Value Added Tax (VAT) Q&A
Since VAT can impact everyday business for companies expanding internationally, it was no surprise that many of you had a host of additional questions after our webinar this week Getting the "Value Add" Out of VAT. We didn’t have time to cover them all in the allotted hour, so we thought it would benefit everyone to see the additional questions that came up, as well as the answers from our VAT expert.
Q: Why is it important to know where our customers are? You mentioned shared service centers.
A: For services, the place where VAT is charged is according to where the customer is established. That is usually not a shared service center. So, for example, if the customer is located in the same country as the supplier but then sends their invoice to a shared service center in a different country, the VAT position will be wrong because the customer location is not the shared service center. It is safer to follow the address where the service is contracted from.
For services, it is impossible to cover all possible scenarios, but the underlying message is that it is very important t get the customer location right so that the VAT is right. Also,if selling through a reseller to an end customer, note that it is the reseller that is your customer for VAT purposes, not the end customer—it’s the reseller location that counts.
Q: What happens with revenue shares? If we get an amount of cash from a deal, are we responsible for any VAT?
A: That depends. The point is that you have to decide what you are doing and who you are doing it for. It is possible to receive cash on a revenue share and have no VAT obligation, but is also possible to receive, say 70%, but have a VAT responsibility for 100%. However, this is very much dependent on the specifics of a given situation: what business activities are involved, the type of customer (B2B or B2C), the parties in the chain, etc.
Q: What do you mean by ‘two events’ when it comes to importing?
A: One event is the importation itself. The other is the sale that follows it (even though it might be part of the same movement of goods it is a separate supply for VAT purposes and the VAT position has to be considered on the disposition of the goods after importation). This often causes great confusion. More details are available in the VAT presentation slide that deals with the mechanics of importing (you can see the importation is one stage or event, and the other is the on sale to the retailer.
Q: Can we reclaim the VAT immediately or do we have to wait until we have sold the goods?
A: Immediately – or more accurately, once your VAT return has been filed. It is not necessary to wait until the goods have been sold to reclaim the credit.
Q: Who should be importer of record?
A: That is a matter of legal fact. Your customer may insist on it being you; you might want to negotiate it being them. It is never your shipper, FedEx, etc. Be careful to distinguish a consignee from an importer of record – the two may be entirely separate and it is the IOR that has all the legal importing obligations.