with individuals form the USA or Anglo-Saxon countries when they come to live in Germany. Quite a few of them are beneficiaries of trusts.  The German tax regime of trusts is very unfavourable. This is due to two facts.

Germany’s civil law does not know this legal form. Therefore there exists uncertainty about the legal status of trusts. The second reason for the unfavourable taxation is the fact that German individuals tried to avoid high German tax burdens in the sixties and seventies of the last century by setting up trust in tax havens. This resulted in a punishing anti-avoidance tax legislation. Unfortunately German tax law does not distinguish between Germans who try to avoid taxes and foreigners coming to Germany. Trusts which have been set-up to benefit the latter were often not constructed to avoid taxation. Or if so this was legally accepted by their domestic tax system.

The tax regime of a trust in Germany depends mainly on its legal structure. If the settlor or a beneficiary is the beneficial owner of trust’s funds the trust will be treated as transparent for tax purposes. The high fiscal court of Germany (Bundesfinanzhof / BFH) ruled in a case regarding a Liechtenstein Stiftung as follows. In this case the settlor was able to control the trust. He had the right to appoint or remove trustees and to transfer all funds back to him or to third parties. The BFH classified the Liechtenstein Stiftung as transparent. The same tax treatment shall apply for trusts.

The tax situation of beneficiaries of transparent trusts being resident in Germany is as follows:

• The beneficiary’s part of trust income will be subject to German income taxation if not denied by a double taxation treaty. Especially dividends, interests and other income from capital funds are subject to German taxation. Business or rental income might be tax free under provisions of the respective double taxation treaty.
• Transfers of funds of the beneficiary to the trust or repayments to the beneficiary will not be subject to German income or inheritance and gift tax.
• A serious problem can be the crediting of foreign taxes at source. This can apply for instance if the trust receives dividends from foreign sources and the foreign country imposes a withholding tax on these dividends. German tax regulations or provisions of the respective double taxation may deny the full crediting of the withholding tax on German income tax.

A beneficiary of an in-transparent trust might face far more severe tax implications if being resident in Germany. This especially applies for irrevocable trusts. The following tax implications might follow:

• The transfer of funds to the trust by the settlor or beneficiary is subject to German gift tax. The very unfavourable tax class III is applicable (low allowances, tax rates between 30% and 50% on transferred funds).
• Payments of the trust to the beneficiary who is resident in Germany can be subject to German income taxation under certain circumstances. And all payments of the trust will be subject to German gift tax. This extensive tax regime might result in a double taxation if payments are subject to German income and gift tax.
• And the above mentioned problem of crediting foreign withholding taxes against German income tax is even more severe.
• There are special provisions for so called family trusts. But in general they are not applicable for beneficiaries coming from abroad.
• Double taxation treaties might provide a certain support against extensive double taxation. This is especially the case where German double taxation treaties with countries from the Anglo-American world have special provisions regarding the taxation of trust. But there is little support in regards to inheritance and gift tax since Germany’s only double taxation treaty in this respect has been agreed with the USA.
• Citizens of EU-member states such as Great Britain or Ireland might be able to seek help in front of German courts if they are subject to extensive taxation. The German regulations might not be in line with European freedom rights.

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

Fact File  

• Official name – Republic of Hungary
• Population – 10,037,637
• Official Language - Hungarian
• Currency – Forint (HUF)
• Capital city – Budapest
• GDP Per Capita – purchasing power parity $19,000

Formerly communist Hungary is one of the ten Eastern European countries that acceded to the European Union on 1 May 2004. Hungary is a landlocked state with many neighbours – Slovakia, Ukraine, Romania, Serbia, Croatia, Slovenia and Austria. It is mostly flat, with low mountains in the north. Lake Balaton, a popular tourist centre, is the largest lake in central Europe.

The ancestors of ethnic Hungarians were the Magyar tribes, who moved into the Carpathian Basin in 896, conquering the people already in the region. Hungary became a Christian kingdom under St Stephen in the year 1000. Hungary has played an important role as part of the Austrian-Hungarian Empire under the Habsburgs.

The Hungarian language is unlike the other neighbouring languages and is only distantly related to Finnish and Estonian. It is a member of the Finno-Ugric family of languages, unrelated to the Indo-European language family, which contains the major European languages. Hungarians list their surnames first.

The capital city, Budapest, which originally was two separate cities: Buda and Pest, straddles the River Danube. It is rich in history and culture and famed for its curative springs.

The country‘s main manufactured exports include machinery and transport equipment, foodstuffs and chemicals. Hungary is a highly musical country whose traditional folk music inspired its great composers such as Liszt, Bartók and Kodály.

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

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

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