what every attorney needs to know about their clients doing business in europe

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WELCOME BLS CPAs Lunch & Learn with Dr. Mónika Molnár: What Every Attorney Needs to Know About Their Clients Doing Business in Europe Belfint, Lyons & Shuman CPAs Wilmington, DE / West Chester, PA www.belfint.com 302.225.0600 [email protected]

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Page 1: What every attorney needs to know about their clients doing business in Europe

WELCOME BLS CPAs Lunch & Learn with

Dr. Mónika Molnár:

What Every Attorney Needs to Know About Their Clients Doing Business in

Europe

Belfint, Lyons & Shuman CPAs

Wilmington, DE / West Chester, PA

www.belfint.com

302.225.0600

[email protected]

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Copyright Treureva Ltd, 2015

What Every Attorney Needs to Know About Their Clients Doing

Business in Europe

2015

Dr. Monika Molnár LL.M. (Taxation)

Treureva Ltd, Zurich, Switzerland

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Speaker: Monika Molnár

JD LL.M. (Taxation)

Treureva Ltd

Othmarstrasse 8

CH - 8008 Zurich, Switzerland, Europe

www.treureva.com

VAT exposure and doing business in Europe and in Switzerland

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Introduction

Key issues for VAT in the EU

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Business of your client

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• Doing business in Europe

• political system

• economical regime

– EU Member State

– Non EU Member State

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• Doing business in Europe

• economical regime (taxation)

– EU Member State (28)

– Non EU Member State:

• Switzerland, Liechtenstein

• Norway, Iceland

• Serbia …

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• Doing business in Europe

• economical regime (taxation)

– EU Member State (28)

– Non EU Member State:

• USA

• Russland

• …

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• how to ask?

• options and scenarios?

• the more you ask the more you get

• higher VAT rate -> higher VAT risks (CH: 8%, 2.5%, 3.8% VAT rates)

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• understanding the client‘s business

– business activity

– locations

– volumen of business

– conditions

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• understanding the client‘s needs

– to be in line with local regulations

– costs factor (e.g. compliance, admin, tax costs, tax returns, customs duties, reimbursement)

– understandable supply chain

– responsibilities

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Main question is:

– who provides

– to whom

– what kind of supply

– where ?

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Main question is:

– who provides = supplier

– to whom = recipient

– what kind of supply = supply of goods/services

– where ? = place of taxation, VAT liability

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• Main questions are:

– WHAT kind of supply is involved?

– WHO performs the supply?

– TO WHOM will be supplied?

– WHAT are the main impacts?

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• Please always ask for potential exemption and specifications, if any

– WHAT – is the supply taxable?

– WHO – is the supplier status tax-exempt?

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• Please always ask for potential exemption and specifications, if any

– TO WHOM – does the recipient have a specific tax status, which allows the recipient to purchase supply without tax?

– WHAT – how big is the tax cost (final costs impact)?

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• VAT = value added tax

• GST = good and service tax

• idea is: self assessed tax

• responsibility

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EU legislation on VAT

• EU VAT: „harmonized“ on the basis of „EU VAT Directive“

• EU Directive:

– is addressed to the EU Member States

– must be implemented into national law

– may take reference over national law (direct effect)

– Directive 2006/112/EC of 28 Nov 2006

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Court of Justice of EU (ECJ)

• final interpretation of the Directive

• in framework of infringement actions of the Commission

• in response to preliminary questions from national courts

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• EU Member States

– 28 EU Member States

– Minimum VAT rate 15%, highest is 27% (HU)

– VAT registration (if VAT liability, possible requirement of multiple VAT registrations)

– VAT refund (non VAT liability, reciprocity rules needs to be checked separately, NL: yes)

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• EU Member States

– 28 EU Member States

– Minimum VAT rate 15%, highest is 27%

– VAT registration (if VAT liability, possible requirement of multiple VAT registrations)

– VAT refund (non VAT liability, reciprocity rules needs to be checked separately, NL: yes)

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• Switzerland

– Non EU Member State

– Lowest VAT rate (8% standard, 2.5% reduced rate, 3.8% specific rate for hotel accomodation)

– VAT registration (if VAT liability)

– VAT refund (non VAT liability, however, purchase invoices contain Swiss VAT)

– Reciprocity rules with USA are available !

