VAT and international transactions Andy Ilsley Indirect Tax Director 10 September 2015

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Agenda • Introduction and context • EU VAT principles

• Export evidence • “Place of supply” of services • Customs duty issues • E Services and MOSS

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Introduction and context

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Introduction and context • International tax is on the agenda – BEPS project, increased routine sharing of information cross border • Risk Management is a key part of international expansion • Need to understand principles and obligations

• Financial penalties and increased costs of non-compliance reduce profitability • Most countries have a VAT or GST (even US are thinking about it)

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EU VAT principles

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Place of supply of goods Place of supply of goods Goods not despatched or transported (remain in that territory) • Place where goods are when supply takes place Goods despatched or transported (to another territory) • Place where despatch or transport begins

Exceptions • Where place of departure is outside member states • Place of supply is member state of importation if supplier acts as importer Note – not necessarily related to PE status

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Place of supply of goods (cont’d) Installed or assembled goods Where the goods are installed or assembled • Place where goods are when supply takes place However:• Rules vary depending on the member state • It may be possible to avoid registering • Customer accounts for the VAT on your behalf • Implications even where sub-contractors are used to fulfil contracts

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Intra-community supplies of goods Supplier – conditions for zero rating • Supply involves removal of goods from UK to a VAT registered person in another member state

• Supplier quotes the customer’s VAT registration number on the sales invoice plus two digit country code • Supplier obtains valid commercial evidence of removal of goods from the UK within three months of supply

• Otherwise the goods are standard rated for VAT purposes * APPLICABLE TO EU MEMBER STATES

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Intra-community supplies of goods Evidence of removal from the UK No official HMRC documentation Commercial documentation includes:• Shipping documents • Customer’s order/evidence of payment Invalid VAT numbers Supplier should check customer’s VAT number • Scope for fraud • Increased scrutiny by HMRC • Potential joint and several liability for the VAT Supplier not held responsible for output VAT if:• He has taken all responsible steps to check validity • All other conditions for zero rating are met 9

Triangulation simplification

GRCo

UKCo

goods

FrCo

Tax points Special tax points - Intra community supplies of goods and acquisitions Where any supply of goods involves both:• The removal of the goods from or to the UK • Their acquisition in another EU country or in the UK Time of supply is earlier of:-

• The 15th day of the month following that in which the goods were dispatched or received • The date of the issue of a VAT invoice

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Call off stock and consignment stock Call off stock

• Transferred goods held effectively in the control of the customer • Simplification if stock destined for one named customer Consignment stock • Transferred goods held in the control and ownership of the supplier • Customer or customers unknown at the time of consignment

• VAT registration implications

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Movement of own goods

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Exports

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Exports Condition for zero rating • Goods must be removed from the UK to a destination outside of the EU • Supplier must obtain satisfactory evidence of export • Goods must not be delivered to or collected by UK person or UK customer at a UK address, even if claimed for subsequent export • Goods must not be used in UK before export • Only the final supply in a series of transactions can be zero rated, ie the supply to the overseas person

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Exports (cont’d) Main types of exports Direct exports • Arrangements under supplier’s control • 3 months for the goods to physically leave the UK Indirect exports

• Arrangements made by someone other than the supplier, eg the customer collects from your premises • 3 months for the goods to physically leave the UK

• Supplier still retains responsibility and liability for the export • Supplier should consider taking a deposit equal to the VAT UNDERSTAND THE INCOTERMS!! 16

Exports (cont’d) Evidence of export • Supplier needs to take all reasonable care and to ensure that evidence of export is obtained and retained Evidence consists of:• Official documents

• C88 stamped by HMRC • Commercial evidence • Sea waybills, air waybills etc • Certificate of shipment

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Place of supply of services

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Place of supply of services Place of supply of services rules General rule • Place of supply is where the business customer (B2B supplies) is established provided the customer is acting as a taxable person • Business customer accounts for VAT via reverse charge mechanism • Place of supply of services supplied to non-business customers (B2C supplies) remains where the supplier is established

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Place of supply of services (cont’d) Key issues

• Evidence that customer is in business (EU VAT number) • Are you supplying to a taxable person acting as such? • Public sector/charities – always apply general B2B rule even if services will be used for non-business purposes • Businesses below VAT registration limits – alternative evidence of business activities (eg letter from Chamber of Commerce or tax authorities)

• Supplies for private use – always use B2C rules • If in doubt, apply B2C rules – can always adjust later • Impact upon global contracts is not clear 20

Place of supply of services (cont’d) Place of belonging • No statutory definition to determine which establishment makes or receives a supply but the aim is to tax a supply where the service is consumed • Tests that can be used • Which establishment uses or enjoys the service provided?

• Which establishment enters into contracts or receives invoices? • Which establishment has sufficient human and technical resources to receive or make the supply? • Not a single conclusive test – look at the economic reality 21

Place of supply of services (cont’d) Place of supply of services rules Still exceptions to the general rule such as:• Services in relation to land

• Transport services • Supplies of services to non-taxable customers belonging outside of the EU

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Customs Duty issues

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Customs Duty Customs Duty is a cost to the business – any reduction is an absolute saving • What are the goods? • Where are they made? • What are they worth? • Where are they going?

MAJOR CHANGES TO UNION CUSTOMS CODE – EFFECTIVE FROM 2016

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Customs Duty • Current Customs code is outdated and does not reflect the complexity of international supply chains, IT etc • New Union Customs Code (“UCC”) from 1 May 2016

• Mandatory use of electronic communication with customs authorities • Compulsory requirement for guarantees for certain customs regimes (e.g. warehousing and processing reliefs)

• Greater emphasis on customs-approved AEO status • Changes to valuation rules (e.g. royalty payments, “first sale” opportunity) 25

E-Services and MOSS

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E-Services • 1 January 2015 - Last of the EU VAT changes – gradual implementation from 1 January 2010 • Problem with taxing e-services, especially B2C • Growth of digital economy • “Use and enjoyment” test for non-EU suppliers • Extending the principle – “Place of Supply” where recipient belongs for B2C

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What services are affected? • Broadcasting services, including internet

• Telecoms – internet access, video conferencing • Online subscriptions, apps, music downloads • Provision of downloadable software • Internet access – Wi-Fi, etc • E-Books

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Mini One Stop Shop – (“MOSS”) • Mirrors current system for non-EU suppliers • Single VAT registration, typically in country of belonging

• Standard EU VAT return directive • On line filing of information per member state

• Some practical difficulties identified and addressed

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Summary - key risk areas • Supply and installation

• Interaction with direct tax • Establishment issues and VAT registration requirements

• Export evidence • Compliance obligations and record keeping

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Thank you - any questions?

Andy Ilsley T: +44 (0) 121 214 3190 M: +44 (0) 773 644 1644 E: [email protected] Baker Tilly Consulting LLP, Baker Tilly Corporate Finance LLP, Baker Tilly Restructuring and Recovery LLP, Baker Tilly Risk Advisory Services LLP, Baker Tilly Tax and Advisory Services LLP, Baker Tilly UK Audit LLP and Baker Tilly Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. Baker Tilly Creditor Services LLP is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities. Baker Tilly & Co Limited is authorised and regulated by the Financial Conduct Authority to conduct a range of investment business activities. © 2-15 Baker Tilly UK Group LLP, all rights reserved. This communication is intended to provide general guidance on matters of interest and you should not act or refrain from acting upon any information contained in it without seeking appropriate professional advice

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