@vejanka If we’re talking about Canada, I’d probably lean on Article 17, paragraph 1—you know, the basic principle—and just label it as a "reverse charge."
I defined the service as freight transport provided to a VAT-registered entity (VIES), so I applied the standard rule based on where the recipient is actually located.
But, look... take my "expert opinion" with a massive grain of salt. You should definitely double-check this with someone who actually knows what they're doing.
For Mexico, I’d apply those same clauses used for Canada and use the "reverse charge" wording. Though, I suppose you'd really need to dig into what kind of documentation is required to prove someone is actually a registered taxpayer (see my previous post).
I just copied this directly from Council Regulation (EU) No 282/2011 (which implements Directive 2006/112/EC (18) Properly applying the rules regarding the place of service delivery mostly depends on whether the customer is a tax payer or not, and in what capacity they are acting. To determine if a customer qualifies as a tax payer, the provider must establish what kind of documentation they are required to obtain as proof from their customer.
When those Canadians didn't ask for anything, maybe it was back in 2011 (before March 15th), before this Regulation even existed.
It says here that the provider has to determine what kind of proof they need to get from their customer. I guess we'll just have to wait for the Treasury regulations, since that’s probably where this will actually be settled. At some seminars, they mentioned something about a certificate the buyer has to pull from their own (third) country to prove they're a registered taxpayer there. They put it more elegantly at the seminar: "one must obtain certification from the tax authority of the state where the service recipient is registered as a taxpayer."
The whole "tax authority of the state" bit... I get that, I guess... but everything else is just total gibberish to me.
Brenda Chase3 said:Hang on, Richard, I found it. 🙂 This Law is a nightmare—you literally have to read it from start to finish, every single article, because one thing is stated in the text while the explanation says something completely different. Good luck navigating that. For instance, under Section 79, Subsection 7, it states that if the recipient is the one liable for the VAT on goods or services, the supplier must note "transfer of tax liabilities" or "reverse charge" on the invoice. Honestly, the more I dig into this, the more confused I get.🙂
Based on Article 79, Section 7, I concluded you should write "reverse charge," and it seems the same applies to 41.1.a. However, Ms. Maple (who actually knows her stuff, unlike most people still trying to figure out their jobs) mentioned at a seminar that it isn't technically "reverse charge." And honestly, 😵
... I'm trying to wrap my head around it... A three-way transaction is definitely "reverse charge" for the middleman, no question there... but then... the simplified procedure in 42 seems to be the same deal, except maybe the wording in the procedure itself is enough so you don't need to add anything extra? Ugh. ... I guess I'm asking the experts to help me find some logical footing here regarding when that specific text actually needs to be on an invoice and when it doesn't. I'd feel terrible just guessing and putting the text where it shouldn't be, only to embarrass myself and my client on my first day working within the European Union.
Brenda Chase3 said:On the invoice, we write: "Tax-exempt under Section 41(1)(a) of the Tax Code." The responsibility for calculating the sales tax falls on the buyer (the recipient) within their own state. However, this only applies if we have exchanged our respective tax identification numbers. For the delivery of goods, you need to fill out the specific section for out-of-state shipments on the sales tax return, along with the aggregate report for outbound goods and services.
If we don't have their tax ID on file, the shipment is taxable here, and it gets categorized under taxable sales on the tax return.
When dealing with physical goods, things get a bit more nuanced with plenty of fine print, so I can't really give a blanket rule; it’s better to look at specific case studies.
Okay, this is where I’m stuck. You're just citing the exemption code (41.1.a) without mentioning the transfer of tax liability. The buyer pays the tax back home regardless.
There’s some distinction there somewhere, but... ugh. I just can't seem to wrap my head around it properly.
