Definitive proposals for EC VAT system outlined
It is no small irony that, at the very moment the UK is gearing up to leave the EU, the Commission is finally ready to roll out details of the definitive VAT system promised all those years ago.
The idea was always, of course, that cross border transactions would be taxed identically to domestic transactions - with VAT being charged, collected and recovered as per the normal rules. The advent of the single market which suggested a major step towards a fully harmonised VAT system was in reality an indefinite postponement. Now in a comeback of Lazarus like proportions the idea is back on the agenda!
The driving force behind the announcement appears to be the tax leakage caused by Missing Trader type frauds which rely on the input tax being reclaimed against zero-rated EC sales.
Pierre Moscovici, Commissioner for Economic and Financial Affairs has stated that he expects the new system to be in operation by 2022. Legislative proposals will be sent to member states with a view to amendments to the VAT directive being set in motion next year.
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How do you take your Brexit?
A new white paper sets out the government's approach to the VAT, customs and excise regimes in the post-brexit landscape. There is also a contingency scenario for those who like their brexit a little harder!
The Treasury invites comments on the paper, preferably before 3 November 2017, although no strict deadline is imposed.
Input tax deduction - 3rd party beneficiary
The recent Bulgarian case (Sofia v 'Iberdrola Inmobiliaria Real Estate Investments' EOOD) highlights an interesting issue. Namely the right to deduct input tax where expenditure is incurred on property owned by a third party.
In this particular instance the appellant intended to build a holiday village. To ensure the holiday units were equipped with waste water provision, the appellant agreed to pay for extensive modifications of the local council's water pump. After the modifications both the appellant and the local council would benefit from the water pump.
The issue had been referred by the domestic court to the advocate general for a preliminary ruling on the right of the appellant to deduct input tax . The AG decided that, as there was no 'direct and immediate' link between the works and the appellant's taxable outputs input tax deduction could not be permitted.
The CJEU decided not to follow the AG's decision noting that there was likely to be a direct and immediate link between the expense and the appellant's taxable activities. However it also commented that deduction should be confined only to that expense which was necessary for the appellant to conduct its economic activities.