Kitty Miv, Editor
02 August, 2019
Moving away from the vexed UK political situation, and we're shifting our focus to indirect taxes this week.
There's been a lot of activity with regard to VAT and GST internationally recently, not least in Costa Rica, which introduced VAT on July 1, and recently confirmed that public institutions will be subject to value-added tax from 2020.
Costa Rica has introduced a new value-added tax regime, in place of the sales tax, featuring a 13 percent headline rate, and three reduced rates, of four, two, and one percent.
Further bedding in the new system, the Costa Rican tax authority also late this month released new online forms for declaring value-added tax, capital income, and capital gains.
On June 29, 2019, Costa Rica released a step-by-guide guide on how to fill out form D-104, which must be filed by value-added tax registered persons for the first time between August 1 and August 16.
Then, in a standard EU move, the European Commission on July 25 announced its decision to refer Germany to the European Court of Justice for misapplying the European Union value-added tax scheme for farmers.
EU rules allow member states to apply a flat-rate VAT scheme for farmers, under which farmers charge their customers a standard amount – or "flat-rate compensation" – on their agricultural products and services, instead of applying the normal VAT rules. Those farmers cannot claim compensation for VAT they have already paid.
The scheme is intended to be used by farmers who are likely to experience administrative difficulties when following the normal VAT rules. However, Germany applies its flat-rate scheme by default to all farmers, without making a distinction between those who would encounter such difficulties and those who would not. The only farmers who cannot benefit from the scheme are commercial livestock breeders.
"This is not allowed under EU rules and generates major distortions of competition in the internal market, in particular in favor of big farmers who do not encounter difficulties with the normal VAT arrangements," the Commission argued.
Meanwhile, in Georgia, surfing the international wave of action in this area, the Government has reportedly approved legislation to waive VAT on the acquisition and divestment of virtual currencies.
According to a report from the Bitcoin website, VAT will not apply where virtual currencies are swapped for fiat currency or vice versa. However, the Government has reportedly not gone as far as provide that the acquisition of goods or services for consideration in virtual currency should be a "no supply" for VAT purposes, with the Government said to have underscored that virtual currencies continue to not be legal tender in Georgia.
The sale of new virtual currency by "mining" companies – those who dedicate computer processing power to solve complex algorithms to create new virtual currency – will be subject to VAT.
And finally, competing for the last (and probably least) place are the announcements by India's Authority for Advance Rulings (AAR) in Goa that medical treatments including yoga, naturopathy, and Ayurveda are health care services that should be subject to the zero rate of GST.
The judgment was released for Devaaya Ayurveda and Nature Cure Centre. The AAR agreed that the centre's services, rendered following the provision of a diagnosis, qualify as health care services provided they are rendered at a clinical establishment by authorized experts.
And finally, the European Commission on July 25 launched new proceedings against illegal tax breaks in the yacht industries of Italy and Cyprus, first brought to light in the Paradise Papers leaks.
Current EU excise duty rules allow member states not to tax fuel used by a navigation company for commercial purposes, i.e. the sale of sea navigation services. An exemption can apply but only if the person leasing the boat sells such services to others.
In breach of EU rules, Italy allows chartered pleasure crafts, such as yachts, to qualify as "commercial" even if they are for personal use. This situation may allow them to benefit from excise duty exemption on fuel used to power their engines. The Commission has decided to refer Italy to the EU Court of Justice for its failure to remedy the issue.
Further, current EU VAT rules allow tax exemptions for services when the effective use and enjoyment of the product is outside the EU. However, the rules do not allow for a general flat-rate reduction without proof of where the service is actually used.
Cyprus and Italy have established VAT rules according to which the larger the boat is, the less the lease is estimated to take place in EU waters. As a consequence, the applicable VAT base can be substantially reduced. The European Commission has sent both nations reasoned opinions. If they fail to respond adequately to the Commission's concerns, it may refer the cases to the European Court of Justice.
Now, if you'll excuse me, I'm off to...um...see a man about a yacht. Until next week!
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