At this seminar, they were explaining how to handle this specific section—you know, where you record goods and services received from tax entities based outside the USA at the 25% rate. Apparently, I’m supposed to be entering invoices from third-party countries there, because that's when I have to calculate and pay the sales tax myself here in the States 🤷
I’ve been wondering if anyone has actually managed to figure out how small business owners handle this mess at the end of the month. Specifically, when they're dealing with invoices from overseas partners under a "reverse charge" setup—where the VAT is basically just an accounting entry on paper rather than actual cash moving around. Does everyone just report the liability and the input tax simultaneously in the same filing? Or is there some convoluted requirement where you have to actually settle the tax payment first, creating a real cash outflow, before you can claim it back as an input credit in a later period? I can't tell if it's all handled in one go on the return, or if we're looking at two separate steps involving real money.
Does anyone happen to know if the IRS actually stays open until 3:00 PM on Saturdays for reviewing tax filings? I'm trying to get this paperwork sorted, but the system won't let me digitally sign my forms—it keeps rejecting the electronic signature for my sales tax return. Is this happening because it’s Saturday night at 8:30 PM, or am I running into some other technical glitch with the portal?
ruggedmaker2 said:So, I was digging through the FASFA site earlier and stumbled upon this whole mess regarding the R1 vs. R2 dilemma:
And then, get this—I found this specific bit on the IRS website regarding their official interpretations about the acquisition threshold: "12. Who does the acquisition threshold apply to? The threshold is determined for taxpayers who exclusively provide supplies of goods or services for which VAT input credits aren't allowed, for small business taxpayers, and for legal entities that aren't registered taxpayers."
Small business taxpayers = those covered under Section 90 of the new law (under $230k) Legal entities that aren't taxpayers = government bodies and public institutions Taxpayers who exclusively provide goods or services for which VAT deduction isn't allowed = which ones would those even be?
And as for these "R" designations—honestly, it’s a mess. We haven't even harmonized the law with the regulations, so instead of simplifying things, they're just adding more layers of bureaucracy.🙂 To make matters worse, Pupilla already sent out notices stating that all "R" designations have been completely scrapped in the new modules. Just wonderful... absolutely brilliant planning there.
I actually filled out that exact paperwork this past Wednesday and headed down to the IRS office with it. Let me tell you, I spent half an hour being shuffled from one desk to another because absolutely nobody wanted to touch it, and even fewer people had any clue what they were supposed to do with it once they took it! Eventually, I had to track down the supervisor, who just looked at it and said, "Just give it to that guy over there," and that was that. 😬 But after basically touring the entire facility and visiting certain agents twice, I have some very choice words about how organized our government agencies actually are...
Alright. I'm currently wading through the regulations. Article 197: (copy-paste):
For any taxpayer looking at the rules as they stood through the end of 2014, the obligation to calculate sales tax kicks in the moment you actually receive or collect payment for goods or services rendered. However—and this is where things get unnecessarily complicated—there are a handful of specific exceptions to that rule. We aren't talking about standard domestic transactions here; instead, the rules shift when dealing with goods acquired from within the EU, certain transfers of assets outlined under specific sections of the tax code, or those specialized service categories defined by the law. There’s also the matter of reverse charge scenarios, where the recipient is the one on the hook for the tax, and those peculiar edge cases tucked away in the secondary statutes. It’s a dense thicket of regulatory fine print, frankly. Let’s take a moment to dissect this specific section of the tax code, because if you don't pay close attention to how the taxable base is calculated, you're basically asking for an audit nightmare. According to the regulations regarding settlements based on received or charged compensation under Section 139, we have to look at what the recipient actually considers payment for the goods or services provided—and I mean everything *except* the sales tax itself. But here is where people usually trip up: the taxable base isn't just the direct cash changing hands between the buyer and the seller. It also includes any additional amounts that a third party might pay, or is even obligated to pay, to the taxpayer for those same goods or services. Essentially, if someone else steps in to cover part of the cost, that amount gets pulled back into the calculation for the tax base. You can't just ignore those side payments; they are legally part of the transaction. When you’re transferring an entire business unit, VAT is always calculated based on the actual invoices issued. It doesn't matter whether the buyer is actually permitted to claim tax credits on the reimbursements they receive—it’s all about those specific invoices. Period. The taxpayer identified in paragraph 1 of this section. You absolutely have to make sure that "R-2" designation is clearly marked on all the invoices. It’s not just a suggestion; it's a requirement.Look, let me be perfectly clear on this point because I know there’s been some confusion floating around: you can absolutely claim that input tax credit during the specific accounting period in which the invoice was actually settled. It's straightforward once you stop overcomplicating it. Look, let’s be clear about the compliance side of things here. Under the regulations laid out in Section 1 of this article, any taxpayer falling under that umbrella is absolutely required to maintain their books with total precision. You can't just wing it when it comes to sales tax. You are legally obligated to track and document every single shred of data necessary to calculate and settle your tax liabilities, strictly following the specific procedures dictated by Article 168 of this Regulation. It’s not a suggestion; it’s a requirement.
