Consequently, taxable persons who incur VAT in Italy and who are established in the EU but with no permanent establishment in Italy can request a refund within the revised time limit which is 2 years from the date of payment.  As a result of the reciprocal arrangements that have been signed with Switzerland, Norway and Israel, taxable persons in these countries can also make claims within the increased time limit.

This increased time limit will be of benefit to taxpayers who have not requested refunds for 2008.

The new procedure allows applicants to file a VAT refund request with the tax authorities in the country where they are established. The relevant authority will then pass on details to the member state of refund.

This is in line with changes made to the 8th Directive procedures as part of the VAT Package.

Our consultant Andy Spencer guides you through five key steps to making the transition to the new system.

Five key checks to ensure cross-border VAT efficiency

A lot of attention is currently being paid in the media to the introduction of electronic filing (click here for information on electronic filing). But the major commercial challenges and opportunities created by the EU Refund Directive are less frequently discussed. In our interview with Andy Spencer (formerly VAT Director at Baker Tilly UK), Andy identifies 5 key commercial issues that need to be addressed by companies using VAT recovery providers as they transition to the new framework:

Is VAT being charged to you correctly?
With the extension of the reverse charge to cover services, many transactions now shouldn’t include VAT ? and you shouldn’t be paying it.

Do you have a system for challenging incorrectly charged VAT?
It’s likely that suppliers will often misapply the rules. If they do, and you don’t challenge them, you could end up paying VAT unnecessarily – and then paying commission on claims that never needed to be made. Have you got a process in place to avoid poor cashflow and extra unwanted costs?

Have you reviewed your VAT recovery contract?
Many VAT recovery contracts enable the provider to earn commission for obtaining credit notes for wrongly charged VAT. If steps are not taken to correct the treatment of such transactions, these costs can recur year after year. And with the introduction of the VAT Package, this issue will only become more prevalent. For this reason, it’s sensible to check whether your recovery provider is incentivised to give you the best commercial advice. Have they advised you how to spot incorrectly charged VAT and eliminate unnecessary claims? Will they profit through credit note commission if simple systemic issues are not addressed? Are you being advised to make the most of the reverse charge?

Have you considered VAT Registration as an alternative to recovery?
For many companies, VAT registration represents a more efficient method of recuperating VAT than cross-border recovery ? it’s often both quicker and less expensive. But be careful that your provider doesn’t charge you commission on the input tax!  

Have you reviewed the status of your previous claims?
With the major changes that have been introduced to the system, it’s vital to make sure that your older claims are being managed properly. Take steps to ensure that your provider (and any previous providers) presents you with a full report on outstanding claims. If claims have been delayed, you may well have interest owing to you!

To see the full interview with Andy, click here.

For more detail about Accordance’s Cross-Border VAT Management programme, click here.

The VAT Package changes take effect from 1st January 2010.  The decree introduces a compulsory reverse charge for all domestic supplies of goods and services by non-established suppliers to VAT registered customers established in Italy.  This rule is irrespective of whether the non-established supplier has a VAT registration in Italy.  This means that the customer has to account for VAT under the reverse charge and the supplier does not charge VAT. 

The compulsory reverse charge is effective from 20th February 2010.
 
If the supplier makes acquisitions of goods in Italy from other Member States, it will still have to register to account for VAT on the acquisition even though no VAT is chargeable on the subsequent sale in Italy because of the extension of the reverse charge. 

Suppliers that incur Italian VAT on local purchases will have to consider how to recover this VAT as it will no longer be possible to offset it against VAT due on sales to Italian customers.

The standard rate has been increased from 19% to 21% and the reduced rate from 9% to 10%.

•   4.5% to 5%
•   9% to 10% 
•   19% to 21%

The details are not yet known including the date the rate increases will take effect. 

Watch this space for more information.

Our consultant Andy Spencer guides you through five key steps to making the transition to the new system.

Five key checks to ensure cross-border VAT efficiency
A lot of attention is currently being paid in the media to the introduction of electronic filing (click here for information on electronic filing). But the major commercial challenges and opportunities created by the EU Refund Directive are less frequently discussed. In our interview with Andy Spencer (formerly VAT Director at Baker Tilly UK), Andy identifies 5 key commercial issues that need to be addressed by companies using VAT recovery providers as they transition to the new framework:

1. Is VAT being charged to you correctly? With the extension of the reverse charge to cover services, many transactions now shouldn’t include VAT ? and you shouldn’t be paying it.

