America - new CSI port in China

On 28 April 2005 U.S. and Chinese officials announced that the Port of Shanghai will become the 36th operational Container Security Initiative (CSI) port. Under the CSI, U.S. Customs and Border Protection has entered into bilateral partnerships with foreign customs officials to identify high risk cargo containers and pre-screen them before they are loaded on vessels destined for the U.S.

Argentina – VAT rebate for reinvestment

Argentina has announced a VAT rebate scheme under which companies which purchased capital goods between November 2000 and November 2004 can apply for a VAT refund on those purchases on condition that the rebate is reinvested to expand their businesses. The tax refund will be distributed to qualifying companies in six quarterly payments.

Bulgaria & Romania – Accession to EU

Bulgaria and Romania signed the Accession Treaty to the European Union on 25 April and will become members of the EU on 1 January 2007. In the meantime they are required to bring their laws, including indirect tax laws, into line with EU rules and regulations or their entry date may be delayed.

European Union – corporate transactions and flotations – better VAT recovery

Many companies issuing shares will be able to recover more VAT on associated costs, following the European Court of Justice’s decision in the Kretztechnik AG case. The Court ruled that the issue of shares should be ignored for VAT purposes and that VAT incurred on associated costs should be recoverable in the same way as other overhead VAT. Therefore, for a business like Kretztechnik which charges VAT on all its sales, this VAT should be fully recoverable.

European Union – VAT liability of inter-branch supplies

The European Court of Justice has heard the FCE Bank case which will consider whether a branch of a company located in a one member state making "supplies" to a branch of the same company in a different member state is liable to VAT.

India – right to recover federal service tax

The recently introduced state-level VAT system applies only to goods: services remain subject to the federal Services Tax. Historically businesses could not recover service tax, however:

  • with effect from 10 September 2004, all Indian businesses will be able to set off service tax on purchases of eligible services against their service tax liabilities;

  • with effect from 19 April 2005, the Government has introduced a refund mechanism, so that exporters of taxable services can now recover service tax on related purchases.

Italy – reducing IRAP

The Italian Government has announced plans to reduce the IRAP (regional business tax) over the next two or three years. However, although most unlikely, it is possible that Italy may be forced to abolish the tax immediately if the case currently pending judgement before the European Court of Justice rules that IRAP is unlawful.

Portugal – VAT rate rise

The Portuguese VAT rate is expected to rise from 19% to 21% with effect from 1 July 2005. At the same time the rate in Madeira looks likely to rise from 13% to 15%.

Portugal – partial exemption rules are unlawful

The Portuguese rules, which apply to businesses that have some exempt supplies and which require such businesses to bring the value of work in progress into their annual VAT adjustment, have been ruled unlawful by the European Court of Justice in the case of Antonio Jorge. Companies affected by these rules may be able to make claims to recover VAT from the Portuguese Government.

This article is intended as a general guide only, and the application of its contents to specific situations will depend on the particular circumstances involved. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This bulletin should not be relied on as a substitute for such advice. While all reasonable attempts have been made to ensure that the information contained in this bulletin is accurate, Deloitte Touche Tohmatsu accepts no responsibility for any errors or omissions it may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies on it.

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