Warsaw Business Journal: EU VAT risks |
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The first pan-European tax The French were the first to introduce Value Added Tax in the 1954 (although it took a German economist to invent it!). It was conceived as a tax on the consumer, and that it should be neutral on businesses that collected the tax. Since then, VAT has become the growth tax in The important issue is that Polish companies should be free to do business in any other EU state without any cash flow losses as a result of the VAT system. This is where the challenge begins as Polish companies are suffering large foreign VAT bills which they are struggling to recover, and risk big VAT penalties on foreign sales. Cash losses on European VAT Polish companies going abroad can quickly find themselves lumbered with large foreign VAT bills. This can arise from simple business and conference trips around At some point in the brilliant, harmonized tax future, when the EU VAT regimes of all the member states are synchronized, this type of foreign VAT recovery will not be a problem. However, since all of the EU countries are free to set their own VAT rates, this type of integration has not been possible. EU members are still nervous about allowing other states to administer their VAT whilst there are still large variations in rates. For example, the To overcome this, the EU created the foreign VAT reclaim system. This allows any Polish company to file a form with their foreign VAT invoices with the relevant tax authorities. They should then receive the cash back. This sounds fine in theory, but the practice is fraught with bureaucratic complexity and delays. Firstly, the language barrier – the application forms need to be completed in the local language of the tax authority – that means over 20 different languages. The rules covering what can be reclaimed vary enormously – most hotel VAT is reclaimable in the The best solution to this problem has been to hire a VAT reclaims agent, who will take a % cut of the VAT to take away most of the headache. However, there is now a new EU-wide initiative to launch a VAT reclaim portal. This will mean that from 2010, Polish companies will submit all their European VAT for reclaim on a Polish-language website – although the Polish tax authorities have not been forthcoming on the launch of this facility. Selling in For Polish companies selling in the rest of Polish companies importing into other EU states face the most demanding requirements. In many circumstances, they can be landed with a large VAT bill by foreign customs. This can be reclaimed, but requires registration with the local tax office and submission of local VAT filings. For companies doing this type of trade on a regular basis, countries such as the Netherlands and Belgium have very attractive VAT deferment regimes which can eliminate negative cash flows if managed properly. Many Polish companies also use Whatever the situation, companies need to be alert to their obligations under the EU VAT rules as there is certainly increased vigilance on inter-European trade because of the huge levels of VAT fraud in the past five years. Additionally, all European tax authorities are under increasing pressure in the current worsening economic climate to identify new tax-raising opportunities. You do not want to be the one losing out to this. Jacek Szufan works for TMF VAT Services, which provides VAT services globally. www.tmf-vat.com |
