An irregular or incomplete invoice will no longer automatically prevent the deduction of VAT.
For many years a proper invoice has been considered the final element for exercising your right to deduct VAT, a factor that frequently led to the rejection of a VAT deduction because of issues such as an incorrect or incomplete listing on an invoice or the absence of a VAT number, even if the purchase was clearly of a professional nature and the taxpayer thus most certainly had the right to deduct VAT. While there has been a gradual development in EU case law, and the courts consistently adopted the view that an irregular invoice did not necessarily have to mean the right of deduction was rejected, in many cases the tax authorities stuck resolutely to the formal aspect as a reason for disallowing the deduction of VAT.
The pressure from these EU developments meant that on 12 October 2017 a circular stated that the administration would submit to the EU standpoint and adopt the principle of substance over form. In assessing the right to a deduction, the tax authorities will henceforth use content-related criteria that take precedence over the formal requirements. In concrete terms this means that, when a taxpayer is confronted with an invoice that is either irregular or does not contain all the required information during an audit, the authorities will only definitively assess the right to a deduction on the basis of:
- corrected invoices that are re-submitted and/or;
- supplementary documentation that is introduced by the taxpayer and from which it is clear that they pertain unambiguously to the irregular invoices. The documents could be contracts, order forms, quotes, other correspondence between the contracting parties, etc.
This supplementary documentation can be submitted throughout the duration of the audit but must be submitted before its conclusion. If the additional documents contain sufficient information so that the authorities can determine that the material conditions for the right to the deduction of VAT are complied with – meaning that they can determine that the purchases are used for performing actions that entitle the taxpayer to deduct VAT – then they cannot longer reject the deduction. Until now the submission of additional evidence during an audit was often not accepted, but this may now be done as long as the audit has not been concluded. It is unnecessary to add that the material conditions for the right to a deduction must still be fulfilled and that there can be no case of misuse and/or fraud, or that the taxpayer knew or ought to have known that the transaction for which he or she is requesting the right to deduct VAT constitutes fraud or misuse.
The European Court of Justice is blocking the application of the VAT exemption for independent groups in specific sectors, such as the financial and property sectors.
In mid-2016 Belgian legislators introduced a new statutory provision that dealt with the VAT exemption for independent groups of persons (previously known as cost-sharing associations). Independent groups of persons can offer their services to their members VAT-free if:
- their members regularly and predominantly practice an exempted activity (pursuant to article 44 of the VAT Code) or an activity for which they are not required to pay tax;
- the predominant part of the group’s activities consist of providing services to its members that are directly required for their exempted or non-tax liable activity;
- the remuneration or fees that the group charges its members only represent the repayment of their share of the collective expenditure incurred by the group; AND
- the exemption does not lead to distortion of competition.
Six months after this new provision took effect (article 44.2bis of the VAT Code) the tax authorities published a circular in which they provided further information on the form of the independent groups, the conditions summarised above, the right of the members and the group to deductions, the VAT formalities to be completed and other issues (Circulaire AAFisc no. 31/2016, E.T.127.540 dd. 12 December 2016). The Belgian authorities did not restrict the application of this VAT exemption to specific VAT-exempted sectors. But now there is a question of whether they will do so in the future. That’s because the European Court of Justice recently ruled that services provided by independent groups where the members performed an activity that involved financial services were not eligible for VAT exemption (ECJ 21 September 2017, cases C-605/15, Aviva, C-326/15, DNB Banka and C-616/15, Commission v. Germany). In a memorandum dated 27 September 2017 the tax authorities stated that they were currently studying the possible consequences of these rulings for the Belgian VAT exemption for independent groups of persons and that an official position would follow.
The question now is whether the Belgian tax authorities will change their position, and if so, which sectors can still enjoy the VAT exemption. In the aforementioned ruling the European Court of Justice found that the VAT exemption is only applicable if the members of the group perform those exempted activities listed in article 132 of Directive 2006/112/EC (activities of general interest: medical and paramedical services, education, sport, culture, trade unions, etc). If the members perform activities that are exempted on the basis of another article in the VAT Directive, such as financial and insurance services and property letting services (these fall under article 135 of Directive 2006/112/EC) then the independent groups cannot receive VAT exemption.
The European Court of Justice did however find that the Member States would first have to amend their current VAT laws before they could invoke this case law against their subjects. That means that as long as Belgium has not modified article 44.2bis of the VAT Code to comply with this EU position, independent groups in the financial and property sectors need not fear. But as soon as that has happened, they will have to look for alternative ways for optimising. In conclusion we are also able to add that the long-awaited FAQs concerning specific forms of cooperation in the medical sector have still not been published. On 31 March 2017 the FPS Finance stated on its website that the obligation to disclose that resulted from the new VAT exemption for independent groups of persons had uncovered problems in respect of how some forms of cooperation are subjected to VAT, primarily in the medical and paramedical sectors which are not independent groups of persons. They stated they would release FAQs in the ‘near’ future in which these forms of cooperation and the consequences in terms of VAT would be dealt with. As soon as we have more news about these frequently asked questions and the position of the tax authorities in respect of the above ruling by the ECJ, we will let you know.
A lower VAT rate for defibrillators and sanitary products.
On 6 October the Cabinet approved a draft Royal Decree that would see a reduced VAT rate of 6% instead of the standard 21% for sanitary products (such as tampons, menstrual pads and pantyliners) and external defibrillators (including AED devices). It is hoped that this future VAT reduction will mean that more AED devices are installed in public places and businesses, as their presence can save lives. We will have to wait and see whether the VAT cut for sanitary products will actually be felt by the consumers.
New information page on Brexit available on the FPS Finance website.
The majority of the electorate of the United Kingdom voted to terminate the country’s EU membership during the referendum held on 23 June 2016. On 29 March 2017 the British prime minister, Theresa May, triggered ‘article 50’ which officially launched the procedure under which the United Kingdom would leave the European Union. In principle the United Kingdom will permanently depart from the EU on 29 March 2019 (unless that period is extended by another two years by unanimous agreement). This means – once again in principle – that there will no longer be a free market between Belgium and the UK, which could have significant implications in terms of the logistics for the traffic of goods, both in respect of customs and VAT.
For that reason the AAD&A (the general administrative body for customs and excise) together with the AAFisc. (the general administration for the tax authorities) have created a webpage (available in Dutch and French) that will assist businesses in charting the customs and VAT issues as a result of the impending Brexit. The webpage contains information on the procedures for importing and exporting, the various customs regulations, frequently used terms, incentives, customs and excise consequences and other issues. It is important for anybody doing business with the United Kingdom to follow the Brexit negotiations and to stay informed. We are also following the talks and will let you know in good time of any new developments.