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• Switzerland

– Non EU Member State

– Lowest VAT rate (8% standard, 2.5% reduced rate, 3.8% specific rate for hotel accomodation)

– VAT registration (if VAT liability)

– VAT refund (non VAT liability, however, purchase invoices contain Swiss VAT)

– Reciprocity rules with USA are available !

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TAX Rates

VAT in the EU

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• EU Member States

– Tax rates

– http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

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• EU VAT rates

– Austria (AUT), 20% Estonia (EE), 20%

– Belgium (BE), 21% Finland (FI), 24%

– Bulgaria (BG), 20% France (FR), 20%

– Croatia (HR), 25% Germany (DE), 19%

– Czech Rep. (CZ) , 21% Greece (EL), 23%

– Cyprus (CY), 19% Hungary (HU), 27%

– Denmark (DK), 25% Italy (IT), 22%

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• EU VAT rates

– Ireland (IE), 23% Portugal (PT), 23%

– Latvia (LV), 21% Romania (RO), 24%

– Lithuania (LT), 21% Slovakia (SI), 20%

– Luxembourg (LU), 17% Slovenia (SK), 22%

– Malta (MT), 18% Spain (ES), 21%

– Netherlands (NL), 21% Sweden (SE), 25%

– Poland (PL), 23% United Kingd. (UK), 20%

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Choosing a country to register for VAT

VAT in the EU

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• tax rates

• transaction volume

• language of the local tax authority

• business development of the client

(focussed EU country, if any, end customer)

• political, economical country regime

• potential increasing of the VAT rates

potential key elements

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• IT system

• accounting system

• invoicing, contract, liabilities

• admin work (filing VAT returns

(monthly, annual, quarterly), deadlines

• VAT registration procedure,

fiscal rep, deposit, thresholds, time

• attitude of the local VAT Authority

potential key elements

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• Potential risks (formal aspects)

penalties for late VAT registration, submitting VAT retuns (monthly), ESL (quarterly), Intrastat (monthly)

late payment interests

no allowance to deduct VAT costs incurred:

missing of proofs for tax free transactions (e.g export papers)

missing of invoices ( e.g. import papers, purchase, sales)

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• Potential risks (material aspects)

not in line with the tax law (contract, monitoring)

incorrect qualification of the business for VAT purposes

liabilities of seller

liabilities of purchaser

joint liability (e.g. declaration of specific transactions)

How to solve the (past) situation ?

Your own liability ?

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• pro-active handling

due diligence for VAT issues (buyer, seller, client‘s perspective), to qualify and to quantify the potential risks, if any

understanding of the business: „Who provides to whom what, where?“ mapping, flow of invoice, flow of supply, flow of payment, business structure

contract: VAT clause, timeline, retroactive impact, statue of limitation

Always Ask Before Handling !

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Always Ask Before Closing !

Multiple VAT registrations

Multiple VAT risks

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Transactions exposed to VAT

VAT in the EU

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nature of the supply Flow of goods from ->into

VAT impact in Europe

additional remarks

importation of goods US -> Europe import VAT customs, licence,…

supply of own goods US -> Europe import VAT purpose?, customs procedure

supply of goods Europe Country A-> Europe Country A Europe Country A->Europe Counry B

local, intracommunity supply of goods

taxable event, tax-free, once the proof of intracommunity supply is available

exportation Europe -> non Europe export tax-free, once the proofs are available

exportation of own goods Europe –> non Europe export tax-free, once the proofs are available

VAT due (output)

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nature of the supply flow of goods from ->into

VAT impact in Europe

additional remarks

local purchase of goods Europe Country A -> Europe Country A

local VAT reimbursement, if the conditions are met

intracommunity acquisition of goods

Europe Country A-> Europe Country B

acqusition VAT, intracommunity purchase of goods

taxable event, reimbursement, if the requirements are met

importation non EU -> Europe import VAT deductible, reimbursement, if the requirements are met

VAT costs (input)

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nature of the supply service potential VAT impact in Europe

additional remarks

Clarification of service: nature of the service

Immovable property construction of real estate, engineering

taxable at the place of the real estate

VAT reg, permanent establishment, purposes, costs deductibility, additional tax areas

advisory services, consultancy services, management services, intermediary service

taxable at the place of the recipient, acquisition VAT (EU)

potential deductibility, however, if the contractual party = US recipient, no VAT is due, (use and enjoyment rules)

digital service to private individuals

taxable at the place of private individuals (where the recipient is established), multiple VAT registration