Alright, who has actually lost their mind here?! The law clearly states that R-1 and R-2 are being scrapped, yet those responsible for the CDC tax filings are pointing to this new clause about "calculation based on collected fees." Then, just to make things even more infuriating, I woke up this morning to an email from Pupille saying the exact same thing—that starting July 1st, the R-1 and R-2 designations are being wiped from all modules, and anyone previously under R-2 now has to include that specific clause at the bottom of their invoices?!?!?
I’ve been combing through the regulations, and as far as I can tell, there isn't a single word in there about what kind of documentation we actually need to collect. We’re supposed to be asking our partners in non-EU countries for specific proof to ensure a valid transfer of tax liability, but the guidelines are completely silent on the matter. We were all just sitting around waiting for the official manual to be released because we assumed it would finally lay out those requirements... and now what? We're just left hanging.
Ugh, honestly, I hadn't even given those acquisition thresholds a second thought. I just sort of internalized this idea that they only applied to physical goods, not services... totally missed the mark there.
But seriously, how can someone who has been part of the USA since 2004 be so shocked by basic concepts like a VIES database or VAT numbers?!
I honestly thought I had finally mastered this stuff, but clearly, I’m still a student; I’m invoicing a towing service for a share of a trip involving a business partner based in Mexico (he claims he's a registered taxpayer there). This is a B2B transaction—assuming, of course, that he provides me with a signed statement confirming his tax status in Mexico—so my plan is to issue the invoice without Sales Tax and include a clause stating, "Tax liability transferred per Section 17, Paragraph 1 of the Sales Tax Law." Am I totally off base here? Because I had a colleague trying to convince me this morning that dealings with Mexico (or any other non-USA country, essentially a third country) haven't changed at all. He’s insisting that the domestic portion of the service is taxed under local Sales Tax, while any foreign portion just escapes taxation entirely?!?!?!? 🙂🙂🙂🙂
My understanding was that since July 1st, when you're providing services, you have to look at who the recipient is, which breaks down into: 1. B2B—a tax registrant within the USA who is listed in the IRS database, or a partner from a third country who is a registered taxpayer in their own nation. 2. B2C—an individual consumer, or a legal entity within the USA that isn't listed in the IRS database.
So, am I right or am I wrong?
P.S. If I’m dealing with a business partner in the USA and they claim they don't have an IRS number—acting all shocked that I'd even ask for it—should I just treat them as B2C? In that scenario, say I'm invoicing for a transport route from, I don't know, New York to Philly, would I be applying local Sales Tax to the entire amount?🙄
I headed down to the IRS office this morning to see if I was on the list for an automatic VAT number assignment, but apparently, I’m not. My caseworker isn't even back from vacation until July 1st, and to make matters worse, nobody there could give me a straight answer. They couldn't tell me which specific application I need to file, who actually handles it, or how long this whole bureaucratic nightmare is going to take... 🤔So, does anyone here have experience with this? I've been scouring the official government websites, but all I can find are forms and instructions meant for foreign entities trying to register here in the States...
One more thing, if anyone happens to be an expert on this: we provide B2B services for AAA. If they've opened a local branch here in the US and have a domestic tax ID, should we be applying a reverse charge on our invoices? Or does it strictly depend on whether the invoice is addressed to the US headquarters or their local American branch?
Carol Price4 As I was saying: Look, let’s get one thing straight: this is about imports from outside the European Union, not acquisitions within the bloc. Everything stays exactly as it has been up until now. The only real takeaway is that the Department will likely roll out a new regulation soon. Once that happens, VAT on imports will be handled as an accounting category rather than an upfront payment that you have to claw back later through your VAT return. It’s a procedural shift, nothing more. But until they actually put that regulation on paper, we should all just keep doing things the way we’ve always done them. No need to jump the gun. 🙂
👍 When you're running a small business and dealing with B2B services, there’s always that moment of hesitation regarding the VAT filing—it can be a bit of a headache if you don't nail down the timing. Specifically, when I'm looking at how to handle the VAT return: am I supposed to calculate the output tax and simultaneously claim the input tax on the same form, or should I wait until I've actually paid the invoice or processed the deduction to show that input tax?
