Financial Services VAT Alert Tracking EU VAT Developments June/July 2012 Edition 2012/6-7
Editorial Dear readers, Hereby we present the June/July edition of the FS VAT Alert. In this summer edition you will find the most important VAT developments that have occurred over the past two months. Enjoy reading! Frans Oomen
Contents European Union 1.
ECJ rules on scope of exemption for transactions including negotiations in shares in a ‘real estate company’
2. ECJ hears fund management exemption case 3. ECJ rules that discretionary portfolio management services are VAT taxable Italy 4. Intra-EU reporting penalties effective from 1 August 2012
10. Risk management services, being services ancillary to financial services, should be VAT exempt 11. Purchasing defaulted debts at a price below their face value does not result in a supply of services for consideration 12. General interpretation regarding damage liquidation process provided by an intermediary Russia
5. Reduced VAT rate from 1 July 2012
13. Scope of the VAT exemptions extended for financial services as of 1 January 2013
6. Transitional regime for VAT rate increase
14. Increases of the Spanish Value Added Tax rates
7. Convoy of money exempt from VAT
15. Tax authorities reacts to 'Banca Antoniana' judgment on tax refunds
8. Damage liquidation services provided to insurer should be VAT exempt 9. Auxiliary activities performed with respect to financial intermediary services do not benefit from VAT exemption
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European Union 1. ECJ rules on scope of exemption for transactions including negotiations in shares in a ‘real estate company’ The case concerns the VAT qualification of the services provided by a real estate agent (DTZ Zadelhoff) in two separate sales, with respect to the immovable property owned (as sole assets) by (separate) Dutch limited liability companies. The European Court of Justice (further: ECJ) ruled that the services provided by the real estate agent qualify as negotiation of shares, and are therefore exempt from VAT.
The case concerns the VAT qualification of the services provided by a real estate agent (DTZ Zadelhoff) in two separate transactions, both sales of immovable property owned (as sole assets) by (separate) Dutch limited liability companies. In both cases, the transaction was concluded by the sale of all the shares in the companies. The intention of the seller in the first transaction was a sale of the real estate by selling the shares in the company owning the real estate. In the second case, the seller did not mind whether the sale would be made by an asset deal or a share deal. In the end, the sale was made as a share deal. As a real estate agent, the services of DTZ Zadelhoff consisted of valuating the buildings involved, searching for an appropriate buyer and assisting in negotiating the sales price, which was (almost) exclusively determined by the value of the real estate. The seller in the first transaction was established in Sweden. The seller in the second transaction was established in the Netherlands.
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DTZ Zadelhoff charged no Dutch VAT to either of them for its services regarding the sale of - what turned out to be - the shares. DTZ Zadelhoff reasoned that the transaction would be exempt or, with regard to the first transaction, taxable outside the Netherlands. The Dutch tax authorities were of the view that the exemption did not apply and that the services were taxable in the Netherlands and imposed an assessment. It upheld this assessment after DTZ Zadelhoff appealed against the assessment. The Dutch Supreme Court was not sure about the VAT qualification of the services provided by DTZ Zadelhoff. Even though these services are typical for a real estate agent, the services were aimed at (or resulted in) the sale of shares (change of ownership of the shares). According to the ECJ judgment, intermediary services provided in respect of the sale of shares are a VAT-exempt service. The ECJ concluded that although it was not yet clear at the time the instructions were given whether the ownership of the real estate itself or the shares in the real estate entity were to be transferred, this fact is not relevant. What is relevant is the objective nature of the service that ultimately took place. According to the ECJ, a service in respect of shares should be treated as such and therefore be regarded as a VAT-exempt service. Frans Oomen +31 88 792 51 56 [email protected]
2. ECJ hears fund management exemption case The ECJ had a hearing of oral submissions on 28 June 2012 in Gfbk Gesellschaft für Börsenkommunikation mbH (C-275/11) concerning the scope of exemption for management of special investment funds.
The outcome of this case will be highly significant for pension funds and their managers.
