On May 26, 2023, the Council of Ministers gave its approval of the first reading to a preliminary draft law "containing various provisions on VAT". After obtaining advice from the Council of State a number of days ago, the government submitted the preliminary draft to the Chamber (Parl.St. Chamber 2022-23, no. 55-3569/001).
The preliminary draft includes a series of VAT measures that are of great importance to the affected taxpayers. This blog provides a brief overview of the changes. A more detailed discussion of the main changes will follow at a later date.
VAT warehouse: expansion of the list of “permitted goods”
In early 2023, the Constitutional Court ruled, in response to a preliminary question from the Court of Appeal in Antwerp, that the delegation to the King (government) regarding the VAT warehouse scheme violates the constitutionally guaranteed principle of equality.
According to the court (judgment no. 9/2023 of January 19, 2023), the VAT warehouse scheme could not be regulated exclusively by a royal decree, unless the relevant decision was examined and ratified by the legislature in the short term. To eliminate this unconstitutional situation and meet the criticism of the Constitutional Court, the delegation to the King is being reformulated. This reformulation of article 39quater of the VAT Code also takes the opportunity to add new (excise) goods to the list of permitted VAT warehouse goods.
The expansion includes:
• Chemical products, specified under the CN codes 3824 90 92, 3824 90 93, and 3824 90 96;
• Undenatured ethyl alcohol with an alcoholic strength by volume of 80% vol or more, listed under CN code 2207;
• Biodiesel and mixtures thereof, indicated under CN code 3826 00.
Obligation to report VAT deduction pro-rata’s for mixed and partial taxpayers
The prior notification for the use of the actual use rule is expanded to mixed taxpayers who use the general pro-rata. Taxpayers who already apply the general ratio must make this notification before July 1, 2024. These mixed taxpayers must now also communicate their figures concerning the general pro-rata on an annual basis. A similar obligation is also introduced for partial taxpayers.
The tax authority aims to gain more insight into the VAT deduction position of all taxpayers who have only limited entitlement to VAT deduction due to their VAT status.
VAT identification number: some technical adjustments
Various technical adjustments are made regarding the assignment of a VAT identification number and the obligation to communicate the VAT identification number to suppliers.
New VAT liabilities for platforms: expansion of joint and several liability
A new joint and several liability is introduced for taxpayers who facilitate deliveries of goods via electronic interfaces. This joint and several liability is intended in particular for situations where these deliveries are not covered by Article 13bis of the Belgian Code (implementation of article 14bis of the VAT Directive). This “deemed seller” provision has introduced a legal fiction whereby electronic interfaces are considered buyers/sellers under the following circumstances: i) when a non-EU supplier delivers goods in the EU via the platform, or ii) when goods with a value lower than 150 EUR are imported.
This new form of joint and several liability does not apply when the taxpayer is acting in good faith and has made no mistake or been negligent. Among other things, it is specified that a taxpayer is deemed to have been negligent if they have not checked whether the supplier has a valid VAT identification number. The law also includes a list of situations in which the taxpayer is deemed to be no longer acting in good faith.
Limitation period in the case of fraud: harmonization regarding VAT and direct taxes
The prior notice that must take place when the Administration plans to use the ten-year extended fraud term is amended to be more aligned with income taxes.
Moreover, the extended limitation period that runs when the administration receives evidential data from legal proceedings is adjusted. Currently, that period is (slightly more than) 7 years, counting from the tax point (date when VAT becomes chargeable). Due to the length of judicial procedures, this often turns out to be too short. The intention is to make the Administration less dependent on unforeseen delays in judicial procedures. Hence, the limitation period will only start to run after the end of the calendar year in which a judicial decision relating to a VAT debt has become final. This gives the Administration at least one year to take any tax assessments and recovery measures after a judicial decision has been made.
Payment service providers: extending the retention period of CESOP data
The draft introduces a change in the retention period for data provided by payment service providers under the COSOP legislation. In concrete terms, this means that the tax authorities will keep this data longer, namely until December 31 of the fifth year after the year of provision. This retention period is in line with the period applicable to the CESOP database, a central electronic system for payment information.
For the record: The introduction of the CESOP database aims to detect and combat VAT fraud in cross-border internet sales of goods and services (e-commerce). Payment service providers will be obliged to keep detailed registers of cross-border payments and provide information to tax administrations regarding specific transactions. This information will then be collected via an XML file and passed on to the CESOP database for further analysis.
Reduced VAT rate for medicines: additional clarification of the description of medicines/medical devices
Medicines and medical devices are currently subject to a VAT rate of 6%. The current formulation in this section is considered too general. Therefore, this formulation is replaced by a new definition in which a distinction is made between medicines for human use and medicines for veterinary use.
Furthermore, a distinction is made between (homeopathic) medicines on the one hand and certain homeopathic medicines and traditional herbal medicines on the other. For the latter category of medicines, registration using an official document is required in any case to qualify for the reduced rate.
Institutions with a social purpose: new general criteria
The criteria and conditions for institutions with a social purpose that carry out supplies of goods or services with the application of the 6% VAT rate are being reviewed. Certain institutions with a social purpose, which are involved in employing low- or moderately skilled unemployed people, can supply goods or services at the reduced VAT rate of 6%.
Up until now, VAT legislation referred to regional regulations in which the criteria for this employment were usually established. Instead of this enumeration, a general reference to the legislation of the states is now provided, to which these institutions must comply, along with a series of conditions they must meet.
Reduced VAT Rate for “Works in Real Estate” for Care Institutions: “Daycare” is Now Sufficient!
Renovation works on youth protection homes, shelters for the homeless, psychiatric care homes, etc., qualify for the reduced VAT rate of 6%, but this only applies if they offer "day and night stay". The same condition applies for applying the 6% rate to renovation works related to institutions for the disabled, and the 12% rate to immovable work for housing institutions in the context of social policy. This "day and night stay" condition is now replaced in all these cases by the condition that they offer day and/or night stay. Thus, “daycare” is now sufficient.
It is clear that the VAT landscape is constantly changing. If you would like to discuss one of the changes and its impact in more detail, we at VAT Consult are, of course, ready to assist you further.