2. Do you have a system for challenging incorrectly charged VAT? It’s likely that suppliers will often misapply the rules. If they do, and you don’t challenge them, you could end up paying VAT unnecessarily – and then paying commission on claims that never needed to be made. Have you got a process in place to avoid poor cashflow and extra unwanted costs?

3. Have you reviewed your VAT recovery contract? Many VAT recovery contracts enable the provider to earn commission for obtaining credit notes for wrongly charged VAT. If steps are not taken to correct the treatment of such transactions, these costs can recur year after year. And with the introduction of the VAT Package, this issue will only become more prevalent. For this reason, it’s sensible to check whether your recovery provider is incentivised to give you the best commercial advice. Have they advised you how to spot incorrectly charged VAT and eliminate unnecessary claims? Will they profit through credit note commission if simple systemic issues are not addressed? Are you being advised to make the most of the reverse charge?

4. Have you considered VAT Registration as an alternative to recovery? For many companies, VAT registration represents a more efficient method of recuperating VAT than cross-border recovery ? it’s often both quicker and less expensive. But be careful that your provider doesn’t charge you commission on the input tax!

5. Have you reviewed the status of your previous claims? With the major changes that have been introduced to the system, it’s vital to make sure that your older claims are being managed properly. Take steps to ensure that your provider (and any previous providers) presents you with a full report on outstanding claims. If claims have been delayed, you may well have interest owing to you!     

To see or read the full interview with Andy, click here.

For more detail about Accordance’s Cross-Border VAT Management programme, click here.

Andy Spencer, formerly VAT Director at Baker Tilly UK, joined Accordance in October. We spoke to Andy (full text below the video) about the problems businesses face in optimising their cross-border VAT positions.

Here is an edited version of our discussion with Andy.

ACC: Andy, what would you say is the biggest single problem for companies trying to recover cross-border VAT?

AS: In my experience, the major difficultly for businesses making claims is being sure that VAT has been correctly charged on foreign invoices. If VAT has been charged when it should not have been then the member state will not make the refund and it could be difficult and time consuming to get the supplier to revise the invoice. It is also important to remember that incorrect applications may be subject to penalties and interest.

ACC: Is this an issue companies look at closely enough?

AS: Unfortunately, it is very common for firms not to challenge overseas suppliers when VAT is charged ? something which often causes serious cash flow disadvantages. The payment of VAT incorrectly charged is one of the things I’ve always looked for on reviews – and it becomes even more important after 1st January. From Jan 1, the default position is that VAT should not be charged by the supplier on cross border services. This means that the business should not pay VAT on the supplier’s invoice but account for the VAT using reverse charge procedures.

ACC: How do you feel European businesses have been supported by advisers in dealing with this problem?

AS: Well, I think as far as Big-4 goes it’s been a neglected area, because the focus for the large practices is very much on problems within countries, rather than cross-border. In general Big-4 have looked at cross-border VAT recovery (and incorrectly-charged foreign VAT) as a compliance issue, and left it for specialist providers to deal with. Having said that, incorrectly charged VAT actually seems to have presented a conflict of interest for the VAT recovery providers.

The basic problem is that because they’ve normally been paid on a commission basis, it’s been to their advantage to submit claims ? even when they realised that the claims would fail because the VAT ought not to have been charged in the first place ? and then charge commission for obtaining credit notes. Best practice ought to mean advising clients to make (sometimes very small) systemic changes in order to eliminate payment of incorrect VAT in the first place. I’m afraid to say we’ve seen companies pay out millions of euros of unnecessary commission, year after year, as a result of a lack of appropriate information.

My own practice, and the practice of Accordance as a firm, has always been to look at the structural position of the client, with a view to eliminating the need to make claims in the first place. It’s a way of making an immediate cashflow improvement and also saves commission costs. The key thing is to get incorrect VAT charging and reverse charge issues out into the open; the savings are there; and it’s even more important with the changes coming in on Jan 1st.

ACC: Are there other ways that a stronger focus on compliance could lead to savings?

AS: I’ve noticed that many companies don’t realise when a registration ? rather than an attempt at a cross-border refund ? would actually be an appropriate and cost-effective course of action. There again, you have to be careful. I’ve seen cases where firms have allowed themselves to be registered overseas ? and then charged commission on overseas input tax! One client we saw recently had been paying a provider ?100K a year to manage a single registration ? that is, submit just four VAT returns! My advice is that people should pay attention to the detail of their contracts ? particularly at a time when reverse charge rules mean that providers will be earning less commission through 8th directive claims.

ACC: Are you hopeful that the new rules will lead to improvements for businesses?

AS: Very much so. The old system was immensely slow and cumbersome. It’s particularly good that there will be an established timeframe for getting claims settled ? with automatic interest payments when that doesn’t happen. Of course, many countries operate an interest system now, and it’s clear that there are thousands of companies already owed large amounts of interest. We’re entering a new framework, and now is a great time to audit 8th directive positions. You could get a nice surprise! I’d definitely recommend that all companies take the opportunity to get a full breakdown from the tax authorities of all the claims they’ve submitted historically, and a report on the status of those claims. If you have a provider, you should ask them for the same thing. If there are problems with claims, you want to know about them now.

Click here for details of Accordance’s specialist Cross-Border VAT Management programmes.

For a discussion of the principles of electronic filing, please click here.

For an overview of tax authority implementation schedules, please click here.

From our research we can say that some member states will definitely be ready (we give some examples below). In fact, most member states intend to use existing electronic portals for the submission of claims, making the transition less arduous than it first appeared. But it is true that at the end of 2009, some member states had not yet published details of their plans.

It is, therefore, possible  - though very much against the wishes of the EU – that the old paper application system and the new electronic system could run in parallel during 2010.

But given that in practice the electronic system actually needs to be ready by 1st April 2010 - the date the first claims could be submitted - it’s vital to take steps to be ready for electronic filing now.

How things are progressing across the EU

UK
To make a claim in the UK applicants must be registered for HMRC’s VAT Online Service. Agents can register to enable them to make refund applications on behalf of their clients.

Ireland
From 1st January 2010 all Irish traders wishing to make a claim for a refund of VAT incurred in another EU Member State will have to be registered with the Revenue’s Online Service (ROS). Where the claim is made by an agent of the trader, the agent must be registered with ROS and also have a Tax Advisor Identification Number (TAIN). A new portal called Electronic VAT Refund will be available from 1st January 2010.

Denmark
Denmark says that the online system will be implemented on 1st January 2010.

Finland
Finland expects to be ready for electronic application from 1st January 2010. More information is available at their website www.tax.fi. The refund application is made through the ALVEU service. It will still be possible to use an agent. In such a case a power of attorney should be attached to the application

Sweden
From 1st January applicants must use the Swedish Tax Agency’s electronic service. Paper applications will not be accepted after 31st December 2009. Copies of invoices will not normally be required. For a company to use the e-service it must inform the Swedish Tax Agency of who is going to use it on the company’s behalf. That person must have electronic identification via a Swedish personal identity number. If the company is not registered for VAT in Sweden it cannot make an application.

Contact us for assistance with preparation for electronic VAT submission.

For a discussion of the principles of electronic filing, please click here.

To learn how reduce cross-border VAT costs now, please click here.

Submitting through the portal
The new electronic cross border refund system enables a business that incurs VAT on expenditure in a Member State where it is not established and makes no supplies, to recover the VAT directly from the Member State.  The way the system will work is that the business will make the claims via an electronic portal in its own member state.  A separate application will be made for each member state.  So if a UK business has claims in France, Germany and Poland it will make three separate claims via the UK’s electronic portal.  The member state of establishment will check whether the claimant is registered for VAT and pass the claims onto the relevant country for refund.

• The application will have standard fields for details of the business, the expenditure, and so on. Each item of expenditure has an expenditure code.  Member states may require submission in their own language but we believe that most member states will allow the use of a second language and English is the common choice. 
• The applications must be made by 30th September in the year following the date of expenditure.
• Tax authorities will be required to come to a quick decision: claims ought to be settled no more than four months after the submission deadline. Interest will automatically be payable on delayed claims. 

Contact us for assistance with preparation for electronic VAT submission.

For an overview of tax authority implementation schedules, please click here.

To learn how reduce cross-border VAT costs now, please click here.