VAT reg, multiple VAT reigstration, Mini One Stop Shop, MOSS - clarification

VAT on service

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nature of the supply service potential VAT impact in Europe

additional remarks

Clarification of service: nature of the service

transportation of people

taxable at the place of route

VAT reg, costs deductibility, additional tax areas

transportation of goods

taxable at the place of the recipient, acquisition VAT (EU)

Potential deductibility, however, if the contractual party = US recipient, no VAT is due,

restaurant service taxable at the place of the consumption, where the service is carried out

VAT reg

VAT on service

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• EU – general remarks

• B2B – taxable at the place of the recipient, the recipient needs to declare the purchased supply

• B2C – taxable at the place of the recipient, however, the supplier needs to be registered in the country of the recipient !

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Case study – supply of digital services

VAT in the EU

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US supplier performs digital service to customer located in Germany (1)

The German customer provides with its

German VAT number to the US supplier

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US supplier performs digital service to customer located in Germany (1)

• Assumption:

– US supplier is not established in any EU Member States

– German recipient has a German VAT no. and it has been provided to the US supplier

flow of invoice

Recipient is registered for German VAT

purposes GERMAN VAT number

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US supplier performs digital service to customer located in Germany (1)

• Consequences for the US supplier: – Place of taxation is where the recipient is located =

Germany

– However, no German VAT liability for the US supplier at all

– The invoice of the US supplier to the German recipient: without VAT

invoice without VAT

Recipient is registered for German

VAT purposes GERMAN VAT number

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US supplier performs digital service to customer located in Germany (2)

The German customers are private individuals

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US supplier performs digital service to customer located in Germany (2)

• Assumption:

– US supplier is not established in any EU Member States

– German recipients are private individuals

flow of invoice

Recipient does not have

German VAT number

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US supplier performs digital service to customer located in Germany (2)

• Consequences for the US supplier: – Place of taxation is where the customer is located =

Germany

– German VAT registration of the US supplier is needed

– The invoice of the US supplier to the German recipients: with 19% German VAT

invoice with German VAT (19%)

Recipient does not have

German VAT number

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US supplier performs digital service to customer located in Germany (2)

• Consequences for the US supplier: – German VAT registration for US Cos in Germany

– German VAT Authority Bonn-Innenstadt is responsible

– Official language is the German language

– http://www.finanzamt-bonn-innenstadt.de/steuerzahler/ust_us_unternehmer/index.php

invoice with German VAT (19%)

Recipient does not have

German VAT number

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US supplier performs digital service to customer located in the EU (3)

The customers are private individuals

non VATable person

without VAT numbers

flow of invoices

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Initial Overview – potential business structures and VAT

High Level Overview

LRD (acts its in own name and for its own account) Limited Risk Distributor

Commissionaire (contracts in its own name and for account of the principal)

Commission agent/sales representative (contract in name and for account of principal)

VAT notes: Guidelines, national legislation and interpretation can vary. For VAT purposes needs to be considered the legal and economical ownership (1), who performs the transaction to whom (2); where - place of supply (3); who organises the transport (4); delivery conditions (5).

Legal title of the goods principal to LRD, flash title, LRD to customer

principal directly to customer (possible) commissionaire

principal directly to customer

Inventory/receivable risk principal principal principal

Invoicing to customer in the name of LRD in the name of commissionaire in the name of principal

Remuneration margin between sales and purchase (resale minus)

margin between sales and purchase (% of sales converted to resale minus)

commission; agent % of sales; rep is cost plus

VAT sales from principal to LRD to customer , buy-sell transaction

sales from principal to commissionaire to customer

sales by principal to customer with agent services

Legal title passage principal to local distributor to customer

principal to customer; economical ownership from commissionaire to customer

principal to customer

VAT registration resp. compliance

multiple VAT registration/compliance for the principal

multiple VAT registration/compliance for the principal, deemed transaction; intercompany invoice and customer invoice, tax/VAT coding

easier

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Summary

• mapping of transaction is crucial

• review and consideration of the (planned) EU business (e.g. drafts, contract, initial papers)

• monitoring the current development is essentiel

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Thank you for your attention!

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Contact

Treureva Ltd

Othmarstrasse 8

CH-8024 Zurich, Europe

tel +41 44 267 17 17

fax + 41 44 267 17 11

[email protected]

[email protected]