Title: Opportunities and challenges in the area of European taxation
1Opportunities and challenges in the area of
European taxation
Tom Verbrugge Griet Hautekeete
2Overview
31. What is Europe Europe vs. European Union?
4Europe
5Europe - Countries
6European countries
- United Kingdom
- Romania
- Belarus
- Greece
- Bulgaria
- Iceland
- Serbia Montenegro
- Hungary
- Portugal
- Austria
- Czech Republic
- Ireland
- Lithuania
- Latvia
- Croatia
- Bosnia Herzegovina
- Slovakia
- Estonia
- Denmark
- Netherlands
- Switzerland
- Moldova
- Belgium
- Albania
- Russia
- Greenland
- Turkey
- Ukraine
- France
- Spain
- Sweden
- Germany
- Finland
- Norway
- Poland
- Italy
7European countries
- Macedonia
- Slovenia
- Cyprus
- Luxembourg
- Faroe Islands
- Andorra
- Malta
- Liechtenstein
- San Marino
- Monaco
- Vatican City
8European Union
9Countries being part of the European Union
10Countries being part of the European Union
- Austria
- Belgium
- Czech Republic
- Cyprus
- Denmark
- Estonia
- Finland
- France
- Germany
- Greece
- Hungaria
- Ireland
- Italy
- Latvia
- Lituania
- Luxembourg
- Malta
- Poland
- Portugal
- Slovakia
- Slovenia
- Spain
- Sweden
- The Netherlands
- United Kingdom
11Single Internal Market
- At the core of todays European Union
- Hundreds of directives adopted to sweep away the
technical, regulatory, legal, bureaucratic, and
cultural barriers that stifled free trade and
free movement within the European Union - Four freedoms of movement (enshrined in the
Treaties) for goods, services, people and
capital
12Customs Union
- Free movement of goods within the European Union,
meaning no customs duties and controls on
movements of goods cleared into the European
Union - One common foreign trade policy towards non
European Union countries - Customs union vs. free trade zone (e.g. NAFTA)
132. European taxes
14Overview of main European taxes
15Direct taxes vs. indirect taxes
- Direct taxes
- Country specific regulated
- No general European basis
- Tendency towards EU harmonisation
- Indirect taxes
- European framework general denominator
- Some topics can be regulated on a national level
(can lead to country differences)
16FORT EUROPE Harmonization Indirect Taxes
- Indirect taxation refers to taxes on production
and consumption - i.e. VAT, customs and excise duties, transfer
duties, inheritance tax, environmental taxes,
etc. - Indirect taxation calls for a high degree of
harmonization as it affects the free movement of
goods and services. - Mainly regulated by means of EU
Directives/Regulations
17FORT EUROPE Alignment Direct Taxes
- All taxes on the income of individuals and
company profits - income tax and corporation tax.
- EU Member States are free to set rate of direct
taxes and taxes on savings and capital gains. - As the EC Treaty does not specifically call for
direct taxes to be aligned, tax coordination
remains a delicate exercise.
18FORT EUROPE Alignment Direct Taxes
- Corporate tax measures towards alignment
- Parent/Subsidiary Directive
- The Mergers Directive
- The Arbitration Convention
- The Interest/Royalties Directive
19European Union Intercountry level
- European countries avoid international double
taxation by means of bilateral tax treaties based
on the OECD Model Tax Convention. - Country specific
- Countries which concluded a double tax treaty
with Taiwan - Belgium
- Netherlands
- UK
- Sweden
- Denmark
20Overseas VAT Refund Claims
- Non-established, non VAT-registered businesses
may be able to submit claims to recover VAT
incurred in a foreign jurisdiction. - Recoverable VAT may be included in costs managed
through the AP system (eg associated with
contract manufacturing operations, imported
products, trade shows, exhibitions, training
events etc) - Recoverable VAT may be included in costs managed
through payroll as part of the employee expenses
reimbursement process (eg hotel, subsistence,
entertainment, car hire etc)
3. Opportunities
21Value Added Tax
- Upon entry of goods into the European Union
- Bonded warehouse warehouse under special regime
allowing that import VAT on goods stored in the
warehouse is paid at the moment that the goods
leave the warehouse to their final destination in
stead of at the moment of entrance into the EU - OPTIMISATION deferment of the moment of payment
of import VAT or avoidance of payment cash flow
advantage - In some countries there are specific licenses
allowing to shift the payment of import VAT to
the VAT return or a later moment instead of the
moment of import. - OPTIMISATION deferment of payment to a later
moment or elimination of payment cash flow
advantage
22Value Added Tax
- Trade of goods within the European Union
- Reverse charge mechanisms are widely implemented.
