Breaking VAT news from RSM’s experts around the world, including updates from the European Union, United Kingdom, Hungary, Brazil, Slovakia and Poland


European Union

Implementation of ‘quick fixes’

As part of its ongoing drive to reform the EU’s VAT system to reduce fraud and narrow the significant VAT Gap*, with a view to a system overhaul taking effect from 2022, all EU member states are now required to have adopted four ‘quick fixes’ as of 1 January 2020. In broad terms these are designed to produce consistency across the EU member states and deal with the following provisions regarding intra-community supplies.

  1. Chain transactions – a chain transaction occurs where there are a number of businesses successively buying and selling the same goods but the goods themselves are transported directly from the original supplier and delivered to the final purchaser. Only one transaction in the chain can be treated as the intra-community supply, so the new rules determine which supply in the chain is treated as the intra-community supply. In general, the default position is that the intra-EU supply is the supply to the person in the chain (‘the intermediary supplier’) who arranges for the goods to be moved from member states of origin to the member state destination. All supplies including the intra-EU supply are to be treated as taking place in the member state of origin and all subsequent supplies as being made in the Member State of destination.
  2. Zero-rating of intra-EU supplies of goods – the new rules add additional formal conditions for zero-rating an intra-community supply of goods, which are as follows:
  • The customer is VAT registered in a member state other than the member state of origin.
  • The customer must have provided the supplier with a VAT number.
  • The supply is accurately reported on an EC Sales List.
  1. Simplified proof of transport of intra-EU supplies of goods – the aim is to harmonise and simplify the rules on proof of transport for the purposes of applying VAT zero-rating to intra-EU supplies of goods. Where conditions are met, it is presumed that the goods have been transported from the member state of origin. This presumption can be challenged by HMRC (HM Revenue and Customs), but HMRC bears the burden of proof to show that the goods have not been transported from the member state of origin. The supplier must produce at least two items of non-contradictory acceptable evidence from specific lists provided.
  2. Call off stock - the changes are intended to provide for a common approach to call off stocks throughout the EU and permit the intra-EU supply of goods to be treated as occurring when the goods are called off and the final supply is made to the customer or after 12 months whichever is sooner.


What this means

Businesses who trade with and throughout the EU should take note of the changes, review their supply chains accordingly and ensure accounting systems and processes are properly configured to ensure compliance with the new rules.

*The theoretical difference between expected and actual VAT receipts running at €137.5bn in 2017

Andy Ilsley, RSM UK

United Kingdom

UK to press on with EU departure

Given the relative certainty delivered by the UK’s recent General Election, with Prime Minister Boris Johnson securing a healthy parliamentary majority, the UK is to press on with its timetable of leaving the EU on 31 January 2020.

What this means

Under the terms of the UK’s Withdrawal Agreement negotiated with the EU and presented to the UK Parliament before Christmas, the departure date will be followed with the commencement of a transition period, scheduled to end on 31 December 2020. This will mean that for practical purposes, although the UK will no longer be an EU member state, it will remain within the EU VAT regime and single market and therefore will be subject to existing EU VAT rules. Businesses should however be taking the opportunity now to consider the impact on supply chains and accounting systems from 1 January 2021, once the transition period ends.

Andy Ilsley, RSM UK


Further developments in the digitalisation of Hungarian VAT reporting

Although a proportion of the VAT gap in Hungary has decreased significantly, mainly thanks to ’real-time’ transaction reporting and other digital reporting requirements, and is well below the EU average – nearly HUF 350 billion per year (approximately €1bn) remains lost to the authorities. This has continued to motivate the tax authority to introduce further changes, such as the preparation of e-VAT schemes. These schemes will introduce additional real-time reporting requirements and will be introduced from 1 April 2020 where further information will need to be submitted.

Furthermore, in addition to real-time invoice data, the VAT return scheme – intended to be introduced by 2021 – can also be based on data received from online cash registers and ATMs. The plans of the tax authority include machine-aided processing of cash register log files, channelling them to accounts, and machine-aided electronic invoicing as well. 

What this means

The digitisation of taxation, the automation of invoicing and VAT returns entail both opportunities and risks for businesses. If an individual ERP system is used, preparations to update it need to be made as soon as possible.

As has been shown in the way that tax inspections have changed in recent years, there is an increased emphasis on continuous risk analysis based on the examiniation and verification of information received online. Both domestic and international regulations build on data requests and data analyses to greater extent. As a result, more efficient control and data processing strategies at management levels need to be established and developed, in order to enable taxpayers to keep pace with following the information expected by and available to the Tax Authority. The latest developments need to be monitored and appropriate action needs to be taken to implement them where required.

Lilla Németh, RSM Hungary

Introduction of Bad Debt Relief

The Hungarian authorities have also introduced rules to allow for businesses operating in Hungary to recover VAT on bad debts. European case law has confirmed that for some time Hungary has been breach of its obligations under the Principal VAT Directive (‘PVD’) in not allowing refunds of VAT accounted for, when debts are unpaid.

Since 1 January 2020, suppliers have the right to reduce the taxable amount (VAT base) and a repayment of VAT on their supplies after 31 December 2015 if their customers fail to pay the consideration.

What this means

The new regulations are subject to a number of strict conditions and administrative formalities. Businesses operating in Hungary should consider whether bad debt relief claims are cost effective in this scenario. It may be the case that provisions are subject to further challenge, given that an overriding requirement of EU law states it should not be difficult to claim VAT. Whilst the provisions allow for relief for any supplies made after 31 December 2015, considerations should be made as to whether there are directly enforceable rights under EU law to claim from an earlier period.

