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The German Federal Ministry of Finance (BMF) has issued detailed guidance on the new regulatory requirements for payment service providers under Section 22g of the German Value Added Tax Act (UStG).
This guidance comes in response to the need to strengthen measures against VAT fraud within the European Union.
The new rules, effective from 1 January 2024, emphasize the importance of maintaining records, reporting, and retaining information on cross-border payments.
Under the revised Section 22g UStG, payment service providers operating in Germany must keep detailed records of cross-border payments processed, provided they execute more than 25 transactions per quarter to the same payee.
These records are then transmitted to the Federal Central Tax Office (BZSt) and subsequently fed into the Central Electronic System of Payment Information (CESOP), a European database designed to monitor and analyze cross-border payment data to prevent VAT fraud.
The BMF outlines four specific obligations for providers under the new regulation:
The new rules apply to various entities, including CRR credit institutions, electronic money institutions, payment institutions, and postal giro offices that offer payment services in Germany.
The BMF clarifies that the regulation covers all payment transactions that result in the provision, transfer, or withdrawal of money, including those involving cryptocurrencies.
For a transaction to be considered cross-border under the regulation, the payer must be located in a European Union member state, while the payee could be in another EU state, an EEA country, or a third country.
Domestic payments within Germany and payments originating from third countries are not covered by these rules.
Payment service providers must submit the relevant data to the BZSt by the end of the calendar month following each quarter.
For instance, data for the first quarter should typically be submitted by the end of April.
However, the BMF has introduced a non-objection rule for the first report of 2024, extending the deadline to 31 July 2024, to allow providers adequate time to adjust to the new requirements.
Failure to adhere to the record-keeping, reporting, or retention requirements can result in fines up to EUR 5,000.
These sanctions underscore the seriousness with which the German authorities are treating compliance with these new regulations.
The BMF’s circular includes comprehensive resources such as a questionnaire focusing on the implementation details and a guidance paper that summarizes the GloBE Model Rules along with its commentary and administrative guidance.
These documents are designed to help payment service providers understand and implement the required changes effectively.
The implementation of these new regulations marks a significant step in Germany’s efforts to combat VAT fraud.
By ensuring that payment service providers maintain accurate records and report cross-border payment activities, the BMF aims to create a more transparent and secure financial environment.
Payment service providers are encouraged to review these new regulations closely, establish appropriate compliance mechanisms, and maintain diligent records to avoid penalties.
If you have any queries about these New Rules for Payment Service Providers, or German tax matters more generally, then please get in touch.
On 12 March 2024, the Kazakhstani finance ministry announced significant revisions to the VAT Refund Rules, marking an important change in how businesses interact with tax authorities for VAT refunds.
This article looks at these crucial modifications.
The essence of these updates lies in addressing the controversies surrounding the VAT refund validation process.
Courts have recently highlighted the improper practice by tax authorities of demanding exhaustive supplier chain reports, or “Pyramid” reports, extending through numerous levels.
The revised VAT Refund Rules aim to streamline this process, albeit with nuances that may conflict with existing Tax Code provisions.
These changes became effective on 26 March 2024.
A noteworthy modification is to paragraph 45-1 of the VAT Refund Rules, which now delineates specific scenarios for the creation of Pyramid reports.
Notably, these reports will encompass all direct suppliers involved in horizontal monitoring, moving away from the previous broader scope.
Exceptions to this requirement have been clarified, simplifying compliance for businesses.
The procedure for generating Pyramid reports has been refined, with a clear focus on direct suppliers.
The amendment provides a precise definition of “direct supplier” and introduces the concept of “related parties,” aiming to mitigate tax evasion by tracing transactions to their origin.
The rules now prioritize the generation of Pyramid reports based on potential tax evasion risks identified among suppliers.
This shift focuses on concrete indicators of risk, such as restrictions on e-invoices or legal challenges against the supplier, enhancing the tax authorities’ ability to detect and address evasion schemes.
With the introduction of paragraphs 52-1 and 52-2, the VAT Refund Rules now clearly outline situations where identified risks are disregarded.
This update aims to ensure that discrepancies are not automatically equated with tax evasion, providing a fairer framework for businesses.
Lastly, the amendments expand the circumstances under which tax authorities can conduct counter-audits on suppliers, including intermediaries and freight forwarders.
This broadened scope is intended to tighten scrutiny and ensure compliance throughout the supply chain.
The recent amendments to Kazakhstan’s VAT Refund Rules represent a significant shift in the regulatory landscape.
By refining the conditions under which Pyramid reports are generated and clarifying procedures, the changes aim to balance the need for effective tax collection with the operational realities of businesses.