Recently, Germany raised the question at European level as to whether investment advice should be exempt from VAT. The German Bundesfinanzhof has referred questions to the ECJ over the VAT treatment of investment advice rendered by a third-party manager of an investment fund. The German VAT authorities, the referring Court, as well as the EU commission believe that outsourced / delegated investment advice does not qualify for the fund management exemption. The debate is around the role of the investment adviser and whether it needs to perform a management function, as opposed to a mere advisory function, to benefit from the VAT exemption. In other words, are the services VAT exempt if the investment adviser has no decision-making power? The Advocate General will give its opinion on 8 November 2012. The decision of the ECJ is then expected a few months thereafter. Frans Oomen +31 88 792 51 56 [email protected]
3. ECJ rules that discretionary portfolio management services are VAT taxable On 19 July 2012 the ECJ decided on the VAT treatment of discretionary portfolio management services. The Court has decided that the services at stake were to be seen as one single supply, which is subject to VAT.
In January 2011 the German Federal Court requested a preliminary ruling from the ECJ on the VAT treatment of portfolio management services rendered to private investors.
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We summarise below the decision of the Court in this long-awaited case. The context of the request was the following: the private investors instructed Deutsche Bank to manage securities, at its own discretion, in accordance with the investment strategy variants chosen by them and to take all measures which seemed appropriate. Deutsche Bank was entitled to dispose of the assets (securities) in the name and on behalf of the client investors. As described in the judgment, the client investors paid an annual fee amounting 1.8% of the value of the managed assets. That fee included a share for asset management, amounting 1.2% of the managed assets, and a share for buying and selling securities, amounting to 0.6% of the value of the assets. The fee also covered account and portfolio administration and front-end fees for the acquisition of shares, including units in funds that were managed by undertakings belonging to Deutsche Bank. In essence, the ECJ held that portfolio management services rendered to private investors consist of two elements (on the one hand, analyzing and monitoring the assets of client investors, and, on the other hand, purchasing and selling securities) which are so closely linked that they form, objectively a single economic supply which is subject to VAT. Thus, the whole fee, including the management and the execution of the transaction is subject to VAT. Frans Oomen +31 88 792 51 56 [email protected]
4. Intra-EU reporting penalties effective from 1 August 2012
5. Reduced VAT rate from 1 July 2012
In a new Resolution the Italian tax authorities have set out the consequences of purchasing goods and services intra-EU without the inclusion of the Italian customer's VAT registration number in the 'VIES' system.
The Cabinet of Ministers reviewed a proposal for amendments to the VAT Act on 15 May, under which the standard rate of VAT would be cut from 22% to 21% effective 1 July 2012.
In order to be considered as a taxable person in terms of making intra-EU supplies or acquisitions of goods and services, it is necessary that both the customer's and supplier’s VAT registration numbers are included in the 'VIES' system. In a new Resolution dated April 27, 2012, the Italian tax authorities have set out the following consequences of purchasing goods or services from EU suppliers without the inclusion of the Italian taxable person’s VAT registration number in the VIES system: • the transactions in question should be considered outside the scope of Italian VAT; • the transactions are relevant, for VAT purposes, in the country of the supplier; • in case the Italian taxable person accounts for VAT under the reverse charge mechanism, input VAT is not deductible; • according to article 6, Legislative Decree 471/1997, the penalty applicable would be equal to 100% of the input VAT wrongly deducted; • the above penalty is applicable for violations related to intra-EU purchases carried out from 1 August 2012 onwards. However, the new measure has been criticised by businesses and tax professionals as being disproportionate. Alessia Angela Zanatto +39 02 91605728 [email protected]
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The purpose of the amendments is to draw level with Lithuania and Estonia by reducing the standard rate of VAT in order to improve Latvia’s regional competitiveness and mitigate inflationary pressures on the population caused by global price increases. Currently the standard rate of VAT is 22% in Latvia, 21% in Lithuania, and 20% in Estonia. The amendments introduce a standard rate of 21% and came into force on 1 July 2012. Ilze Rauza +371 6 7094512 [email protected]
DID YOU KNOW? Finland Possible increase in VAT rate to 24% from 1 January 2013 The Finnish government has decided in the spending limits decision (i.e. the framework decision for the Finnish budget) that the VAT tax bases will increase by one percentage point effective 1 January 2013, including an increase in the standard VAT rate from 23% to 24%. There is no actual government proposal on the increase at the moment, although it is expected that a proposal will be published in the autumn. Juha Laitinen +358 9 2280 1409 [email protected]
Netherlands 6. Transitional regime for VAT rate increase A number of general transitional arrangements with regard to the practical effects of the Dutch VAT increase per 1 October 2012 were published recently. These arrangements include rules on how to determine which VAT rate is applicable to supplies made before and after 1 October 2012, in case of prepayments and where payments are made over a period of time for construction works.
