Change to VAT place of supply rules in EU: 1 July 2015
Impact for Australian businesses making B2C supplies to EU customers?
In February 2008 the European Union (EU) Council of Finance Ministers adopted the so-called ‘VAT Package’ which involved major changes to the rules governing the place of supply for services.
Although the majority of the changes have already entered into force (primarily on 1 January 2010), the final phase of the VAT Package, affecting telecommunications, broadcasting and electronically supplied services, will come into force on 1 January 2015.
This will involve a change to the VAT treatment of business to consumer (B2C) supplies in circumstances where the consumer is based in a different EU member state to the member state in which the supplier is established.
For EU-based suppliers, B2C supplies of telecommunications, broadcasting and electronically supplied services (defined below) are currently treated as supplied where the supplier is established, regardless of where the customer is located.
Since 1 July 2003, non-EU based suppliers supplying electronically supplied services to EU customers have been required to register for VAT in the EU and to account for VAT in each of the member states in which the services are consumed.
A ‘One Stop Shop’ (OSS) scheme has operated since 2003 to simplify the VAT obligations for non-EU traders (i.e. non-EU suppliers may choose a single place for VAT compliance and submit a single VAT declaration and payment, with liabilities in each EU member state satisfied via an automated allocation of the supplier’s payment, based on information provided by the supplier).
From 1 January 2015, B2C supplies of telecommunications, broadcasting and other electronically supplied services by EU-based suppliers will be treated as supplied where the customer is established or usually resides.
This represents a significant change for EU-based suppliers, who will need to determine where their customers are established or usually reside in order to be able to charge and account for VAT at the rate applicable in the relevant EU member state. This will mean that EU-based suppliers will face the same difficulty currently experienced by non-EU based B2C suppliers - reliably determining the place of establishment or usual place of residence of their private or non-business customers.
As part of the change, it is proposed to extend the OSS scheme to EU-based suppliers of telecommunications, broadcasting and other electronically supplied services, to enable them to account for VAT across the EU using a single VAT declaration and payment. However, initial proposals from the European Commission suggest that suppliers opting for the OSS scheme will need to meet multiple country administrative requirements and could be liable to local audits.
Potential impact for Australian businesses making B2C supplies to EU customers
In practical terms, the changes will mean that non-EU based suppliers and EU-based suppliers will experience the same VAT treatment when they make B2C supplies of telecommunications, broadcasting and electronically supplied services to EU customers. This represents a levelling of the playing field.
The change would also appear to remove the incentive for non-EU based suppliers to set up a permanent establishment within the EU, in a low-rate jurisdiction, so as to be able to charge lower VAT rates on intra-EU B2C supplies.
'Electronically supplied services'
Electronically supplied services include supplies of website hosting and maintenance of website programs and equipment; supplies of software and updating software; supplies of images, text and information and the making available of databases; supplies of music, films and games (including games of chance and gambling games); supplies of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts (including broadcasts of events); and supplies of distance teaching.
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