As these changes unfold, businesses operating in Kazakhstan must stay informed and compliant to navigate the evolving tax environment successfully.
If you have any queries about this article on the Updates to Kazakhstan’s VAT Refund Rules, or Kazakh tax in general, then please get in touch.
The French tax authorities have recently clarified the Value Added Tax (VAT) treatment of Non-Fungible Tokens (NFTs).
This is helpful guidance for businesses involved in this nascent industry.
According to the public ruling, NFTs are subject to the same VAT rules that apply to the broader spectrum of goods and services.
Specifically, when NFTs serve as certificates of ownership for tangible or intangible assets, VAT is applicable in line with the supply of the underlying asset.
This clarification is pivotal, affirming that the unique characteristics of NFTs do not exempt them from existing tax frameworks.
Furthermore, the tax authorities explicitly state that transactions involving NFTs cannot be classified as exempt banking or financial transactions.
This distinction is drawn based on the non-fungible nature of NFTs, setting them apart from payment, utility, usage, or investment tokens, which might enjoy VAT exemptions under certain conditions.
The French tax authorities have provided concrete examples to illustrate the VAT treatment of various NFT-related transactions:
The creation and sale of digital trading cards represented as NFTs are treated as a provision of service.
When these cards are issued with minimal human intervention, such transactions are deemed electronically supplied services, highlighting the digital and automated nature of the service.
The sale of digital graphic artwork associated with an NFT, especially when exchanged for digital assets or currencies on an IT platform, is categorized as a supply of service.
However, if the creation of the artwork involves significant human intervention, it is not considered an electronically supplied service, emphasizing the role of human creativity over automation.
The initial sale of in-game items represented by NFTs, intended to fund video game development, is subject to VAT upon the effective transfer of these digital items.
Post-release, any marketing or sales of game components as NFTs also attract VAT, underscoring the continuous tax obligations throughout the lifecycle of a game’s development and its commercial exploitation.
This guidance from the French tax authorities highlights the importance of understanding the specific nature and nuances of transactions involving NFTs to accurately determine their VAT treatment.
Businesses engaging in the NFT space must carefully analyze the underlying transactions to ensure compliance with VAT regulations, recognising that the digital and non-fungible characteristics of NFTs do not exempt them from traditional tax obligations.
As the NFT market continues to evolve, this French ruling provides a crucial framework in line with which businesses might operate.
If you have any queries about this article on VAT Implications for NFT Transactions in France, or French tax matters in general, then please get in touch.
In December 2022, the Court of Justice of the European Union (CJEU) made a significant ruling (C-378/21 P GmbH) that VAT incorrectly displayed on an invoice does not inherently result in a tax liability, provided that tax revenue is not at risk.
This interpretation of Art. 203 of the VAT Directive has been echoed in Germany for the first time by the Cologne Tax Court in a judgement dated May 27, 2023 (8 K 2452/21), applying it to Section 14c para. 1 of the German VAT Act.
This decision marks a shift in addressing VAT liabilities and showcases the evolving landscape of tax law in the European Union and its member states.
The Cologne Tax Court’s decision expands the scope of Section 14c para. 1 of the German VAT Act beyond its traditional application.
Historically, this section was interpreted to possibly implicate a broader range of entities, including those not eligible for input VAT deduction, in tax liabilities.
However, the court’s recent judgement clarifies that if an invoicing party acts in good faith, Section 14c (1) of the German VAT Act does not apply, aligning with the CJEU’s stance on safeguarding tax revenue without unduly penalizing companies.
This judicial interpretation is significant for companies, indicating that invoices need not be corrected in the absence of a tax risk, a principle now supported by both EU and German court decisions.
However, companies must demonstrate the absence of tax risk, particularly challenging when the services involve VAT-exempt entities, such as public authorities and courts, as highlighted in the Advocate General Kokott’s Opinion.
The CJEU ruling and the subsequent Cologne Tax Court decision stem from a case involving a provider of indoor playground services in Austria, where VAT was incorrectly applied at a standard rate for services that qualified for a reduced tax rate.
The correction of these mistakes raised questions about tax liabilities when the tax revenue was not jeopardized, primarily because the end consumers were not entitled to input VAT deductions.
In Germany, the Cologne Tax Court’s judgement directly addresses how Section 14c of the German VAT Act should be interpreted in light of EU directives, emphasizing the need for tax law to protect companies acting in good faith without risking tax revenue.
This decision not only reflects a harmonization of EU and German tax law but also offers a clearer path for companies navigating VAT compliance and potential liabilities.
While the Cologne Tax Court’s decision marks a significant development in the interpretation of VAT law in Germany, it is important to note that an appeal against this judgement is pending before the Federal Tax Court (case no. V R 16/23).
The appeal will not challenge the interpretation of Section 14c of the German VAT Act per se but will focus on the applicability of tax exemptions under specific conditions, indicating the ongoing evolution of tax law interpretation in response to EU directives.
The recent decisions by the CJEU and the Cologne Tax Court highlight the dynamic nature of tax law in the European Union, emphasizing the importance of aligning national laws with EU directives.
If you have any queries about this article or any other general German tax matters then please get in touch.
Angola’s legislative body has taken significant steps to refine its tax framework, enacting Law no. 14/23 on 28 December, which revises the VAT Code, and Law no. 15/23, reintroducing the Special Contribution for Foreign Exchange Operations (CEOC).
These measures aim to optimize the VAT system, making it more adaptable, efficient, and equitable for both taxpayers and the Tax Administration, while also addressing specific foreign exchange transactions.
The newly amended VAT Code introduces several critical changes designed to alleviate the tax burden on certain goods and transactions, improve the refund process for taxpayers, and enhance compliance and administrative efficiency:
The general VAT rate remains at 14%, but new reduced rates have been incorporated, including 7% for the Simplified VAT Regime, 5% for the import and supply of widely consumed foodstuffs and agricultural inputs, and 1% for imports and supplies within the Special Regime applicable to Cabinda Province.
The threshold for VAT refund requests has been increased from AOA 299,992.00 to AOA 700,000.00, facilitating greater recovery of VAT credits for businesses.
The non-submission or late submission of VAT returns now incurs a penalty of AOA 600,00.00 per infringement, aiming to improve compliance rates.
Non-resident entities engaging in taxable activities in Angola can now register in the General Taxpayers Register without appointing a tax representative, subject to forthcoming regulatory conditions and obligations.
Banks are required to electronically report quarterly summaries of transactions processed through automatic payment terminals to the Tax Administration, enhancing transparency and oversight.
Alongside the VAT modifications, Law no. 15/23 reintroduces the CEOC, targeting transfers in foreign currency outside Angola.
This levy applies to transactions such as technical assistance, service provision, consultancy, management, or unilateral transactions, with rates set at 2.5% for individuals and 10% for legal entities.
Exemptions from the CEOC include payments for health and education expenses (if paid directly to the institutions’ bank accounts), transfers of dividends, and repayments of loan capital and associated interest.
The CEOC aims to regulate foreign exchange operations more tightly, ensuring a fair contribution from transactions impacting Angola’s financial reserves.
These legislative updates signify Angola’s commitment to refining its tax system to support economic growth, enhance tax compliance, and maintain a balanced approach to foreign exchange transactions.
Businesses operating within Angola, particularly those involved in importation, supply of goods, and cross-border transactions, will need to adjust to these changes to ensure compliance and optimize their tax positions.
Meanwhile, the reintroduction of the CEOC underscores the importance of careful planning for international payments and financial operations involving Angola.
If you have any queries on this article titled ‘Angola amends VAT System’, or any Angolan tax matters, then please get in touch.
If you have any queries about this article on New Zero Tax Rate on Photovoltaic Systems in Germany, or German tax matters in general, then please get in touch.
In a recent development, the United Arab Emirates (UAE) Cabinet of Ministers introduced Cabinet Resolution No. (91) of 2023, implementing a domestic reverse charge mechanism for electronic devices.
This resolution takes effect on 25 August 2023, and brings about changes in the way electronic devices are supplied and accounted for in the UAE.
Electronic devices, as defined in the resolution, encompass mobile phones, smartphones, computers, tablets, and their associated parts and components.
The application of the reverse charge mechanism hinges on specific conditions that must be met.
This reverse charge mechanism applies when:
This decision took effect from 30 October 2023.
As such, businesses involved in electronic device supply, be it for resale or production, should act proactively to align their processes and adapt their accounting and reporting systems accordingly.
By doing so, they can ensure seamless compliance with these new provisions, avoid discrepancies, and ultimately maintain the efficiency of their business operations.
If you have any queries about the UAE reverse charge, or UAE tax matters in general, then please get in touch.
On 6 October 2023, Legal Notice 231 was published by the Maltese government.
The Notice amended the Eighth Schedule of the Value Added Tax Act in Malta (Chapter 406 of the Laws of Malta).
Broadly, this amendment introduced a reduced VAT rate of 12% for specific services
The Notice transposes paragraph 5 of Article 105a of Council Directive 2006/112/EC, as amended by Council Directive (EU) 2022/542 in April 2022.
