EU: 2015 Place of Supply Changes - Overview of new rules

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EU: 2015 Place of Supply Changes - Overview of new rules

From 1 January 2015, supplies of telecommunications, broadcasting and electronically supplied services made by EU suppliers to private individuals and non-business customers will be taxable in the Member State of the customer.

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This change is the final phase of the EU VAT Package, which introduced new place of supply of services rules for VAT in the EU and new intra-EU VAT refund processes.  The first phase of the VAT Package came into force on 1 January 2010.

The one-stop shop or VAT on e-services (VoES) scheme will also be adjusted to align to the new rules with effect from 1 January 2015.

Introduction

From 1 January 2015, supplies of telecommunications, broadcasting and electronically supplied services by suppliers located in the EU to private consumers and non-taxable customers (i.e. those that are not deemed to be “in business” for VAT purposes) will be taxable in the Member State where the recipient  is established, has a permanent address or normally resides.

Currently, where these services are supplied to non-taxable persons, VAT is accounted for by the supplier based on where it is established. Any VAT collected on such sales is simply accounted for on the supplier’s normal VAT return.

Relevant Supplies

The EU Implementing Regulation (Council IR 1042/2013) in conjunction with the explanatory notes provide further clarity on what the affected supplies are and the scope of the changes. The Regulation sets out definitions of what is included within each of the three categories of services affected by the changes. Further detail on these definitions can be found in Appendix A.

Customers

The changes apply to the  supply of telecommunications, broadcasting or electronic services to a non-taxable customer (‘B2C’) who is established or resident within the EU.

EU: 2015 Place of Supply Changes

Current position

For EU-based suppliers, B2C supplies of telecommunications, broadcasting and electronic services to customers in the EU are currently treated as supplied where the supplier is established, regardless of where the customer is located. This means that a UK established supplier accounts for UK VAT on all B2C sales regardless of which EU Member State the customer is resident or established in. For telecommunications and broadcasting services, to the extent that a customer enjoys the service outside of the EU, VAT may not be due on this part of the supply.

For providers of telecoms and broadcasting services established outside of the EU, B2C supplies of telecoms and broadcasting services are currently treated as supplied where the provider is established (subject to use and enjoyment provisions). This basic position may be altered to the extent that these services are used and enjoyed within the EU, in which case VAT is applicable.

B2C supplies of electronically supplied services by suppliers established outside of the EU are treated as made in the Member State of the relevant customer. The existing One-Stop Shop scheme, also known as the VAT on e-services (VoES) scheme, provides affected suppliers with a framework or mechanism to account for any VAT due across these Member States.

The following tables summarize the current position in terms of place of taxation on B2C supplies:

Telecoms and Broadcasting

EU Supplier

Non-EU Supplier

EU Customer

Taxed where the supplier is located

Taxed where the customer uses and enjoys the service

Non-EU Customer

Outside the scope of VAT(*)

Outside the scope of VAT

 

E-Services

EU Supplier

Non-EU Supplier

EU Customer

Taxed where the supplier is located

Taxed where the customer is located

Non-EU Customer

Outside the scope of VAT(*)

Outside the scope of VAT

 

(*) This position may be altered where the effective use and enjoyment of the service would lead to a different tax result. For example, if an EU supplier is supplying broadcasting, telecoms or electronic services to a non-EU customer, the starting point would be that these services would be outside the scope of VAT. However, if the services are used and enjoyed in the EU, VAT may then become due.

2015 changes

As of 1 January 2015, B2C supplies of telecommunications, broadcasting and other electronically supplied services provided by suppliers in the EU and made to non-taxable customers within the EU will be treated as supplied in the EU Member State where the recipient of the service is established, has a  permanent address or usually resides.

Suppliers of such services will therefore need to determine where their customers are established or usually reside and will need to account for VAT at the applicable rate in that Member State. This is a requirement irrespective of where the supplier itself is established or registered for VAT. Therefore, suppliers may (but see alternative below) need to register for VAT in all EU Member States where they have customers. No minimum thresholds will apply and so making supplies to just one customer in one Member State will trigger a VAT registration requirement in that country.

As an alternative to obtaining multiple VAT registrations in each Member State where a supplier has a customer, affected suppliers may be able to opt to account for VAT across the EU via a single electronic declaration. This return can be filed with the tax authority where the supplier is established (the “Member State of identification”). This system is known as the Mini One-Stop Shop (“MOSS”) scheme. The MOSS scheme will be similar to the one presently in place for non-EU suppliers under VoES and so will allow for the value of B2C supplies made in all 28 EU Member States to be reported on a single electronic return.

What do the changes mean?

To prepare for the changes coming into effect, businesses will need to consider:

  •  whether they make cross border supplies of telecommunications, broadcasting and other electronically supplied services;
  • whether such supplies are made on a B2C basis, including how to decide if a customer is a non-taxable person;
  • how to determine where B2C customers are located and any additional contractual provisions and systems changes that may be required to capture this information;
  • changes that may be necessary to invoicing procedures, such as meeting the invoicing rules of other Member States;
  • how they will charge and account for VAT at the correct rate;
  • whether they are eligible to use the MOSS scheme across all Member States or whether local registrations will be required in some instances;
  • any additional VAT compliance obligations that may arise in other Member States as a result of the new rules and how to effectively manage these obligations;
  • how to determine who is the supplier of B2C content when this is delivered over mobile devices or through the use of multiple aggregators;
  • the impact of different VAT rates across the EU on profit margins and any changes that may be required to pricing structures;
  • the impact of any changes to pricing structures on customer behaviour; and
  • the impact of supplying packages of goods and services to consumers (i.e. hard copy periodicals supplied with online access);.
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