Douglas Nguyen30 As I was saying: What on earth is this now? I just saw this posted on the IRS website on June 21st... I’m pasting the new VAT guidelines that kick in on July 1st—here goes:
When it comes to importing goods, any taxpayer currently registered for VAT will handle their prepayments exactly the same way they do now—by reporting them directly on their standard VAT return. It’s essentially business as usual for anyone already in the system. It’s being pointed out that there might be a significant shift coming based on recent rulings from the Department of the Treasury and the IRS. For those of us who are tax-compliant importers—specifically those of us with full input tax deduction rights—we might finally see some relief. Instead of actually having to cough up the VAT cash upfront during the import process, they are looking at turning it into a mere accounting entry. Essentially, what this means is that in a single VAT filing, you would report the VAT owed on the import and then immediately claim that exact same amount back as an input credit in the appropriate field. It’s a procedural change, sure, but it changes the whole cash flow dynamic. If this actually holds up, it would stop the constant headache of waiting for credits to clear while our capital sits tied up in transit. We'll have to see if the Department follows through on this, but it's certainly a development worth watching closely. The new calculation category isn't actually going to kick in on July 1st, 2013, as everyone was expecting. It turns out that for this specific import calculation method to become official, the Department has to pass a formal regulation first. Since that hasn't happened yet, we aren't seeing any changes just yet. Until that regulation is officially on the books, the VAT on imports will continue to be paid into the federal treasury exactly the way it was before America joined the European Union.
Honestly, at this point, I am completely lost. I can’t make heads or tails of any of this anymore!
🤔 I’m not exactly sold on this either... It leaves a bad taste in my mouth. And what about those incoming invoices from Canada for brokerage services? Since they’re essentially transferring the tax liability onto our shoulders, does that fall under that new July 1st accounting category, or are we all just left hanging in limbo until the Department actually releases the official regulations?
We operate as a sole proprietorship, and we have a partner based in Mexico who is a tax resident there (which counts as a third country). We handle and invoice vehicle towing services—basically transporting cars to repair shops. Since this is a B2B transaction, we don't charge sales tax on the invoice; instead, we cite Section 17(1) to indicate a reverse charge. Is it legally sound to use the phrase "reverse charge per Section 17(1)" as a clause, or should I word it differently? Now, here’s the kicker: they withhold a 10% commission for their brokerage services on all transport interventions performed. They only calculate that 10% based on the line items specifically for transport; things like highway tolls, ferry fees, or waiting time aren't included in their commission math. Instead of sending us an actual invoice for this fee, they just send a "deduction authorization" as a payment notice. It basically tells us they’re going to pay our invoices minus that specific commission amount for each individual bill. Up until now, I’ve been converting these notices from Euros to US Dollars using the mid-market exchange rate on the day they actually settle the invoices, then booking it as a net expense. What am I supposed to do regarding the July 1st changes? Am I required to account for sales tax on that commission—meaning, report it as an obligation in Box II.12 of my VAT form—while simultaneously claiming it as input tax in Box III.5? Or how does that even work? 🤷 Someone please help meeeeeeee!
ruggedmaker2 said:Honestly, we aren't even sitting around waiting for some official notice from the IRS. We’ve already reached out to all our clients and vendors to let them know about the number, and frankly, nobody is breathing down our necks asking for a formal VAT form to prove anything. A quick heads-up from us is plenty; they can just hop online and verify everything through the standard databases if they’re feeling skeptical. If they really want to be extra, they can go check the IRS website right now to confirm we're active in the system.
We did shift our acquisition and delivery dates around a little bit just to give ourselves some breathing room. Look, if we mess something up early on—and hey, life happens—we’ll just fix it. What else are we supposed to do? It’s not like this is our first rodeo. 😁
So, I just got word from a colleague who attended a seminar today. Apparently, they were warned that until there's an official ruling from the IRS regarding the VAT ID, that number doesn't actually exist in the VIES database. It’s only once the IRS issues that decision that the taxpayer gets officially registered in VIES. They were specifically advised not to hand out VAT IDs to partners until that official IRS ruling is actually in hand...
Richard Howard55 said: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? 😕
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. 🙂
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.🙂
Whew, can I jump in here? We handle vehicle transport services that get invoiced to a business based in Mexico and another one based in Canada (a non-EU country). Up until now, if we were invoicing for vehicle transport abroad, we simply included the clause stating "not subject to taxation under Section 5, Subsection 4" on the invoices for both partners. From what I understand, as of July 1st, both cases fall under B2B services, which triggers a transfer of tax liabilities. So, what exactly should the invoice clause look like? Should it say "exempt under Section 17" or "not subject to tax per Section 17"? And do we also need to add "reverse charge"? Does anyone know how the wording should look in this specific scenario, and are the clauses for Mexico (non-EU) and Canada (non-EU) supposed to be identical, or is there a distinction?