This system involves a reporting obligation of
the VAT but no payment of VAT. - OPTIMISATION avoidance of pre-financing of VAT
resulting in a cash flow and commercial advantage - In general monthly VAT recovery possible
- OPTIMISATION Cash flow advantage
23Customs Excises
- Bonded warehouse warehouse under special regime
allowing that import duties on goods stored in
the warehouse are paid at the moment that the
goods leave the warehouse to their final
destination in stead of at the moment of entrance
into the EU - OPTIMISATION deferment of the moment of payment
of import duties or avoidance of payment cash
flow advantage and/or cost saving - Transit mechanisms transport on the EU territory
of goods which have not (yet) been customs
cleared into the European Union - OPTIMISATION deferment of the moment of payment
of import duties or avoidance of payment cash
flow advantage and/or cost saving
24Customs Excises
- Valuation the basis for computation of import
duties is the customs value. The latest
transaction value available upon import must be
used but EU legislation allows to use an earlier
sale (FSFE first sale for export) - OPTIMISATION First sales invoice computation
of import duties based upon a value which was
charged in a previous sales transaction resulting
in a lower taxable base - Classification of the goods very important to
correctly classify the goods and accordingly
apply correct import duty rate (high penalties in
case of incompliance incorrect application can
lead to overcharges of import duties) - OPTIMISATION payment of correct amount of
duties, avoiding risk and overpayments
25Customs Excises
- Origin of the goods origin of goods can result
in preferential (lower) import duties upon import
into the EU - OPTIMISATION sourcing of raw materials can
influence the determination of the origin of the
goods
26Individual income taxes social security duties
- Some countries have special regimes for
expatriate employees. Expat regime allowing an
advantageous tax treatment of income earned in
foreign countries (e.g. non taxable allowances,
specific rulings, etc.). - OPTIMISATION structuring of income
- Multiple employment contracts break the
progression of tax rates (split taxation over
different countries) - OPTIMISATION conclude cross border employment
agreement - Bilateral agreements with countries outside
Europe on e.g. social security duties levied on
individual income
27Corporate income taxes
- Some countries have tax incentives to attract
investments, e.g. Belgium and its NID (notional
interest deduction) - OPTIMISATION invest or have European HQ in such
a country resulting in minimal taxable base - Ruling practices allowing to diminish the taxable
income base - OPTIMISATION lower corporate income taxes
- Legal certainty in tax matters possibility to
obtain rulings on all kind of issues, e.g.
