Year-end tips and year-end corrections | Deloitte

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Year-end tips and year-end corrections VAT

The last VAT return of the year is always a special tax return as it is used to make corrections. This Indirect Tax Alert outlines the main corrections and points of interest for this tax return. This Alert likewise shows the main VAT changes as from January 1, 2018. We will first provide a list of action points. Please click on the relevant links below to move to the various sections of this alert.

19 December 2017

Action points

Dutch version

As from January 1, 2018:


The last 2017 VAT return:


Before January 26, 2018:

  • If a taxed transfer of immovable property was opted for in 2016: 90% or 70% statement to be issued by the purchaser of the immovable property item:
  • if the lessee fails to meet the 90% or 70% requirement: notify the Inspector and the lessor


Both: see 90% or 70% statement upon transfer and lease of immovable property

The first 2018 VAT return:


Within six weeks after filing and paying the last 2017 VAT return:

  • To be discussed with your advisor: objection against your own VAT return for revision in the first year


Before April 1, 2018:

Year-end corrections

Private use of company car


During the financial year, entrepreneurs can deduct all VAT on costs relating to company cars. At the end of the financial year, they declare VAT relating to the private use of such cars by their employees and by themselves. The VAT payable is - in principle - calculated based on the costs effectively incurred for the number of private kilometers actually driven. Note that commuting traffic in this respect qualifies as private kilometers. Entrepreneurs can use an approval based on which they declare 2.7% of the list price of the car (including VAT and Private Motor Vehicle and Motorcycle Tax) of the car as a correction of the earlier deductions. Entrepreneurs may apply a percentage of 1.5% instead of 2.7% as from the fifth year following the year in which the car was first put into use. This may likewise be applied if they did not deduct VAT when the car was purchased. Entrepreneurs should state the VAT due under section 1d of the last VAT return of the year.

If employees have to pay their own contribution for the private use of a company car, the employer should pay VAT on this contribution received. This is different if the own contribution paid is lower than the open market value: entrepreneurs will then have to pay VAT on the open market value. The open market value matches with what entrepreneurs would have to pay in the market to make the car available for private use by employees. Entrepreneurs may apply the fixed percentages of 2.7% and 1.5% of the list price of the car as an open market value.

Correction for other private use

The last VAT return likewise serves to make corrections for other private use by the entrepreneur, his employees or business relations. Some examples of such private use are supplies in the company restaurant, business gifts, staff outings and Christmas hampers. No correction is required where the benefits in kind provided to an employee or business relation do not exceed € 227 in any financial year. A special scheme applies for company restaurants.

In practical terms this means entrepreneurs who know they will exceed the € 227 limit may not deduct the VAT on the costs for staff provisions and business gifts. If entrepreneurs expect, however, not to exceed the € 227 limit, they may deduct the VAT on these costs during the year. Should the € 227 limit still have been exceeded by the end of the year, they will need to declare the erroneously deducted VAT under section 1d of the VAT return.

Revision

How much input tax may be deducted is set when entrepreneurs purchase goods or services. If entrepreneurs use the goods or services for VAT taxed purposes, the full amount of VAT may be deducted. If goods or services are used for exempted purposes the VAT may not be deducted. If goods or services are used for both VAT taxable and VAT exempted purposes, the input tax may be deducted proportionately.

If entrepreneurs do not use goods or services immediately, the purpose of the goods or services is decisive in determining whether and to what extent there is an entitlement to deduction. Next, whether the deduction – determined on the basis of the purpose of goods or services - is correct is considered when goods or services are put into use. Should the actual use deviate from the purpose then entrepreneurs will as yet need to pay VAT (in the event of more use for exempted supplies) or they may reclaim VAT (in the event of more use for taxed supplies). The data for the full financial year are reviewed once gain by the end of the year, to see whether the level of deduction should be adjusted because the use deviates from the use of goods or services when they were first put into use.

Deduction of VAT on the purchase of immovable and movable property that is subject to amortization and depreciation is followed for several years. For immovable property this is done during the nine financial years subsequent to the financial year in which the property was put into use; for movable property this is done during four years after the financial year in which the property was put into use. On the back of European case law, the revision over a longer period may possibly likewise apply to certain services.

During these years, the deduction must be reviewed at the end of each financial year. If the use in the past financial year leads to a different VAT deduction than the deduction in the financial year in which the property was put into use (more VAT exempt or more VAT taxed), a correction needs to be made (revision). The related tax base is not the aggregate VAT paid by the entrepreneurs for the acquisition of the goods or services but 10% (immovable property) or 20% (movable property) of that VAT, every year. If in any financial year the VAT effectively available for deduction differs by no more than 10% from the amount of input tax deducted in the financil year when the property was put into use, the revision will be omitted.

