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Tinkering Behind The Scenes

Kitty Miv, Editor
01 November, 2019

As we head into Halloween, things are certainly getting spooky, in the UK at least.

After a great deal of Parliamentary to-ing and fro-ing (or for the purposes of this week's column, 'booing and wooing'), a December general election vote now seems likely, probably on December 12. However, in his now customary unilateral fashion, PM Boris Johnson has threatened to try and pull the planned election if the opposition Labour Party make good on proposals to enfranchise both 16 and 17 year old potential voters and European citizens residing in the UK. So as usual...watch this space!

With the Tories spooked by the possibility of a snap pre-Christmas election, it seems less scary to move onto other topics, and as usual, value added taxes and goods and services taxes can generally be relied upon to be being tweaked and tinkered with behind the scenes.

Starting off the tinkering mid-month, the European Commission on October 16 published a proposal for a Council Implementing Decision enabling Italy to continue restricting the right to deduct input VAT on vehicles-related expenses.

On April 12, 2019, Italy had requested an authorization to continue to derogate from the EU VAT Directive by limiting to 40 percent the right to deduct input VAT charged on expenditure related to motorized road vehicles not wholly used for business purposes. The Commission said that the rate of 40 percent appears to reflect adequately the actual business use of such vehicles.

In addition, Italy requested an authorization to continue to derogate from the VAT Directive by exempting from VAT the use for private purposes of vehicles included in the assets of a taxable person's business, where such vehicles are subject to a restriction of the right to deduct.

Italy was first authorized to use these measures for a temporary period ending on December 31, 2010. The authorization was subsequently extended three times, with the latest extension due to expire on December 31, 2019.

The Commission said that given that the circumstances leading to the granting of these authorizations remains unchanged, it is proposing that the derogations be extended until December 31, 2022.

Then on October 21, 2019, Chile's tax agency announced that it would waive penalties, interest, and surcharges for value-added taxpayers who filed September 2019's monthly return by the end of the month, in a move intended to support businesses impacted by the ongoing protests demanding increased economic equality and constitutional change.

In Hungary, meanwhile, the focus was on tax crime, with cross-border agencies Eurojust and Europol announcing the conclusion of two operations into two separate organized crime groups in Hungary involving value-added tax fraud.

On October 23, the agencies said authorities from five countries had worked with them to take action against a suspected tax fraud scam conducted by a Hungarian-led international organized crime group. Eurojust revealed that the alleged fraud involved the setting up of shell companies, which provided false invoices to avoid VAT payments to the Hungarian authorities. The scam also involved money laundering.

Eurojust explained that the main suspect is alleged to have set up companies that provided fictitious invoices to other enterprises, without in reality delivering any goods or services. The enterprises that received the bills then deducted these costs from their VAT payments in Hungary, leading to a net fiscal loss of about EUR3m. The suspect is alleged to have set up several companies managed by foreign nationals, while the companies issuing fake invoices were on paper also directed by managers of foreign origin.

The fraud is said to have taken place between January 2015 and September 2019.

Less controversially, it was reported that Malta has published legislation to transpose into domestic law the EU's VAT "quick fixes".

Agreed by EU finance ministers in 2018, these four short-term measures cover:

  • Call-off stock. The measure provides for a simplified and uniform treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state;
  • The VAT identification number. To benefit from a VAT exemption for the intra-EU supply of goods, the identification number of the customer will become an additional condition;
  • Chain transactions. To enhance legal certainty in determining the VAT treatment of chain transactions, the measure establishes uniform criteria;
  • Proof of intra-EU supply. A common framework is being introduced for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

The changes will apply from January 1, 2020. They are being introduced ahead of comprehensive reforms to the EU's VAT rules, as set out in the Commission's vision for a "definitive VAT regime" that would be centered around the taxation of goods and services in the location of the recipient, rather than that of the supplier.

Finally for this week, and brooking no argument in that particularly Australian way, Australia's Prime Minister, Scott Morrison, ruled out the possibility of proposing a hike to the goods and services tax rate, amid calls from within his party to raise the rate to 12.5 percent.

Senator Dean Smith had said that an increase to the 10 percent rate of GST could fund the elimination of payroll taxes.

In comments on October 28, 2019, reported by local media, Morrison told reporters "we're not doing it." He said an increase had been considered when he served as Treasurer but that the measure had been deemed to cost too much in terms of the amount of compensation that would be required to be paid to the states.

Until next week!

Tags: Euro

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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