transfer pricing, MA, etc. - OPTIMISATION legal certainty
28Output Tax Decelerator
Overseas VAT Refund Claims
4. Challenges
- Example
- A UK VAT-registered business raises invoices on
its accounting system near the end of a quarterly
VAT accounting period (e.g. between November 20
and 30 for a November 30 period end) but
physically issues the invoices at the beginning
of the next period - Normally, the business would account for output
VAT based on when the invoice was raised on the
accounting system (payment due by December 31) - However, if the business can account for output
VAT based on the date when the invoice is issued
(VAT period ending February 28), a cashflow
benefit is received since the payment will not be
due until March 31 usually long after the
payment is received from the customer
- Non-established, non VAT-registered businesses
may be able to submit claims to recover VAT
incurred in a foreign jurisdiction. - Recoverable VAT may be included in costs managed
through the AP system (eg associated with
contract manufacturing operations, imported
products, trade shows, exhibitions, training
events etc) - Recoverable VAT may be included in costs managed
through payroll as part of the employee expenses
reimbursement process (eg hotel, subsistence,
entertainment, car hire etc)
29Challenges Value Added Tax
- Challenge for Value Added Tax
- Although regulated on a European level, country
differences persist and different compliance
processes are applicable - Opportunity offered
- Deloitte offers a unique concept the European
Indirect Tax Compliance Centre - A one stop shop handling VAT compliance (and
consulting) all over Europe
30Challenges Customs Excise
- Challenge for Customs excise
- Customs compliance has to be taken care of
- Opportunity offered
- Can be taken care of by third party
- Electronic compliance processes paperless
customs is a project of the European Commission
for which a.o. Deloitte offers solution to the
business
31Challenges Customs Excise
- Challenge for Customs excise
- Trade policies with non EU countries
- Opportunity
- To be assessed before entering into business
32Challenges Corporate Income Tax
- Challenge for Corporate income tax
- Transfer pricing price setting is extremely
important, especially between related parties - Opportunity
- Transfer pricing strategy is a must
- Certainty can be obtained by means of a ruling
issued by the tax authorities
33Challenges Corporate Income Tax
- Challenge for Corporate income tax
- Permanent establishment in Europe
- Stock
- Liaison office
- Representation office
- Opportunity
- Facts should be reviewed in depth
- Depending on the competencies attributed, a PE
can be avoided for income tax purposes
34Challenges Personal Income Tax
- Challenge for Personal income tax
- A variety of different taxation regimes in Europe
- Opportunity
- Can lead to a double exemption of certain income
categories - Split taxation of income when working in
different countries
35Efficient Importing
Output Tax Decelerator
Overseas VAT Refund Claims
5. Belgium as your gateway to Europe
- Example
- A UK VAT-registered business raises invoices on
its accounting system near the end of a quarterly
VAT accounting period (e.g. between November 20
and 30 for a November 30 period end) but
physically issues the invoices at the beginning
of the next period - Normally, the business would account for output
VAT based on when the invoice was raised on the
accounting system (payment due by December 31) - However, if the business can account for output
VAT based on the date when the invoice is issued
(VAT period ending February 28), a cashflow
benefit is received since the payment will not be
due until March 31 usually long after the
payment is received from the customer
- There are numerous ways to make importing more
cash-efficient from a VAT perspective - Warehousing (1) delay the time at which goods
are imported for VAT purposes by placing them in
a bonded warehouse (useful for storage of spare
parts) - Warehousing (2) undertake certain transactions
in a VAT or Customs warehouse without indirect
tax implications - Deferment accounts use of VAT and duty
deferment accounts can reduce the cashflow impact
at importation by postponing payment date for
days or weeks
- Non-established, non VAT-registered businesses
may be able to submit claims to recover VAT
incurred in a foreign jurisdiction. - Recoverable VAT may be included in costs managed
through the AP system (eg associated with
contract manufacturing operations, imported
products, trade shows, exhibitions, training
events etc) - Recoverable VAT may be included in costs managed
through payroll as part of the employee expenses
reimbursement process (eg hotel, subsistence,
entertainment, car hire etc)
36Top 10 considerations for Belgium
- Gateway to Europe centrally located in Europe
(elected as the number 1 logistics location in
Europe in European Distribution Report 2006 by
Cushman Wakefield) - Excellent infrastructure (road, rail, etc.)
close to important ports when trading in Europe
(Antwerp, Zeebrugge) - Brussels is the capital of Europe, especially
with the presence of the EU Commission, NATO and
other big international institutions and the
presence of a lot of HQ of multinational
companies - Highly skilled people, especially with respect to
language (3 languages is more or less a standard) - High quality of life in Belgium
- Politically neutral Extensive network of
commercial treaties with other countries - Close to a wide range of test markets
- Effective Corporate tax rate minimal via NID,
ruling on taxable basis and distribution centers - Expat tax status is unique
- Brussels EU compliance center runs your
accounts, VAT and income tax formalities for the
whole of Europe from 1 single point
37Contact us
Belgian Practice established in Brussels
- Customs excise
- Tom Verbrugge 32 2 600 66 20
- tverbrugge_at_deloitte.com
-
- Indirect taxes
- Griet Hautekeete 32 2 600 66 47
- ghautekeete_at_deloitte.com
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