The corrections resulting from the revision must be stated in section 5b of the VAT return.

In view of recent European case law we feel it is doubtful whether the revision rules as applied by the Netherlands are in line with the European VAT Directive. Where applicable it may be interesting to invoke the possibly derogatory regulation from the VAT Directive.

Pro rata general expenses

The VAT on general expenses may be deducted based on the so-called pro rata. This is the ratio between the taxed payments entrepreneurs receive compared with the aggregate payments. The particular pro rata for a year should be determined by the end of each year. If the revenues are not normative, the pro rata may be determined based on the actual use. Both taxable persons and the Tax Administration may argue the pro rata should be calculated on the basis of actual use. Please bear in mind, any party wishing to apply the pro rata based on actual use has a burden of proof. In many cases, arrangements can be made with the inspector on the application of a pro rata based on actual use.

90% statement and 70% statement upon transfer and lease of immovable property

The transfer and lease of immovable property is technically exempt from VAT, parties may opt for a taxed transaction in both situations. However, this is only possible if the buyer or the lessee, respectively, use the immovable property for taxed supplies for at least 90%. In certain cases a taxed use of 70% is enough (see the Decree “Supplying and letting of immovable property” of 19 September 2013, no. BLKB 13/1686M - for example for travel agencies, mail transport companies, and public radio and television organizations).

Purchasers of an item of immovable property must declare they comply with this 90% standard in the financial year when the property was supplied and the financial year subsequent to that. This should be done within four weeks after expiry of this period. So for immovable property for which a taxed supply was opted for in 2016, the purchaser must issue this 90% statement by January 28, 2018 at the very latest. If the immovable property has not been put into use in the financial year it was supplied or the subsequent financial year, the option is cancelled. Following an approval by the State Secretary for Finance this reference period may be suspended - subject to certain conditions - if the purchaser not putting into use the immovable property before the end of the reference period was due to work on the immovable property.

In the event of taxed rent, lessees must check before the end of the year whether they complied with the 90% standard during the year.

If they did not comply, they must inform the lessor and their own tax inspector within four weeks of the end of the financial year. Then the VAT has to be corrected (unless non-compliance with the 90% standard is unexpected and not structural) and the rent is to be adjusted if and insofar as provided for in the letting contract.

Reclaiming foreign VAT

Any entrepreneurs who have received invoices with foreign VAT in 2017, may reclaim this VAT through the Dutch Tax Administration. Requests to that end must be filed on September 30, 2018 at the latest. If the amount is at least € 50 you may request a refund as from January 1, 2018. If so, and provided you need not provide more detailed data, the VAT will be refunded to you within four months (unless your request is rejected). Please note, if the VAT receivable amounts to € 400 or more you may also file a refund claim during the year, for a period of at least three months.

A refund request for foreign VAT must be filed in the Netherlands, through a special Tax Administration website, which you can find on this website. This requires login information. If you do not yet have such information you may ask for it through this link. If you do have the login information but have forgotten it, please do not ask for it again, but call the Tax Information Line: “Belastingtelefoon” (0800-0543).

Please note: If you have taxable supplies in the EU country that should refund the VAT to you and you have to pay the VAT, you cannot use the refund claim. Instead, you will have to file a VAT return in that EU country through the regular process. You may then deduct VAT in that tax return.

Corrections previous periods

Corrections to VAT returns filed for previous periods must be processed in an additional VAT return. A digital form is available for this. Since January 1, 2012, entrepreneurs are obliged to supplement or correct incorrectly submitted VAT returns themselves. This should formally be done as soon as the entrepreneurs find out they have to make a VAT correction (art. 10a State Taxes Acts; art. 15 Implementation Decree VAT Act 1968). Relatively small corrections during the year can, in principle, be made collectively by filing a single supplementary return for the entire year. If the aggregate supplement is less than € 1,000 VAT (receivable or payable), the supplement may be processed in the next tax return. The supplementary return for the year 2017 should preferably be submitted before April 1, 2018. No interest on tax needs to be paid if the return is filed before April 1, 2018. However, the Tax Administration may impose a default penalty. If the supplementary return is submitted after April 1, 2018, however, interest on tax must be paid and the Tax Administration may impose an offense penalty.

From January 1, 2018 corrections can only be made digitally. Digital corrections can be made by:

  • Logging on to the website of the Dutch Tax Administration
  • Using your own software
  • Asking your tax advisor to make corrections

VAT refund on bad debts

Entitlement to full or partial refund of VAT arises when a receivable will not be paid partially or in full, at the moment uncollectability of the receivable can be determined. However, the entitlement to a VAT refund arises ultimately one year after the date on which the receivable has become payable. Therefore, if receivables have, for example, become payable in January 2017 you can claim a VAT refund on these (unpaid) bad debts in the first VAT return of 2018. If however, the uncollectability of a receivable can already be determined during, for example, December 2017, it is possible to claim a VAT refund in the next VAT return.

