This month, David summarises the latest EU and Irish VAT developments, including a review of the EU VAT rules for financial services.
EU VAT updates
VAT on financial services review
The European Commission published a Tax Action Plan in July 2020, which included a number of proposals for fairer and simpler taxation in the EU. One of the initiatives is a review of the VAT treatment of financial and insurance services. The Commission has launched a public consultation, which is open from 8 February until 3 May 2021, to gather the views of stakeholders on the current VAT provisions in addition to possible changes. Possible changes under consideration range from refinements to the current definitions of services which qualify for VAT exemption through to significantly altering the exemptions or introducing an option to tax for certain financial services. However, any change will ultimately need the unanimous approval of the 27 EU Member States.
One of the reasons for the review is that the current VAT rules can be difficult to apply and are subject to different interpretations and application across the EU. The Commission also note the need for updated rules to take account of new businesses and technologies in the financial services and insurance sector and outsourcing of services in these sectors.
Feedback from this public consultation will feed into the development of proposals, with the Commission's roadmap indicating that it will publish an impact assessment in the third quarter of 2021 and put forward a legislative proposal in the fourth quarter of 2021.
A previous EU review of VAT for financial services and insurance was conducted around ten years ago, but no changes were implemented as Member States did not reach agreement on several issues. It remains to be seen whether agreement on the proposals for change will be reached this time around.
Head office to branch transactions
On 11 March 2021, the Court of Justice of the EU ("CJEU") issued its judgment in the Danske Bank case finding in the circumstances of the case that Danske Bank's Swedish branch is a separate person for VAT purposes to its head office in Denmark as a result of the Danish head office being a member of a Danish VAT group. As a result, taxable services supplied by Danske's head office in Denmark to the branch in Sweden should be subject to reverse charge VAT in Sweden, even though legally, the head office and branch are the same entity. The Court applied similar principles to those established in the 2014 judgment in Skandia which held that a US company's Swedish branch is a separate taxable person to its US establishment once the branch became a member of a VAT group in Sweden. The potential implications of the Danske judgment in Ireland and elsewhere will need to be considered.
Irish VAT updates
One Stop Shop registration opens
In last month's article, I summarised the new EU VAT rules for e-commerce sales, which come into effect from 1 July 2021. This includes the extension of the One Stop Shop ("OSS") for reporting VAT to cross-border B2C sales within the EU and the new Import One Stop Shop ("IOSS") for B2C sales from outside of the EU into the EU. Revenue issued eBrief no. 070/21 on 30 March 2021 which provides guidance on the operation of OSS and IOSS and confirms the opening of the registration portal for the OSS and IOSS on 1 April 2021.
Postponed import VAT accounting
Postponed VAT accounting for goods imported into Ireland ("PIVA") was introduced with effect from 1 January 2021. PIVA allows VAT registered businesses to self-account for VAT on imports of goods from non-EU countries in their VAT returns, rather than paying over VAT at the point of import. In eBrief no. 050/21 issued on 9 March 2021, Revenue advised that they have updated their guidance in relation to PIVA to include further information on the entries that should be included in the bi-monthly VAT returns in addition to the relevant fields in the annual Return of Trading Details that should be completed when PIVA has been operated.
This article recently appeared in Chartered Accountants Ireland and is reproduced here with their kind permission.
Partner, Indirect Tax - VAT & Customs
KPMG in Ireland