I'm assuming we're talking about two registered business entities within the federal database, even though I didn't explicitly state that.🙂
Brenda Chase3 said:When you provide a service to a taxpayer who isn't based here in the States, that service isn't taxed domestically because the service is considered to take place where the recipient is located (for instance, over in Vienna), and that is when the tax liability transfer occurs via the reverse charge mechanism. To verify that a client in another country is acting as a registered taxpayer, the American service provider needs to have that client's specific VAT identification number on file. That is when you include the "tax liability transfer" or "reverse charge" clause on the invoice. This transfer simplifies the whole process by allowing the service provider to avoid having to register as a tax entity in the foreign country where the service was performed. If the provider fails to obtain a valid tax ID, the transaction is treated as being provided to a final consumer, which means the service becomes subject to taxation right here in America. Man, there is certainly a lot to wrap your head around here. I am just thankful to Bog for this forum so we can bounce these ideas off each other and clear things up. 🙂
Keep going, please, but let's swap the service for physical goods. What would the invoice look like then? 🙂
When exactly should you put "transfer of tax liability" on a receipt? I always assumed it happened whenever the VAT obligation shifts to the buyer, including those exemptions under Article 41 and beyond... but apparently, I was wrong. Someone at a seminar mentioned that's not how it works. So, what's the actual rule? 😕
Regarding this thread, it was already added to the VAT Act (Article 54a), and now it’s back in US Congress because they're adding Article 54.b (due to fiscalization). It defines who doesn't need to issue receipts.
Cash register receipts
Article 54.a
Cash register receipts, tape slips, or payment terminal confirmations must include at least the following data: 1. the number and date of issuance, 2. the name, address, and EIN of the business providing the goods or services, along with the location where the delivery occurred (store number, office, shop, etc.), 3. the quantity and standard trade name of the goods delivered, plus the type and quantity of services performed, 4. the total amount of compensation and tax, broken down by tax rate.
Ryan Wilson2 said:I am requesting some clarification from the experts here:
"Final Proposal for Amendments to the Sales Tax Law"
Article 79.
The invoice must include the following information:
Paragraph 6.
the unit price excluding sales tax, specifically the amount of compensation for goods delivered or services rendered, categorized by sales tax rate
If my interpretation of this language is correct, does this imply that every single line item on a restaurant receipt must now explicitly list its individual price before sales tax is applied?
I’m no expert, but since I’m just as curious about this as you are, I’ll throw out my own thoughts and wait for the pros to weigh in. Here is how I see it: Under the new Value Added Tax Act, there's only the "standard" invoice (per current Article 15). A simplified cash register receipt—for things like retail or hospitality, I assume—doesn't need all that detail; those follow the standard rules for simple receipts where the required content is already defined.
Sure, you could issue a "full" invoice, but the prices would start looking totally skewed, shifting left to right. Like, if a steak costs, say, $17, how do you even explain that to a customer?
Let me know what you think the proper way should be.
ruggedmaker2 said:Richard Howard55, regarding that second section for VAT registration—you won't even need a tax representative anymore. Business owners can just handle it themselves now. At least, that’s what 🤷 told me. My only real concern is this whole VAT return thing. It’s going to be massive. We're talking at least three pages long 🤣 between services, goods, shifting rates, import/export VAT... honestly, give me a break... 😲 And don't even get me started on the URI and IRI updates, or those new forms for acquisitions and deliveries. I won't even go there.
We actually got a sneak peek at some of those forms during a seminar—though they were using examples from over in Canada. It doesn't look impossible, but I already know I'm going to be staring at mile-long documents sometimes, since it's basically just a repackaged version of the old IRS filings.
I’ve been thinking more about the actual logistics of running things. I guess it’s just impossible to handle all of this solo. It’s a lot.
You mentioned your company had to tweak how your invoices looked. What does that actually mean? Do we need to go out and redesign something?
ruggedmaker2 said:Just finished yet another seminar on sales tax. And honestly? I’m exactly where I was before I walked in. Nothing learned. 🙂 Everyone is just sitting around twiddling their thumbs, waiting for those official guidelines that seem to be stuck in some bureaucratic purgatory.
The speaker mentioned that entrepreneurs from across the European Union who need to register for sales tax here in the States are already blowing up phones, asking how to get it done. And nobody has an answer for them because we’re all just staring at the wall waiting for that "holy grail" of regulations to actually drop.