For payments that became due in 2016, the aforementioned one-year period is supposed to have started on January 1, 2017 Consequently, refund of VAT on these bad debts can be obtained on January 1, 2018, although tax payers may still demonstrate that non-payment will occur or has occurred at an earlier date.

The new scheme enables VAT refunds by means of VAT returns rather than by filing separate requests as in the past. If a bad debt deemed uncollectable is yet paid (partially) at a later moment, the entrepreneur has to pay the (partial) reclaimed VAT.

As a counterpart of the one-year period for VAT refunds, the new scheme stipulates that the deducted but not yet paid VAT will in any case become due one year after the date on which the receivable became payable with respect to non-paying customers. The customer who pays the bad debt at a later moment will once again be entitled to deduct the VAT. This can also be done in a regular VAT return.

Changes in VAT as of 2018

On September 19, 2017 the Dutch government presented the 2018 Tax Plans and the corresponding bills to the House of Representatives. The proposed effective date of most measures is January 1, 2018. The following bills have already passed through the House of Representatives and are yet to be adopted by the Senate. We expect the Senate will soon provide clarity about this.

Refinement definition medicine for VAT purposes

From July 17 through August 14, 2017, the Dutch Ministry of Finance organised an Internet consultation on a proposed stricter definition of medicine for the application of the reduced VAT. The 2018 Tax Plan includes this stricter definition of medicine without any noteworthy changes.

The stricter rules as from January 1, 2018 will imply that the reduced VAT of 6% will only apply to products for which a (parallel) trade license has been issued as referred to in the Dutch Medicines Act or if they are explicitly exempt from such a license. As from the abovementioned date, the reduced VAT rate will no longer apply to products which may evidently not be traded as medicines under the Dutch Medicines Act and EU regulations for cosmetics, medicines and medical appliances.

Change in scope reduced VAT rate for seagoing vessels

The VAT Directive obliges EU Member States to apply the VAT zero rate on the supply and provisioning of, as well as services to, vessels that are used on the open seas for passenger transport against payment, freight transport, fishery etc. The European Commission argues that application of the VAT zero rate in the Netherlands is too broad since the current formulation links the VAT zero rate to seagoing vessels as such, without requiring them to be effectively used for navigation on the open seas. Besides, because infringement proceedings by the European Commission would otherwise be inevitable, the Dutch government had proposed to further streamline the wording of Dutch VAT rules to that of the VAT Directive, thus further reducing application of the VAT zero rate. The limitation implies that the VAT zero rate only applies if such vessels are actually used for at least 70 per cent for navigation on the high seas.

Because of the change in scope, entrepreneurs selling sea vessels will most likely be obliged to determine whether or not the VAT zero rate is applicable. This might not be easy because application of the VAT zero rate depends on the way the buyer is going to use the sea vessel. As a result of this uncertainty, the Dutch government has decided to postpone this change until January 1, 2019 in order to provide entrepreneurs more time to adapt to the foreseen change in scope.

Abolition of flat rate scheme for farmers

As announced on 2016 Budget Day, the VAT flat rate scheme for farmers will be abolished as from January 1, 2018. This scheme exempts farmers and other agriculturalists from VAT, while they are not allowed to deduct VAT charged on costs they have incurred. Entrepreneurs can opt to apply the regular VAT rules. Since a decreasing number of companies uses the flate rate scheme, it will now be cancelled.

Following cancellation of the flat rate scheme, application of the reduced rate to several goods and services supplied specifically to these agriculturalists will be abolished too.

Agriculturalists who currently use the agricultural scheme will be faced with a transition, as a result of which they will have to revise the VAT on investments made prior to 1 January 2018. This will lead to a refund of a part of the VAT that was not deducted before 1 January 2018. This revision normally takes place over a number of years (depending on the date when they first entered into service), but transitional provisions now permit this revision to be effected in one go.

For investments acquired but not yet entered into service before 1 January 2018, an input tax credit arises for the full VAT amount in the first tax period of 2018.

Joint and several liability for pledgees, mortgage holders and executors

When holders of a pledge, of a mortgage or executors sell goods on behalf of the owners, they can also recover any VAT proceeds. This means the Dutch Tax Administration misses out on VAT income. It is now proposed to introduce joint and several liability for pledgees, mortgage holders and executors to secure VAT collection. A reverse charge mechanism already applies to guarantee collection of VAT on sale of immovable property in such cases. Pledgees, mortgage holders and executors will only be liable for VAT if they knew or should have known that the tax debtor would fail to pay the VAT due.

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