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EUROPEAN VAT DIRECTIVE 2010
The European Union has adopted a significant reform of the European VAT rules that will come into force as of January 1st 2010. One of the important aspects of this reform is the complete review of the VAT refund procedure for EU companies within the European Union.
The principles of this reform are known. The most significant change relates to the way a refund claim is submitted. As of January 1st, VAT refund claims will no longer have to be sent to the tax authorities of the country where the VAT was paid, but will have to be electronically submitted through an Internet portal in the country of establishment of the claiming company.
This new procedure is in theory designed to be more user-friendly for claimants. However many uncertainties remain and most major current difficulties will still exist. Indeed, even if the claims will in the future be submitted in the claimant’s member state of establishment, the refund decision will still be taken by the tax authorities of the country where the VAT was paid. Therefore, the applicable VAT rules will still be those of the member state of refund and any correspondence that may happen after the submission of a claim will be in the language of this country.
For example, if a German company has incurred VAT in France, it will submit its refund claim through the internet portal in Germany. The German tax administration will forward the claim to the French tax administration and it will be the latter that will take the refund decision, based on French VAT rules.
It is important to notice that the counterpart of the electronic submission of the claims will be a greater formalism as the claimant will be required to give more information, especially regarding the nature of the services that will be codified. Each member state will have some freedom regarding the information that it will require and it is therefore expected that there will be differences between the various member states.
The practical details of the coming into force of this reform are currently not known. Indeed, only few member states have transposed the Directive into their own legislation and none of the tax administrations has finalized its portal yet. There is no coordination at a European level about the implementation of the portals and there will not be a single portal. Each member state will design its own portal and once again significant differences are expected.
The tax agents like TEVEA International will therefore keep on playing a key role in preparing, submitting and following the claims until they are refunded, as much with the tax authorities as with the claimants. This will be especially true during the transition period after January 1st 2010.
Given the uncertainties that still exist so close to the deadline regarding the practical aspects of the implementation of this reform, our experience has often shown in the past that such a significant change does not take place without difficulties. We therefore recommend you to send us your refund claims for 2009 before the end of the year so that we can process them before the reform comes into force.
| WHAT IS VAT? |
| VAT is a tax on consumption; it is charged on goods and services that are sold or otherwise supplied in Europe, such as: - promotional campaigns - business trips - representative offices - technical costs and works overhead expenses (plant equipment) - cost of insuring sports events The rate of VAT is different in each of the 27 countries of the European Union, ranging from 5% to 25% of the amount. |
| WHY PAY VAT? |
| VAT regulations, mainly at EU level, decide which international trade transactions are subject to or exonerated from VAT. What’s more, the rules applying to supplies of goods are different from those applying to services. As regards goods, exports to countries outside the EU are exonerated from VAT. Within the European Union, we speak of intra-Community supplies (called despatches or removals in the UK), which are only exonerated from VAT under certain conditions, the main point being that they are transactions between taxable persons. So, if the customer gives his intra-Community VAT registration number to his supplier, the latter will not charge VAT. Consequently, a lot of EU traders believe that giving their intra-Community VAT registration n° is sufficient to avoid paying VAT on purchases abroad. However, the rules that apply to goods are different to those that apply to services, for which different territoriality rules apply. Indeed, we need to make a distinction between services known as intangible services and services that can be materially located. The former comprise intellectual services (consultancy, training, advertising...) and are subject to the reverse charge procedure (i.e. the customer accounts for the output VAT, instead of the supplier, in the country to which he belongs, and then reclaims it), when the services are supplied to a taxable person. However, services that can be materially located (services related to trade fairs or conferences, services related to a building...) are taxable in the country where the service is performed, regardless of the supplier’s or customer’s nationality. Hence, it depends on the type of service whether a company pays foreign VAT, which may subsequently be reclaimed, subject to certain conditions. |
| WHO MAY RECLAIM VAT? |
| Foreign companies can reclaim VAT, subject to certain conditions. To this effect, a claim for refund of VAT must be submitted to the competent French tax authority. The procedure for reclaiming VAT is, in principle, reserved to companies. Companies of EU member states must therefore be in possession of a VAT registration certificate issued in the country to which they belong. Non-EU countries wishing to reclaim VAT paid in France must appoint a tax representative. |
| WHAT ARE thE PRINCIPAL legal CONDITIONS for reclaiming vat? |
| Apart from formal requirements, non-French companies may reclaim VAT paid in France, provided they fulfil two legal requirements: - do not have any permanent establishment in France - do not make transactions that are subject to VAT in France For some business activities, this second condition is generally not fulfilled. It is notably the case for non-French companies providing services linked to trade fairs in France (builders, decorators...). Pursuant to European legislation, these services are taxable in France and the non-French companies who provide them must register for VAT in France (cf. this site’s ‘Tax Representation’ section) |
| on which purchases can vat be reclaimed? |
| There is a large number of purchases for which VAT may be reclaimed and there are significant differences between the different countries of the European Union, the rules for deductibility not being the same in all countries. As regards refundable non-French VAT, there are 5 main types of purchases for which VAT may be reclaimed: - purchases for participating in trade fairs or events - travel and business entertainment expenses - VAT on imports - technical costs (costs of equipment, warranty, manufacturing...) - liaison office costs |
| WHAT ARE THE AVERAGE AMOUNTS OF TIME FOR REFUNDS TO BE PAID? |
| European tax authorities refund VAT within 3 to 15 months of submission of the claim. The period of time prior to receipt of payment depends on when the claim is submitted and differs from country to country. |
| ARE THE CONDITIONS FOR REFUNDS THE SAME IN EACH EU COUNTRY? |
The rule for VAT deductibility differs from one member state to another. VAT is due, whereas in other countries it is the date of the invoice |
| what deadlines APPLY for filing APPLICATIONS with the tax authorities? |
In most EU countries, the tax authorities must receive the claim prior to 30 June of the year following the year of the date of the invoice. So, for invoices issued in 2008, the deadline for filing a claim is 30 June 2009. |
| What must be shown on an invoice to allow THE refund of vat? |
Only the original invoices are accepted by the tax authorities. What must be shown on the invoice: |
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