Governments Taking (In)Direct Tax Action In Response To Pandemic
Kitty Miv, Editor
14 May, 2020
In previous columns, we've touched on a number of VAT, GST, sales tax and other indirect tax moves being undertaken by governments around the world to a number of different ends, including the provision of support in bringing vital medical supplies to their healthcare systems, providing cashflow and other financial assistance to businesses and individual taxpayers, and stimulating demand in sectors likely to be highly impacted by the COVID-19 pandemic, for example tourism, passenger transportation, hospitality and catering. This week, we will dig a little deeper into these indirect tax measures, including those being put in place as governments cautiously seek to bring their countries out of their respective lockdowns with as few further casualties as possible.
In terms of streamlining processes and freeing up cashflow, then, the Danish Tax Agency has announced that from May 5, small and medium-sized businesses can begin applying for refunds of value-added tax paid with respect to the second half and fourth quarter of 2019 from May 5, 2020.
The refunds are intended to boost firm's cash flow amid the restrictions brought about by the COVID-19 lockdown and can be taken by taxpayers as an interest-free loan. Applications can be made until June 15, 2020, and any amounts must be paid back by April 1, 2021.
The Tax Agency clarified that the VAT loan scheme is also open to taxpayers who settled their social security liabilities under the "Method 4" system by the April 15, 2020, deadline. These taxpayers include doctors, dentists, physiotherapists, and those providing passenger transport services, among others.
Meanwhile, in order to bolster the National Health Service, the UK Government has enacted the Value Added Tax (Zero Rate for Personal Protective Equipment) (Coronavirus) Order 2020.
The Order provides for a temporary value-added tax zero rate for the supply of personal protective equipment (PPE) needed to tackle the spread of COVID-19, and is in place for three months from May 1 to July 31, 2020.
The Isle of Man, which has in place a VAT system mirroring that of the UK, also announced that it will apply a zero rate to PPE, and will additionally zero-rate electronic publications.
Personal protective equipment needed to tackle COVID-19 will be zero rated from May 1, 2020, until July 31, 2020.
The Irish Revenue has issued guidance on the tax treatment of the supply of emergency accommodation and the donations of gifts of goods or meals supplied in response to the COVID-19 crisis, outlining the application of the Capital Goods Scheme (CGS) to emergency accommodation. The CGS is a mechanism for regulating the amount of VAT reclaimed over the VAT-life, and aims to ensure that the VAT reclaimed reflects the use to which the property is put over its VAT-life.
Revenue said that, as a concessionary treatment, it will not apply the CGS "big swing" adjustment in cases where the change in the proportion of deductible use is a consequence of a capital good being diverted for use as emergency accommodation.
The guidance also explained the VAT treatment of donations of gifts of goods and meals. Generally, where a business donates goods free of charge, no VAT charge will arise on the donation where the value is less than EUR20. For goods in excess of EUR20, the self-supply rule applies, and for goods where no VAT was reclaimed by the business on the input costs relating to those goods those supplies are considered outside the scope of VAT.
Revenue said that where a business donates certain goods free of charge to the HSE (Ireland's health service), hospitals, nursing homes, and other healthcare facilities for use in the delivery of COVID-19-related health care services, those supplies will be considered to be self-supplies and will be liable to a temporary zero rate of VAT.
Where a business donates hot meals free of charge to charities and health care providers involved in the response to the crisis, Revenue will concessionally disregard those supplies for the purposes of determining the business's entitlement to deductibility. Where a business donates food products and non-alcoholic drinks free of charge, Revenue will concessionally not require the business to apply the normal self-supply rules and will allow the business to maintain an entitlement to deductibility in respect of those donations.
This concessional treatment will apply from April 9, 2020, to July 31, 2020, and will be subject to review, Revenue explained.
On the subject of food and beverages, though, there was bad news for those seeking a little alcoholic relief from the stresses and strains of the lockdown in place in India, as a new 70 percent tax on sales of alcoholic drinks was recently introduced, after a surge in demand for alcoholic drinks when restrictions on sales by retailers were lifted.
The Indian Government announced the measure to boost funds for states in tackling the spread of COVID-19, and to deter gatherings. I imagine, at a 70% rate, it did the job!
Finally for this week, the EU stated that it will postpone the entry into force of its VAT e-commerce package and will defer certain filing deadlines under the administrative cooperation directives due to COVID-19.
The European Commission has proposed that the VAT e-commerce package will apply from July 1, 2021, rather than January 1, 2021. This is to give member states and businesses more time to prepare for the new rules.
Under the VAT e-commerce package, new obligations will be introduced for online marketplaces and platforms and their business users and VAT exemptions will be removed for low-value consignments. The EU will also expand its mini one-stop shop (MOSS) system.
Until next week!
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