Adapting to changing environments: BEPS and VAT

Source: PwC - The final recommendations from the OECD’s base erosion and profit shifting (BEPS) project were released on 5 October 2015. The recommendations were endorsed by the G20 Finance Ministers on 8 October 2015, and they renewed their commitment for rapid, wide-spread and consistent implementation of the measures.

Whilst the vast majority of the recommendations are focused on corporate tax and transfer pricing, there are also specific proposals in respect of indirect tax. Action 1 which focuses on the digital economy, contains specific references to BEPS issues arising with respect to indirect taxation, as follows:

1. B2C supplies;
2. remote digital supplies to exempt businesses / remote digital supplies to multi-location enterprises; and
3. VAT/GST on low value imports.

Recommendations to address these issues are as follows:

• The place of supply for B2C services should follow the destination principle, i.e. collection of VAT on B2C transactions in the customer location. To support this change, a simplified registration and compliance regime, similar to the EU Mini One Stop Shop, should be put in place for non-resident suppliers. This is likely to increase the number of local VAT registrations and VAT liabilities.
• For B2B ‘remote digital’ supplies, the place of supply should be where the customer’s business establishment is located (where a business is established in more than one jurisdiction, taxation should accrue where the establishment using the service is located), with a requirement to apply a reverse charge. PwC: Adapting to changing environments: BEPS & VAT - Tax

Relevant info

• Download PwC: BEPS - Adapting to a changing environment
• GITM: BEPS and Indirect Tax