Recent Changes to Value Added Tax
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E-commerce: New VAT rules
Law 47/2020 was published on 24 August to implement articles 2 and 3 of Council Directive (EU) 2017/2455 of 5 December 2017, and Council Directive (EU) 2019/1995 of 21 November 2019, modifying the operation of the Value Added Tax (“VAT”) system in intra-EU and international e-commerce. This legislation enters into force on 1 January 2021.
The aim of these Directives is to modernise the VAT applicable to e-commerce by essentially ensuring the neutrality of the system and the proper functioning of the internal market. The Directives are also intended to guarantee the effectiveness of taxation of the digital economy, while striving for consistency in applying of the VAT principle of taxation at destination.
These objectives are increasingly important as we are witnessing a boom in distance sales of goods to end consumers supplied by operators established in other Member States and by operators in third countries. They are also important because, until now, there has been no effective taxation in the Member State of consumption.
In addition to these specific objectives, efforts have also been made to introduce mechanisms to simplify processes and cut red tape in meeting the VAT obligations that arise from these transactions. However, the degree of simplification has varied according to way the rules have been implemented by each Member State.
New e-commerce rules
One important change to the localisation of intra-EU distance sales and distance sales of imported goods is the switch to taxation in the Member State of destination of the goods.
To simplify the way VAT works for traders who make marginal intra-EU sales of goods, the new rules also provide that the supplier or transferor of telecommunications, radio and television broadcasting services, electronic services and intra-EU distance sales of goods that is established in only one Member State, is subject to taxation in that Member State. Failing that, the trader is taxed in the Member State from which the services are supplied or the goods are dispatched, if:
• the service is supplied to an end consumer, and
• the amount of the services together with the cross-border sales does not exceed EUR 10,000 for the current or the previous calendar year.
These providers or transferors can always choose to locate their operations in the Member State of destination of the goods and they are bound by this choice for a minimum of two calendar years.
Where transactions are carried out using an electronic interface, meaning a market, platform, website or similar, between a supplier in a third country or established in a Member State and an end consumer, whoever provides the interface will be deemed to be the one that personally transfers and acquires the goods. In these cases, VAT is due and payable on the date the payment has been accepted by the end consumer.
Electronic interfaces will have to keep records of transactions carried out through them for a period of ten years and make them available to the Portuguese Tax and Customs Authority (“PTA”) when requested, even if they may not be considered as taxable persons for the transfer of the goods or services in question.
If the interfaces do not make these records available, they will be jointly and severally liable for the payment of VAT together with the transferor and the service provider. However, the electronic interface will not be liable for any additional VAT claims if these result from erroneous information provided by the suppliers of the goods. In these situations, the supplier itself will be liable for the tax.
Amendment of the exemption applicable to imports of certain goods
Law 47/2020 provides for an amendment to Decree-Law 31/89 of 25 January 1989, which exempted imports of certain goods from VAT. These include personal goods belonging to individuals from third countries, small consignments of negligible value, capital goods and other equipment imported on the occasion of a transfer of activities and goods imported for general purposes.
This amendment, which is intended to eliminate double taxation, exempts the importation of goods when VAT is declared under the special arrangements for distance sales of imported goods, subject to certain formal requirements.
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