Dutch Parliament recently voted in favour of a package of austerity measures in a proposal for the Budget Agreement 2013, including an increase in the standard VAT rate from 19% to 21% to take effect from 1 October 2012. A transitional measure regarding for this increase was included.
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The transitional arrangements can be summarized as follows: 1. The standard VAT rate of 19% applies to supplies of goods or services that are made (completed) before 1 October 2012. This rate also applies if you issue an invoice for such supplies on or after 1 October 2012 and/or if you receive payment on or after 1 October 2012. 2. For supplies made (completed) on or after 1 October 2012, in principle the new rate of 21% will apply. If an invoice is issued and/or payment is received before 1 October 2012, in principle, the rate of 19% VAT will apply. The transitional arrangements require an additional payment to the Dutch tax authorities of the difference between 19% and 21% as of 1 October 2012. This amount needs to be reported in the VAT-return of October/ fourth quarter of 2012. According to the proposal of law, in most cases the time of performance of the supply is decisive for determining the applicable VAT rate (19% or 21%). The time of issuing the invoice is irrelevant in this respect. Since financial institutions are not entitled to deduct all input VAT, it is – obviously – relevant from a financial point of view that there suppliers will not invoice them with 21% VAT if in cases where the 19% VAT should have been applied. Especially in the month of October 2012, the people in the accounts payable department should be extra alert. Further, there may still be possibilities to make use of the current 19% VAT rate by smart planning of the timing of the expenses/investments. Finally, businesses that perform VAT exempt activities may be faced with a socalled ‘self-supply charge’, for example for the construction of a new building on land that they own themselves.
If the construction starts before 1 October 2012 and is finalised after this date, both the 19% and the 21% VAT rate will have to be applied to different parts of the taxable amount for this ‘self-supply charge’. At this moment, a proposal to amend the law and some very general relevant policy decisions have been published. Nevertheless, to be sure, we would advise businesses to use the summer period for identifying which your systems and procedures require for a smooth transition to the new VAT rate as well as the transitional issues in all relevant scenarios. Frans Oomen +31 88 792 51 56 [email protected]
Poland 7. Convoy of money exempt from VAT According to the current practice of the Polish tax authorities, convoy of money is treated as a service subject to VAT at the basic rate (23 percent).
However, the Provincial Administrative Court has stated that the service of convoying money in specific circumstances may be viewed as ancillary to cash processing service. Therefore, the convoy of money may benefit from VAT exemption. Marcin Chomiuk +48 22 523 4807 [email protected]
8. Damage liquidation services provided to insurer should be VAT exempt In one of the recent rulings concerning VAT treatment of damage liquidation services and assistance services, the Provincial Administrative Court stated that such services are appropriate and necessary to provide insurance services. Furthermore the Court stated that providing such services meets the objectives of qualifying as insurance services for VAT purposes. In consequence, the services in question should be treated as VAT exempt. Marcin Chomiuk +48 22 523 4807 [email protected]
9. Auxiliary activities performed with respect to financial intermediary services do not benefit from VAT exemption The case ruled by the Administrative Court in Warsaw concerned the VAT treatment of services (covering performing activities auxiliary to financial intermediary services provided by independent agents to the bank) provided by a company to a bank. In the company’s view, the services in question should be treated as VAT exempt, given the fact that they are necessary to provide the bank’s VAT exempt services. In the Court’s view, such services cannot be treated as VAT exempt, given the fact that they are being provided with respect to financial intermediary services performed by the agents. Marcin Chomiuk +48 22 523 4807 [email protected]
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10. Risk management services, being services ancillary to financial services, should be VAT exempt
12. General interpretation regarding damage liquidation process provided by an intermediary
The Provincial Administrative Court issued a ruling concerning VAT treatment of services covering financial institutions’ clients’ financial position and risk management activities including risk analysis and development and analysis of rating and scoring models.