Dániel Sztankó, RSM Hungary


The Brazilian National Congress is in the process of consolidating and aggregating a number of indirect taxes, namely ISS (City Tax on Services), PIS (Federal Contribution on Revenue), COFINS (Federal Contribution on Revenue), ICMS (State Tax on Goods), and IPI (Federal Tax on Manufactured Goods) into a single value-added tax named IBS (a ‘Single Tax for Services and Goods’ or Imposto Único sobre Bens e Serviços). This introduction will be the culmination of a ten year implementation period.

What this means

The introduction of IBS is likely to result in significant administrative savings for businesses. That said, there may not be a reduction in the overall tax burden and it might even increase the tax revenue derived from the provision of services. Currently, significant time is spent by businesses in complying with the ancillary obligations that arise from the current five taxes that will be replaced by IBS.

According to recent World Bank research, Brazilian companies spend nearly 2.6 hours per year dealing with collection rules and filling of tax returns against all taxes levied on its activities.

This development will be welcomed and businesses with activities and operations in Brazil should be fully abreast of changes and requirements.

Denise Beccare, RSM Brazil


Right of non-owner to recover VAT on imported goods

The CJEU (Court of Justice of the European Union) has been asked to consider questions referred from Slovakia in the Weindel Logistik Service Case concerning the right to recover input tax on imported goods into the EU. This case has raised the issue of whether an importer of goods is entitled to recover the VAT incurred on the importation if it is not the legal owner, on the proviso that they are used for taxable transactions.

What this means

The decision raises the question of whether importers have the right to recover import VAT incurred when declarations are even where they may not be the legal owner of the goods in question. The eventual ruling from the court may have an impact on HMRC’s controversial change of policy in this area, announced in early 2019, in which HMRC prohibits recovery of import VAT in situations where the importer does not own the goods - namely those acting as ‘toll manufacturers’ who import goods on behalf of overseas owners or where the title passes before goods are imported but the vendor still acts as ‘importer’.

It is likely that the response from the CJEU to the Slovakian referral will provide important clarification to importers in this respect.

Andy Ilsley, RSM UK


Place of supply – ‘Fixed establishment’

The AG (Advocate General) has given her opinion on a referral from Poland in the case of Dong Yang Electronics. The CJEU has been asked if the mere fact that a non-EU company has a subsidiary in Poland also creates a fixed establishment of the non-EU company in Poland.

Dong Yang is a company established in Poland which entered into a contract with LG, the well-known Korean electronics business, to assemble printed circuit boards in Dong Yang’s factory in Poland. Dong Yang obtained the components of the circuit boards from LG Display Polska, a subsidiary of LG Korea, and delivered the circuit boards to LG Display Polska once they had been assembled. Under a separate contract with LG Korea (not disclosed to Dong Yang), LG Display Polska then used the circuit boards in the manufacture of LCD modules which it was then responsible for storing and distributing. Neither Dong Yang nor LG Display Polska took title to the circuit boards – they remained the property of LG Korea until the finished product was sold by LG Korea to another Polish subsidiary LG Poland Sales, which then sold them on the European market.

LG Korea was registered for VAT in Poland in its own right, via a tax representative, but assured Dong Yang that it had no fixed establishment in Poland, did not employ staff, own property or have technical equipment there. Dong Yang therefore issued invoices for its assembly services to LG Korea without Polish VAT on the basis that the place of supply of its service was where the recipient belonged in Korea, not in Poland. However, the Polish tax authorities took the view that LG Korea did have a fixed establishment in Poland which was created by its contracts with LG Display Polska, and that Dong Yang had in reality contracted with LG Display Polska, not LG Korea.

Dong Yang appealed and the Polish courts have referred questions to the CJEU asking whether the mere fact that a company established outside the EU has a subsidiary in Poland means that it has a fixed establishment in Poland.

The AG is of the opinion that:

  • In principle, a subsidiary of a company from a third country is not a permanent establishment of that parent within the ’place of supply’ provisions of the PVD (Principal VAT Directive) - as a parent and a subsidiary are not one taxable person but two - in this case LG Korea and LG Polska were not VAT grouped nor eligible to be. Therefore a dependant but legally autonomous subsidiary cannot be regarded as a fixed establishment of its parent - particularly where no abusive or avoidance motives exist.
  • Furthermore, the PVD requires a taxable person to exercise a reasonable degree of care in determining the correct place of supply. However, this does not include seeking out and verifying inaccessible contractual relationships between his contracting partner and its subsidiaries. 
    • Unless there are indications to the contrary, a business can rely on a written assurance from its contracting partner stating that it does not have a fixed establishment in the country concerned.
    • The fact that a subsidiary is also involved in the performance of the contract does not trigger further investigation obligations.

What this means

Whilst we await the formal ruling of the CJEU (which often agrees with the AG but is not necessarily bound to) it could be relevant for those advising on supply chain and manufacturing issues. The AG’s opinion does at least narrow down the theoretical options for attributing supplies to parents and subsidiaries for a fixed establishment of supply purposes.

This is not the first time that Poland has tried to stretch the establishment rules to place the supply in their territory for VAT purposes, without any obvious revenue benefit for the tax authority. We will watch CJEU’s final judgment as this serves as the latest case to offer useful clarification of a complex issue.

Daniel Wieckowski, RSM Poland