I see some of you were mentioning that partners from non-EU countries need to provide proof that they’re actually registered as taxpayers in their own home countries. It makes me wonder—when we first integrated into the European Union, we didn't have to jump through nearly as many hoops for our neighbors, so now I'm sitting here wondering if we're actually required to demand this kind of documentation from our partners over in Mexico. 🤷😕
Richard Howard55 said: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.
Take our situation, for example: we handle vehicle towing services where the entire transport operation takes place strictly within the United States, yet we issue the invoice to an insurance provider based in Mexico—our business partner there. We simply apply that famous "reverse charge" mechanism, effectively shifting the entire VAT calculation responsibility onto our Mexican partners. The US gets absolutely nothing from it; at least, that’s how we were told it works. On the flip side, when those same partners send us an invoice for brokerage services (they take a 10% commission on the gross amount), we calculate and pay the sales tax on that—which, predictably, is a much smaller sum. That’s a very rough overview, mind you; there are plenty of granular details involved...
Honestly, I’m starting to get a bit anxious. So much is shifting right now, yet we’re still left completely in the dark about the actual details. It’s all just speculation until they finally pull the trigger on July 1st. ☕
Drew Rogers6 said:So, I just got back from this seminar hosted by JPMorgan Chase. Don't get me wrong—the presenters were perfectly polite, but honestly? Everything they said was so incredibly vague. If you actually tried to pin them down with a specific question, they’d dodge it or wait until a coffee break to give you some non-answer. It’s frustrating because there are actual practical things they still don't have answers for! Take this, for example: if you sell goods to another state within the USA, you check via the IRS to make sure the buyer is a registered business, and then you don't charge them sales tax. Simple, right? Well, no! Because you still have to prove the goods actually left the US, otherwise, you’re stuck charging local taxes. When I asked how you even prove goods were shipped to another state—since we don't deal with those old customs documents anymore—the presenter just shrugged and joked that she always tells people to just take a photo of the truck and the driver picking up the load. I mean, she was obviously kidding, but it leaves the real question hanging: what *is* the actual proof that the shipment crossed state lines? That’s just one tiny drop in the ocean, too. Don't even get me started on determining the place of taxation—deciding what counts as an acquisition and what doesn't, handling tripartite deals, hitting those monthly filing deadlines, or dealing with small businesses that have to register for sales tax in another state because they're making taxable deliveries there... it’s a nightmare. And then there's the whole reverse charge mess 🙂 .
From my understanding, registration is only mandatory for those physically shipping goods. Those providing services to a business partner in another DC—for example, us providing roadside towing services within the US (and occasionally crossing state lines) for a partner in Canada (like an insurance company acting similarly to AAA))—don't need to register. Am I off base here? 😕
I’m still a bit foggy on that specific part regarding filing the sales tax return by the 15th of the following month. Specifically, how does one handle those goods that were shipped out last month, but we haven't actually received the invoice for yet? If there's no official invoice in hand, what exactly am I supposed to be basing my figures on?
I attended that same seminar, and honestly, I came away even more confused than when I walked in... It felt like they were giving two completely contradictory answers to the exact same question!😕 For me, it’s all a bit much to take in, though I suppose I should be happy about the changes. We run a small business, and I couldn't get a straight answer to a single specific question because the legislation hasn't even been passed yet. Everything was just vague, "around the edges" talk, and nothing actually made sense to me...
Oh, and one more thing—to actually receive the decision regarding the VAT identification number, do we need to file a formal request with the IRS, or will the IRS just mail out the decisions automatically? At the seminar, they claimed they had already received their notices from the tax authorities, but back here in San Diego, we were all just staring at each other in total confusion. Nobody in our area has received anything yet...
jadenomad24 said:I am, but it keeps telling me I need Java. I have no idea what’s going wrong here; I already installed Java JRE7, but it keeps insisting I need a specific version. I've gone through the whole installation process and still nothing. I can't decrypt the PIN—has anyone else run into this kind of headache??? And once I actually get it decrypted, is that new PIN the same one I'll be using for the IRS website??
Yes, that will be the PIN you use for the IRS portal. Try restarting your computer first. Do you even have the right drivers installed for your USB reader? Is the hardware actually being recognized? Honestly, this stuff usually runs much smoother if you just use Internet Explorer. Go into Tools > Internet Options > Content tab > Certificates, and check under "Trusted Root Certification Authorities" to see if the RDC is listed. If it isn't there, go ahead and download the verified RDC directly from their official site.
Once you successfully decrypt the PIN, it should show up in that same spot under the "Personal" certificates tab in the settings (you should see two entries listed under your name).