As for registering for sales tax in another country within the European Union? That’s a total black hole for me. A complete mystery. 😁 They specifically pointed out that this hits travel agencies and transport companies the hardest—especially when they're providing services on foreign soil, or if a business owner decides to clear imported goods through customs in a different member state instead of right here.
For everyone else, they gave one single example: say an American entrepreneur sells a massive piece of industrial machinery to a buyer in another European Union country and then goes over there to install it themselves. The machine itself is tax-exempt (standard B2B stuff), but the service part gets taxed in the country where the work actually happens. So, you’d have to register there and pay the tax locally. But—get this—they didn't even mention how you're supposed to actually claim that paid tax as a credit later. Because... well, go ahead and guess... we're still waiting on the manual. 🙂
It’s not even twilight for me. It's just pure, pitch-black darkness. 😁
Maybe it’s not the best move to dive straight into dealing with travel agencies and transport companies. I guess it might be smarter to sort out all the other variables first. Once we actually have a handle on the core material, then—and only then—can we try to make sense of those more specific cases.
From what I can gather, the basic goal for every single country in the European Union is just to keep their tax revenue right where it belongs—in their own budget. It’s pretty simple, really. That’s probably why, once you strip everything down to its most basic level, goods and services are taxed exactly where they’re actually consumed. I guess that's just how the math works out. The exception is when you're shipping to small business owners who can't claim tax credits—they basically act like end consumers in a country that’s just exporting goods and services. In plain English? The tax ends up stuck in the wrong place, in the wrong state, where the actual goods or services aren't even being used. To stop this from happening, they implement thresholds for both deliveries and acquisitions. You can get away with it until you hit the limit, but once you cross that line, you have to register and pay the tax right where the transaction actually landed. I guess I won't even bother bringing up the Treasury Department or those endless auditing headaches right now.
This is how I imagined it would work (until someone actually explains the real process):
So, I guess I could just hire an agent—like some accounting firm over in another EU country—to handle my tax filings there. Just the tax side of things, mind you. Not the actual business books. Just the taxes. The fee is invoiced along with the local sales tax from that country. In my books, I just debit the customer, credit revenue, and record a liability for that foreign sales tax—since it doesn't touch my domestic tax filings here in the States.
The tax records show the base amount and the sales tax obligation—all tied to that same account. I guess. Then he goes and sends me an invoice for his services. He treats it as a prepayment on his end, while I record it as a liability to a vendor and a foreign VAT receivable—which, obviously, doesn't even touch my domestic tax records here in the States.
At the end of the day, my books just mirror whatever he’s reporting in his tax records over in that other country. Any VAT discrepancy gets settled based on the filings he submits there. It's basically a completely separate issue from our domestic tax records. I guess.
If anyone actually knows anything about representatives, invoicing, or tax records—like how our neighbors over in the States handle things—please, just drop a hint. A single letter would do. I’m trying to turn this total darkness into something resembling a sunrise, but I guess that's asking too much.
Reading back what I wrote yesterday, I can't help but laugh at myself. 🙂 Of course, adding up individual line items gives you a correct total. I guess I should have been clearer—regardless of how I phrased it—that I was talking about multiplying individual components versus multiplying the grand total (the sum of all fees). You simply can't get the same result by summing those individual multiplications as you would by "repeating" the multiplication once the total fees are aggregated. 😁
It seems to me that’s exactly why regulators mandate that invoices only show VAT calculated on the aggregate amount, rather than item by item. Naturally, I’m referring specifically to invoices governed by the Internal Revenue Code used for tax credits. In retail, I suppose people will just keep "wandering" around and fighting against it in their own little ways.
