Tag Archive: VAT

1. Updates to Kazakhstan’s VAT Refund Rules

   8 April 2024 12:38 pm Leave a Comment

   Updates to Kazakhstan’s VAT Refund Rules: Introduction

   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.

   Overview of the changes

   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.

   Key changes

   Specifying Conditions for Pyramid Reports

   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.

   Enhanced Definition and Procedure for Pyramid Reports

   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.

   Risk-based Generation of Pyramid Reports

   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.

   Clarification of Risk Exemptions

   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.

   Broader Scope for Counter-Audits

   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.

   Updates to Kazakhstan’s VAT Refund Rules – Conclusion

   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.

   Final thoughts

   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.

2. VAT Implications for NFT Transactions in France

   16 March 2024 9:25 am Leave a Comment

   VAT Implications for NFT Transactions – Introduction

   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.

    VAT Treatment of NFTs

   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.

   Examples of NFT Transactions and  VAT Implications

   General

   The French tax authorities have provided concrete examples to illustrate the VAT treatment of various NFT-related transactions:

   Digital Trading Cards as NFTs

   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.

   Digital Artwork and NFTs

   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.

   In-Game Items as NFTs

   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.

   Key Takeaways 

   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.

   Conclusion

   As the NFT market continues to evolve, this French ruling provides a crucial framework in line with which businesses might operate. 

   Final thoughts

   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.

3. Cologne Tax Court Adapts German VAT Law

   7 March 2024 10:37 am Leave a Comment

   Cologne Tax Court Adapts German VAT Law – Introduction

   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 Essence of the Ruling

   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.

   Background and Implications

   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.

   Looking Forward

   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.

   Cologne Tax Court Adapts German VAT Law – Conclusion

   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.

   Final thoughts

   If you have any queries about this article or any other general German tax matters then please get in touch.

4. New Zero Tax Rate on Photovoltaic Systems in Germany

   28 December 2023 2:59 pm Leave a Comment

   New Zero Tax Rate on Photovoltaic Systems in Germany – Introduction

   The world of taxation and renewable energy has seen a significant shift in Germany with the introduction of the zero VAT rate on photovoltaic systems, as per Section 12 (3) of the German Value Added Tax Act (UstG), effective from January 1, 2023.

   This groundbreaking move, aimed at promoting green energy, initially stirred confusion and uncertainty among stakeholders.

   However, the German Federal Ministry of Finance (BMF) has released comprehensive clarifications, most recently in its letter dated 30 November 2023, building on earlier guidance from February 27, 2023.

   Here’s an in-depth look at what these changes entail.

   Key Developments in the BMF’s November 2023 Circular

   Withdrawal Option for System Operators

   One of the critical aspects addressed is the option for withdrawal.

   This is particularly relevant for operators who installed their systems before 31 December 2022, and had opted out of the small business regulation to benefit from the input tax deduction.

   The BMF allows a retroactive withdrawal to 1 January 2023, but only until 11 January 2024, as a protection of legitimate expectations.

   Unified Supply of Photovoltaic and Storage Systems

   The BMF clarifies that a combined purchase of a photovoltaic system and an electricity storage system under a single contract is considered a unified supply of goods.

   This means the zero tax rate applies to the entire system, streamlining the VAT process for such transactions.

   Expanding the Scope of Zero-Rated Items

   The BMF has expanded the scope of zero-rated items to include solar carports and solar patio roofs, along with their direct mounts.

   This extension, however, doesn’t cover the entire substructure to which the panels are attached.

   Simplification for Electricity Storage Systems

   For simplification, electricity storage systems are preferentially treated under the zero tax rate if they have a capacity of at least 5 kWh.

   Storage systems using hydrogen as a medium are also included, provided the hydrogen is exclusively used for converting energy back to electricity.

   Additional Clarity on Related Measures

   The BMF’s guidance extends the zero tax rate to necessary modifications like the extension or renewal of the meter box due to the installation of the photovoltaic system.

   However, it doesn’t cover other electricity-consuming systems powered by the photovoltaic system, such as heat pumps or charging infrastructure.

   Invoice Identification for Small Businesses

   Small businesses exclusively operating a photovoltaic system and engaging in tax-free letting and leasing can use their market master data register number in invoices instead of the VAT identification number, easing administrative burdens.

   Implications and Takeaways

   This comprehensive guidance from the BMF is a significant step in clarifying the implementation of the zero VAT rate for photovoltaic systems in Germany.

   The circular ensures:

   • Equality for Operators: Both operators of pre-2023 systems and newer installations are treated equally under the new regulations.

   • Simplified Tax Compliance: The clarification on unified supplies and the expansion of zero-rated items simplify VAT compliance for businesses.

   • Promotion of Green Energy: These measures are in line with Germany’s push towards sustainable energy, making photovoltaic systems more financially attractive.

   New Zero Tax Rate on Photovoltaic Systems in Germany – Conclusion

   The BMF letter serves as a crucial supplement to its February 2023 counterpart, providing clarity and legal certainty in the application of the zero VAT rate for photovoltaic systems in Germany.

   This move not only streamlines tax processes for businesses but also significantly contributes to the promotion of renewable energy sources in the country.

    

   Final thoughts

   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.

    

5. New Malta VAT rate – new 12% rate on certain services

   3 November 2023 4:32 am Leave a Comment

   New Malta VAT rate – Introduction

    

   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

    

   New Malta VAT rate – Deeper cuts

    

   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 Eight Schedule

    

   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%.

    

   Newly introduced services

    

   The newly introduced services are as follows:

     

   • Custody and management of securities;
   • Management of credit and credit guarantees, excluding those who grant credit. (Credit management by those granting credit is already exempt without credit as per the VAT Act.)
   • Hiring of pleasure boats, with the condition that they are not rented for more than five weeks when aggregating rental time during the previous year.
   • Services related to the care of the human body, provided by regulated healthcare professionals in accordance with the Health Care Professions Act (Chapter 464 of the Laws of Malta). This includes services offered in health studio businesses or similar enterprises, excluding exempt supplies. This addition aligns with the guidelines issued by the Malta Tax and Customs Authority (MTCA) in September concerning VAT exemptions for certain healthcare services.

    

   New Malta VAT rate – When is this effective?

    

   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.

6. Spain: Non-Fungible Tokens (“NFTS”) and VAT

   27 May 2022 6:36 pm Leave a Comment

   Introduction – Spain NFT VAT

   Spain has issued its first ruling in respect of VAT in relation to the sale of NFTS. Specifically, where the NFT involves the right to use an underlying digital artwork.

   Here, the Spanish Tax Agency determined that the sale of NFTs is a supply of “electronically supplied services”. As such, if the place of supply is determined to be in Spain, then the sale will be subject to Spanish VAT. The prevailing rate is 21%.

   However, there is an issue here in that a purchaser of an NFT is likely to be unknown due to the pseudonymous nature of the blockchain. As such, a seller of an NFT might encounter real difficulties in determining the location of the purchaser and, ultimately, whether or not they should charge Spanish VAT on the sale.

   The nature of NFTs for VAT purposes

   The Spanish Tax Agency now dictates that the sale of an NFT is not a supply of goods. This is on the basis that the underlying asset is digital in nature. As such, the analysis is that the NFT gives ownership rights over a digital asset rather than over a physical good.

   The Spanish Tax Authority concludes that the sale of NFTs is therefore an “electronically supplied service” for VAT purposes. This definition can be found in Article 7(1) of Council Implementing Regulation (EU) No 282/2011.

   VAT implications

   As an “electronically supplied service” the applicable rate of VAT is 21% as opposed to the reduced rate (10%) that usually applies to art works.

   In determining whether the seller must charge VAT at the general VAT rate of 21%, the place of supply rules are in point. These are based on the condition (business or consumer) and location of the purchaser.

   If NFTs are sold to a company or to an individual acting in a business capacity, then the place of supply will generally be where the buyer has established its business. An exception might be where the business is located outside the EU.

   Where the buyer is an individual not acting in a business capacity and the seller is established in Spain, then the place of supply will generally be where the buyer has his or her permanent home (or usually resides).

   In summary

   The position might be summarised as follows:

   • The buyer resides in Spain: the sale would be subject to Spanish VAT:
   • The buyer resides in another EU Member Sate: the sale is subject to VAT in the EU Member State of consumption, unless below the €10k threshold in the year: and
   • The buyer resides outside the EU: he sale would fall out of the scope of Spanish VAT (unless the use and enjoyment rules are applicable)

   Of course, there is a fundamental issue in identifying the person acquiring the NFT and, therefore, their location.  It is worth noting that EU Regulation No 282/2011 provides some guidance here and provides for a presumption that a customer in a ‘virtual transaction’ is based where their IP address, or any method of geolocation, is located. However, even this has its limitations.

   If you have any queries about this article, Spanish tax, or the matters discussed 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

   For further resource on crypto assets please see www.cryptotaxdegens.com.