In order to claim Input VAT for companies that carry out both taxable and exempt activities into certain jurisdictions within Europe, certain tax offices require proof that a claiming company actually does carry out …
Outlook for companies that carry out both taxable and exempt activities claiming Input VAT
In order to claim Input VAT for companies that carry out both taxable and exempt activities into certain jurisdictions within Europe, certain tax offices require proof that a claiming company actually does carry out activities that would be taxable if performed within the claiming country.
Issue at hand
The problem that the tax offices face with these types of companies is that the company’s income is derived from both taxable and exempt activities and due to the fact that a company may only claim Input tax in relation to those activities which are taxable or give rise to the right to deduct, an apportionment of the input tax between taxable and exempt income is necessary in the event that a company can’t directly attribute its costs that it intends to reclaim, to taxable activities only.
Types of companies affected
The types of entities that are generally affected are:
- Financial institutions;
- Insurance companies;
- Universities and other educational institutions;
- Health sector;
- Certain real-estate activities;
- Professional associations;
- Sports associations;
- Tourism boards and other governmental institutions;
- Charities and not for profit sector.
These unique claiming companies have in the past not had much difficulty in reclaiming VAT on expenses incurred, however, there has been more onerous provisions implemented by certain tax office/s.
Requirements for reclaim and issues that may arise
It has become a general requirement for companies, in addition to providing a recent set of financial statements, to provide proof that that the company does actually carry out taxable supplies. This has been requested in the form of invoices and/or contracts/agreements showing proof that the company does in fact carry out taxable supplies.
The possible issue that arises in this regard is that many companies, especially those based in Asian countries, have such strict confidentiality policies that they are not willing to share these documents (especially contracts/agreements) with the tax offices.
This has become and we believe continues to be a stumbling block for certain claiming companies into these particular jurisdictions.
In the past, there was much confidence and hope in these types of claims being paid, however, once the tax office required information of seemingly more confidential information, companies began to question the transfer of such information and if this information is not ultimately provided to the tax office, it could limit the company’s claiming capacity.
VATIT believes that this is a non-issue for the following reasons:
- The information being provided is going to the tax offices, which are government institutions, who under normal circumstances should have the highest degree of care and protection of confidential information and as such, there is limited to no risk for the claiming company.
- Various confidential information, such as the name of the company with whom the claiming company entered into the agreement with, we believe, may be blocked (redacted).
This VAT can be reclaimed!
Taking the aforesaid into account, there should be almost no concern in respect of these companies claiming and their risk relating to confidential information should turn into confidence of, once again, a successful refund from the tax office.