Mathematically speaking, getting a precise result is impossible. You’ll always end up with an inaccurate total if you just sum up individual, precisely calculated parts of a whole. As far as I know, both the IRS and Social Security have their own tolerance thresholds when it comes to data entry. I know the IRS handles things $0.33 on an annual basis, though I'm not sure what the threshold is for Social Security—but it exists, I guess. That's about all I know...
coppermason19 said:Yeah, but their system just won't allow for any discrepancies. For instance, if you end up with a 4-cent difference on a $200 $0.00, they can't even process the invoice through the software. The total sales tax amount has to perfectly match the sum of all the individual line item taxes calculated from the base amounts. I mean, what if the subtotal is slightly off? Then how are you supposed to get the tax calculation to balance out? Also, does anyone know what the actual IRS regulations say about having individual tax rates per item versus one lump sum at the bottom? And honestly, how much wiggle room are we legally allowed before it becomes an issue?
Maybe looking at the proposed tax reform scheduled for July 2013 could help. It includes specific invoice requirements where individual items wouldn't show tax separately—just the price—and then the total tax is calculated based on the sum of all those prices (assuming they fall under the same category).
Raymond Martinez10 said:My take? They shouldn't be liable because they aren't generating income through an actual independent business operation.
There isn't much else to do, I guess. You'll just have to reach out to the US Forest Service, explain how you handled things, and ask them for an official ruling.
Looking for some advice here, I’m a bit stuck on whether this decision applies to people renting out their own properties—those who pay both Social Security and Medicare taxes and fall under corporate income tax rules, even without being registered as a business entity.
I already ran the numbers, sent out the payment notices, and filed the paperwork with the US Forest Service.
But now I've got this dilemma... honestly, even though an article from the IRS suggests they are liable for contributions, it just doesn't feel right to me. I guess I'm wondering if "business activity" actually extends to unregistered individuals, or if that's just a massive overreach of the rules...? What do you guys think?
It looks like those R-1 and R-2 designations are becoming obsolete too, at least based on how this bill is currently being drafted.
I’m actually a fan of the move toward making sales tax an accounting category rather than requiring upfront payments—you know, avoiding that whole "pay first and then claim a credit" headache we see in certain scenarios. I suspect companies affected by this will definitely notice the positive impact on their cash flow.
My only concern is whether we should separate the sales tax accounts under Class 2. If we don't, both acquisitions and deliveries end up lumped together in one big mess, which makes tracking realization nearly impossible (where the buyer equals revenue plus the tax liability). I wonder how they handle this over in neighboring states?
She was honestly quite charming. I can still vividly picture her explaining how she proves a vendor actually moved over to another state, right down to the exact moment she verifies their credentials through the IRS database. It’s those little details that matter so much, I guess. 😁
Nathan Cox25 said:Is there actually going to be any change for those of us sitting outside the Value Added Tax law?
Not really, I guess. If all the business is strictly domestic—under the new definitions, that means staying within the US, other EU nations, or third countries—nothing much shifts.
It’s mostly just paperwork aesthetics and updated filing deadlines. We're looking at submissions by the 20th of the following month, while payments stay the same (due within 30 days), plus the annual VAT-K filing within two months of year-end.
Though, if the business starts dealing with countries outside the US, things get complicated. A company might end up being classified as an occasional taxpayer, or if they cross a certain threshold, they’ll be bumped up to a permanent taxpayer.
Why? Here's the short version: I attended a Federal Reserve seminar regarding the Value Added Tax law after we joined the European Union. We had a Guest speaker there—a tax consultant from Austria—who was sharing their experiences. It was actually pretty interesting and informative (I'll dive into that in my next post).
At one point, Vlado Brkanić expressed something along these lines: we’re just going to cover the general principles here, but if you want specific advice for particular situations or a deeper dive, you can get that—though, naturally, those answers and solutions will require separate compensation, not here at the seminar.
I took a quick glance around the room at the hundreds of people who showed up to that seminar, all having dropped 100 bucks each just to be so directly "honored" by a vague speech while sitting in their well-paid seats, expecting more than just the basic fundamentals.
Look, I get it. The European Union's Value Added Tax rules are new to all of us, including them, but... some things are just too much.
I'm glad we're discussing this. For anyone whose strong suit isn't navigating foreign languages, I'm providing English translations:
