VAT Package Changes - affecting cross-border VAT recovery
New electronic procedure
From the 1st of January 2010, the EU is introducing changes to the procedure for cross-border VAT recovery within the EU.
As a result Meridian will be required to submit refund applications electronically for our EU established customers recovering VAT in another EU member state. The Tax Administration of the member state, where our client is established, is responsible for making available an electronic portal. This portal will act as a post-box to receive applications that are forwarded to the country where the VAT refund is being claimed from (i.e. the Member State of Refund – MSR). The claims will continue to be received, assessed and refunded by the MSR and this MSR will continue to determine their specific rules on what invoices and expenditure can or cannot be recovered.
Confusion:
There is significant confusion regarding how this new electronic procedure will work in practice as none of the EU member states have, as yet, fully implemented the systems required to manage the application and refund of claims. Meridian has been in constant contact with all 27 Tax Administrations over the last year to ascertain how they intend to implement the legislation and at what stage they are at. The following are some of the clarifications that have been obtained:
Clarifications:
- Separate claims must be filed through the portal for each country where VAT is incurred;
- The amount of refundable VAT will not be harmonised and will continue to be determined under the VAT rules of the MSR.;
- There are no changes to rules governing the determination of a “valid VAT invoice” for recovery purposes;
- Detailed information must be input to the portal for every invoice that needs to be recovered e.g. supplier name, supplier address, supplier VAT id, invoice number, invoice date, invoice amount etc;
- A description of the nature of the goods/services on which the VAT is being claimed is required on each invoice. Up to 150 expenditure codes (and sub-codes) are provided to select from depending on the country to which you are applying to;
- Claims must be filed electronically from 1 Jan 2010;
- The management of how and when claims are submitted is still required as the number of claims allowed annually continues to be limited.
- The number of claims allowed will be determined by each MSR (likely to be 5 in most member states);
- The protocol for communications on the submitted claims has not been harmonised and they will vary significantly from state to state;
- Each MSR will continue to communicate in their chosen language which is normally their local language;
- The new system does not apply to claimants that are established outside of the EU and it also does not apply to VAT refund applications made to states based outside the EU (e.g. Switzerland and Norway).
Tax Administrations
Tax Administrations still need to define how many of their processes and systems will work, with some countries already stating they will not be ready for these new procedures until 2011. In addition they need to consider how these will operate in harmony with each of the other member states. Meridian will continue to seek the relevant information, required for us to continue to obtain successful and fast refunds for you, from the Tax Administrations.
Meridian Global Services has held numerous meetings with the EU Commission and Member States to provide feedback and highlight the key issues for our clients on the Refund Directive that need to be addressed. In many cases the Member States had not even considered the important issues that were highlighted. Some Member States stated that until transposing legislation is adopted, they cannot finalise their approach and therefore could not respond to the questions raised by Meridian. For most Member States the transposing legislation will only be ready at the end of December 2009. Meridian believes that the deficiencies in the current systems and procedures that are being implemented will cause major problems and that these problems could have a significant financial impact for EU businesses if not resolved.
On the 4th of December 2009, Mark O’Riordan, CEO, Meridian Global Services wrote to Rolf Diemer, Head of VAT Policy, European Commission regarding the issues with current state of readiness for implementation of the Refund Directive with effect from 1st January 2010.
Download a copy of the letter