This month in indirect tax: Saudi Arabia’s tax amnesty; Poland v the EU; India’s WTO complaint
Developments included the end of Saudi Arabia’s tax amnesty, Poland’s VAT battle with the EU, the Indirect Tax Forum, India’s WTO complaint, and more.
Saudi Arabia finally ends its tax amnesty
Saudi Arabia closed its amnesty for taxpayers on May 31. This is more than three years after it was opened in March 2020 to reduce the impact of COVID-19 on Saudi businesses.
The Saudi tax amnesty exempted businesses from punitive measures for being non-compliant with VAT rules. This included everything from late tax registrations and delayed payments to incorrect VAT returns and breaches of e-invoicing rules.
Saudi Arabia introduced VAT in 2018 as part of a regional effort to harmonise tax law between the Arab Gulf states. The initial VAT regime was still very new when the pandemic forced Saudi Arabia to launch an amnesty.
It was originally planned to end in 2021, but it was extended repeatedly until a final six-month extension was approved in December 2022.
However, the amnesty does not cover fines paid before the date on which it was introduced, penalties resulting from tax evasion or fines for overdue payments become payable after 31 May.
EU court rules against Polish authority in tax dispute
The Court of Justice of the EU issued a decision opposing a ruling by the Supreme Administrative Court in Poland, in a proceeding on VAT deductions.
Published on May 25, the verdict examined a 2021 case concerning the right to claim taxable deductions on the purchase of trademarks considered legally void.
Poland’s supreme court had concurred with arguments from the chief director of the national tax authority, in a legal case against a local company, asserting that transactions regarded as invalid under the civil national law are not entitled to deductible tax relief.
But the CJEU overruled this position, contending that the absence of legal recognition of the underlying transaction does not nullify its existence in the VAT sense.
The court maintained that, excluding business deals in prohibited goods and services, entities should not be deprived of the right to deduct.
Indirect Tax Forum: Govts turning companies into ‘free’ VAT auditors
ITR’s Indirect Tax Forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.
Governments are putting too great a VAT reporting burden on companies, which have now become “free auditors”, said panellists at the conference in Brussels last month.
The transition to the digital age of VAT reporting and e-invoicing has altered the relationship between tax authorities and businesses.
Governments feel as though they can request more data points and information from companies, which are struggling to adapt to quickly changing expectations, speakers said.
Where previously the onus to find and validate potentially fraudulent transactions lay with tax authorities, tax professionals are increasingly finding that they now carry that burden, the forum heard on May 24.
The rapid rate of change has created an “overburdensome reporting requirement”, said Lisa Dowling, senior global director and head of indirect tax, advisory and compliance at TaxBack International in Ireland.
Indirect Tax Forum: Convergence deadline for ViDA reporting in doubt
A VAT policy officer at the European Commission told the ITR Indirect Tax Forum that the initial deadline set for EU convergence of domestic digital VAT reporting is likely to be extended.
The Commission is pushing for member-state convergence of digital VAT reporting, but the deadline for a single approach looks like it will be pushed back, said the official on May 23.
Digital reporting requirements (DRRs) and e-invoicing make up part of the Commission’s VAT in the Digital Age (ViDA) action plan, which was proposed in December 2022.
As part of ViDA, the Commission is set to enforce mandatory DRRs for transactions between EU member states. Optional DRR requirements will be available for domestic transactions initially, with the aim being full convergence.
Any new DRRs that are introduced will have to abide by intra-community principles, and the Commission has set a deadline of 2028 for existing requirements to converge with those.
However, the 2028 deadline looks as though it will be pushed back.
Indirect Tax Forum: Meta VAT investigation could ‘blow up’
ITR’s Indirect Tax Forum heard that Italy’s VAT investigation into Meta has the potential to set new and expensive tax principles that could be adopted around the world.
Company profit margins hinge on Italy’s €870 million ($925 million) VAT investigation against Meta, tax professionals told the ITR Indirect Tax Forum 2023 in Brussels on May 23.
It was first reported in February 2022 that Milan magistrates had launched an investigation into Meta at the request of the European Public Prosecutor’s Office, pursuing up to €870 million in unpaid VAT on the data obtained from its users.
The ongoing investigation assumes that consumers ‘pay’ for ‘free’ Meta services like Facebook with their data, and that transactions should therefore be subject to VAT.
The €870 million is based on consumer data transactions from 2015 to 2021, and, if the case was successful, it would set a dangerous international precedent, the panel told the forum.
India poised to challenge EU carbon border tax
The Indian government is planning to challenge the EU’s Carbon Border Adjustment Mechanism at the WTO, according to government and industry sources reported EurActiv on May 17.
The CBAM would impose special tax rates on carbon-intensive imports into EU countries, particularly resources such as aluminium, cement, fertilisers, and steel. This would make high-carbon products much more costly and export countries like India stand to lose out.
However, the European Commission designed the CBAM to meet WTO rules and set the price of carbon for imports at the same level as EU products. Nevertheless, the Indian government may be about to challenge the EU on its decarbonisation strategy.
EU to redesignate e-commerce traders to boost customs payments
The EU unveiled plans to make online retailers outside of the region’s customs union responsible for all customs payments, in a bid to boost revenues.
In an announcement on May 15, the European Commission published a broad reform package to facilitate the flow of digital trade into its customs union.
Set for implementation in 2028, the proposal intends to update the current status of foreign e-commerce enterprises as “consumers”, modifying them to a rank of “deemed importers”.
The Commission believes the change will put the responsibility to pay for cross-border duties squarely on the side of the retailer.
In addition, levying standard customs charges will take place at the point of sale, in the same way that VAT costs are already collected.
To complement the projected administrative burden such reforms will carry, the Commission introduced the rollout of the ‘EU Customs Data Hub’ online database.
In 2021 alone, nearly 700 million import declarations were processed by the EU. Expanding the system to meet the commercial needs of the future will be a momentous task.
Australia raises tobacco tax and boosts GST compliance
The Australian government increased excise duty on tobacco products in its federal budget on May 9, while seeking to improve goods and services tax compliance.
Tobacco tax will rise by 5% a year from September 1 2023 for three years as part of a plan to increase tax revenue by more than A$3.3 billion ($2.2 billion). This means the price of a packet of 25 cigarettes will rise to around A$50 by 2027, according to the Australian Financial Review.
Loose-leaf tobacco will also be taxed at the same rate as cigarettes. Tobacco tax revenue is already worth over A$15 billion a year to the Australian Treasury, but the government hopes to drive down the level of daily smoking from 10% to 5% by 2030.
At the same time, the Australian Taxation Office is receiving more than A$589 million in funding to help increase GST compliance and raise tax receipts by A$7.6 billion.
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