The Polish Minister of Finance has stated that damage liquidation services provided by an entity which is not an insurer cannot benefit from VAT exemption. The Minister specifies that activities which are not relevant and necessary for insurance services cannot be VAT exempt. However, in the Minister’s view, several activities related to damage liquidation process performed by a third party can still benefit from a VAT exemption.
In the Court’s view, given the fact that the services in question are closely linked to VAT exempt financial services, they should also be treated as VAT exempt as necessary and appropriate for financial services. Marcin Chomiuk +48 22 523 4807 [email protected]
11. Purchasing defaulted debts at a price below their face value does not result in a supply of services for consideration In one of the recent rulings concerning the VAT treatment of debts purchases, the Supreme Administrative Court stated that as far as defaulted debts are purchased at a price below their face value, there is no supply for consideration being subject to VAT. The ruling expresses the point of view of the ECJ. Furthermore, the Provincial Administrative Court in Warsaw has extended this view and ruled that the selling price of the bad debt is insignificant – regardless the price, such transactions should be treated as out of scope of VAT. In confirmation of its position the Court invoked the ECJ judgment in case C-93/10 (Gfkl). Marcin Chomiuk +48 22 523 4807 [email protected]
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Marcin Chomiuk +48 22 523 4807 [email protected]
Russia 13. Scope of the VAT exemptions extended for financial services as of 1 January 2013 The Federation Council approved on 18 July 2012 the draft Law that aims to improve the state regulation in the financial sector.
Apart from amendments related to the regulation of the investment activity in the Russian federation, the Law envisages a significant broadening of the VAT exemption for financial services. The new exemption shall enter into force from 1 January 2013. Taxpayers will need to review the VAT treatment they currently apply to a range of financial services. The Law exempts a number of operations carried out by financial services businesses on the securities, commodity and foreign exchange markets from VAT.
The VAT exemption will be applicable for services provided by the following companies within the scope of their license: • Registrars; • Depositaries; • Dealers; • Brokers; • Securities management businesses; • Investment, mutual and private pension funds management companies; • Clearing organizations; and • Trade organizers. The VAT exemption extends also to services directly related to services above (according to the list established by the Russian Government), as well as to certain services rendered by counterparties of clearing operations, market-makers, etc. There is no approved by the Russian Government list of operations directly related to services which fall under the scope of the VAT exemption yet. The application of the VAT exemption on such additional services will be possible once the list is put in place. The VAT exemption above will be a mandatory one. The tax law provides no possibility to waive it. Currently, a significant part of the above operations carried out by financial services businesses is subject to VAT. Vladimir Konstantinov +7(495) 967 6236 [email protected]
Spain 14. Increases of the Spanish Value Added Tax rates The Decree-Law, by which, among other measures, the Spanish VAT rates were increased, is approved.
The increase will enter into force on 1 September 2012. According to the announcement, the VAT rates in Spain will be increased as follows: • The general VAT rate will be increased from 18% to 21%. • The reduced VAT rate will be increased from 8% to 10%. • The reduced 4% VAT rate has not been modified. However, this reduced rate will not be applied to objects used exclusively as school materials, for which general 21% rate will be applied as of 1 September 2012. In accordance to the above mentioned, companies should proceed, as from the date in which the new rates enter into force, to issue its invoices related to sale of goods and supplies of services performed applying the new VAT rates. In this regard, it must be taken into account that according to the Spanish VAT law: 1. Supplies of goods will be deemed performed, i.e. VAT will become chargeable, by the time the goods are put at the customer’s disposal whilst supplies of services will be deemed performed when effectively rendered. 2. Advance payments made prior to the moment in which transactions are performed will anticipate the moment in which VAT becomes chargeable, i.e. VAT will become chargeable whenever an advance payment is made and for the portion effectively collected from the customer.