This obliges Member States to provide detailed rules for applying reduced rates, not lower than 12%, to specific transactions by October 7, 2023.
The Eighth Schedule of the VAT Act in Malta specifies the tax rates for particular supplies and imported goods, offering a reduction from the standard rate of 18%.
With the publication of this Legal Notice, four new services are included, all subject to the reduced VAT rate of 12%.
The newly introduced services are as follows:
The implementation of the 12% VAT rate will become effective from January 1, 2024.
The MTCA is expected to release further details on its application in the coming weeks.
If you have any queries about this new Malta VAT rate, or Maltese tax matters in general, then please get in touch.
On 6 October 2023, Legal Notice 231 (“The Notice”) was published by the Maltese government.
The Notice amended the Eighth Schedule of the Value Added Tax Act in Malta (Chapter 406 of the Laws of Malta).
Broadly, this amendment introduced a reduced VAT rate of 12% for specific services.
Let’s look at the reasons behind the Notice and where the changes might apply.
The Notice transposes paragraph 5 of Article 105a of Council Directive 2006/112/EC, as amended by Council Directive (EU) 2022/542 in April 2022.
This obliges Member States to provide detailed rules for applying reduced rates, not lower than 12%, to specific transactions by October 7, 2023.
The Eighth Schedule of the VAT Act in Malta specifies the tax rates for particular supplies and imported goods, offering a reduction from the standard rate of 18%.
With the publication of this Legal Notice, four new services are included, all subject to the reduced VAT rate of 12%.
The newly introduced services are as follows:
The implementation of the 12% VAT rate will become effective from 1 January 2024.
The MTCA is expected to release further details on its application in the coming weeks.
If you have any queries about the Malta’s new VAT rate, Maltese tax, or tax matters in general then please get in touch.
In the world of professional football, player transfers are a common occurrence. These complex transactions often involve various parties, including agents who facilitate the transfer process.
One such case that garnered attention involved Sports Invest (SI), a prominent UK football agency, and the transfer of a Portuguese football player from a Portuguese club to an Italian club in 2016.
The transfer not only raised questions about the nature of services provided by SI but also shed light on the intricacies of value-added tax (VAT) regulations in international football transfers.
In this particular transfer, the Italian club paid SI, the agent, for their services, while the player himself was not required to contribute financially.
However, the UK’s tax authority, His Majesty’s Revenue and Customs (HMRC), contended that SI provided services to the player worth €3 million, which should be subject to UK VAT.
Conversely, SI argued that the entire €4 million payment was for services rendered to the Italian club and should not be subject to UK VAT.
SI further claimed that even if the services were considered to be provided to the player, they should be classified as intermediary services and thus outside the scope of UK VAT.
To resolve the dispute, the UK First-tier Tribunal (FTT) carefully reviewed the contracts and supporting evidence presented by both parties.
After careful consideration, the FTT concluded that SI had indeed provided services to both the player and the Italian club.
However, the services rendered to the player were deemed to be made for no consideration, meaning they were provided free of charge. The FTT determined that the EUR4 million payment related exclusively to services provided to the Italian club and should be subject to VAT in Italy.
Moreover, the FTT agreed with SI’s argument that even if the services were provided to the player and related to the payment, they could still be regarded as intermediary services falling outside the scope of UK VAT.
This case serves as a reminder of the significance of maintaining accurate documentary evidence in the context of economic and commercial realities.
It underscores the importance of clear and detailed contracts that accurately reflect the nature and extent of services provided in football transfers. Such documentation becomes crucial when disputes arise and can greatly impact the VAT implications of the transaction.
Furthermore, it is important to note that this judgment is highly specific to the facts of the case and should not be considered a blanket rule for all similar scenarios. Given the potential wider implications of the untaxed consumption of agent services to players, it is likely that HMRC may choose to appeal the decision.
The outcome of such an appeal could significantly affect the sector, as the case highlights the importance of the party making the payment and the consideration involved. Had the player paid EUR1 million, even if reimbursed by the club, it would have constituted consideration moving from the player, triggering UK VAT liability under the intermediary rules.
The Sports Invest case demonstrates the intricate interplay between football player transfers, agent services, and VAT regulations. It underscores the necessity of thorough documentation and a clear understanding of the economic and commercial reality of the transactions involved.
As the football industry continues to evolve, it is crucial for all parties involved to stay abreast of regulatory requirements and seek professional advice to ensure compliance with VAT and other relevant tax laws.
If you have any queries relating to Sport Invest or tax matters in the UK or Italy more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.