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3. When referring to continuous/ongoing supplies (e.g. rentals etc.) VAT will become chargeable by the time each portion of the price is payable according to the contract terms. Miguel Blasco +34 915 684 [email protected]
United Kingdom 15. Tax authorities reacts to 'Banca Antoniana' judgment on tax refunds In Revenue & Customs Brief 13/12, the UK tax authorities, HMRC, announces its view that the four-year time limit for making claims for VAT paid to HMRC in breach of European law applies even where a taxpayer is liable to repay the overcharged 'tax' to its customers over a longer period. In Brief 13/12, HMRC sets out its policy following the ECJ's judgment in the Italian case of Banca Antoniana Popolare Veneta SpA (C-427/10). In essence, the ECJ held that, where a tax authority imposes VAT in error, a taxpayer who has charged VAT in accordance with domestic policy must be able to recover from the tax authority any VAT wrongly charged and refundable to his customers.
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HMRC acknowledges that national time limits for claims for overpaid taxes administered by it must not make it excessively difficult or impossible to make claims, and that the time limits must not be less favourable than time limits for similar claims in domestic law. However, HMRC points out that the ECJ reiterated that it is compatible with EU law for Member States to lay down reasonable time limits for making claims against the tax authority for tax collected contrary to EU law, and that Italy's two-year time limit was, in principle, sufficient. HMRC's view appears to be that the Banca Antoniana case is very fact-specific and does not automatically introduce an opportunity for taxpayers to make claims outside of the statutory four-year time limit against HMRC for repayment of tax wrongly charged where they are legally required to repay the 'tax' to their customers. Jamie Randell +44 207 213 8253 [email protected]
Contact For more information, please do not hesitate to contact your local PwC Indirect Tax expert or one of the experts mentioned below: Austria
Lithuania / Belarus
Christoph Wagner tel: +43 1 501 88 36 41 [email protected]
Koenraad de Bie tel: +32 2 710 43 14 [email protected]
Nevena Haygarova tel: +359 2 9355 162 [email protected]
Chrysilios Pelekanos tel: +357 22 555 280 [email protected]
Martin Diviš tel: +420 25115 2574 [email protected]
Jan Huusmann Christensen tel: +45 3945 9452 [email protected]
Mary Psylla tel: +30 210 687 4543 [email protected]
Tamas Locsei tel: +36 14 619 358 [email protected]
John Fay tel: +353 1 792 8701 [email protected]
Alessia Angela Zanatto tel: +39 02 91605728 [email protected]
Ilze Rauza tel: +371 6 7094512 [email protected]
Kristina Krisciunaite tel: +370 5 239 2365 [email protected]
Marcin Chomiuk tel: +48 22 523 4807 [email protected]
Mario Braz tel: +351 213599652 [email protected]
Diana Coroaba tel: +40 21 202 8693 [email protected]
Valeria Kadasova tel: +421 2 59 350 626 [email protected]
Marijana Ristevski tel: +386 1 583 6019 [email protected]
Miguel Blasco tel: +34 9 1568 4798 [email protected]
Tanja Kriisa tel: +372 614 1977 [email protected]
Marie-Isabelle Richardin tel: +352 49 48 48 3009 [email protected]
Lars Henckel tel: +46 8 5553 3326 [email protected]
Juha Laitinen tel: +358 9 2280 1409 [email protected]
Stéphane Henrion tel: +33 1 56 57 41 39 [email protected]
Felix Becker tel: +49 69 9585 6665 [email protected]
David A. Ferry tel: +356 2564 6712 [email protected]
Frans Oomen tel: +31 88 792 51 56 [email protected]
Yngvar Engelstad Solheim tel: +47 95 26 06 57 [email protected]
Tobias Meier Kern tel: +41 58 792 43 69 [email protected]
Jamie Randell tel: +44 207 213 8253 [email protected]
Evelyn G Lam tel: +1646 204 1094 [email protected]
Disclaimer. Clients receiving this Alert should take no action without first contacting their usual PwC Indirect Taxes Advisor. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. ‘PwC’ is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.
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