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EU: 2015 place of supply changes - Understanding the changes
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.
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. Current rules provide that the place of taxation is where the supplier is located, but with effect from 1 January 2015 this will move to the place of consumption (i.e. where the customer is located).
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.
Identifying the location of the customer
The key issue for suppliers will be to correctly identify where their customers belong. This is so they can apply the correct rate of VAT. In order to try to provide both clarity and certainty on this point the regulations contain a number of presumptions which will have legal effect in all 28 EU Member States.
The first step in this process will likely involve determining if any of the presumptions laid down in the draft implementing regulations apply. There are four sets of conditions which, if met, can be relied upon to determine where a customer belongs:
If a supplier of telecommunications, broadcasting or electronic services provides services at a fixed location such as:
· a telephone box;
· a telephone kiosk;
· a wi-fi hot spot;
· an internet café;
· a restaurant; or
· a hotel lobby
where the physical presence of the recipient at that location is needed for the service to be provided, the place of supply will be presumed to be that location.
If this is on board a ship, aircraft or train carrying out a passenger transport operation, the country of the location shall be the Member State of departure of the passenger transport operation.
For telecommunications, broadcasting or electronic services supplied via their fixed land line, the presumption shall be that the place of supply is the place of installation of the fixed land line.
For telecommunications, broadcasting or electronic services supplied through mobile networks, the presumption shall be that that the place of supply is the Member State identified by the mobile country code of the SIM card used when receiving those services.
For telecommunications, broadcasting or electronic services, for which the use of a decoder or similar device or a viewing card is needed and where a fixed land line is not used, the presumption is that the place of supply is the place where that decoder or similar device is located, or if that place is not known, the place to which the viewing card is sent with a view to being used there.
If none of the presumptions are relevant then the supplier will need to obtain two pieces of converging evidence from the following list to support where the customer is resident:
a) the billing address of the customer;
b) the Internet Protocol (IP) address of the device used by the customer or any method of geolocation;
c) bank details such as the place where the bank account used for payment is and the billing address of the customer held by that bank;
d) the Mobile Country Code (MCC) of the International Mobile Subscriber Identity (IMSI) stored on the Subscriber Identity Module (SIM) card used by the customer;
e) the location of the customer’s fixed land line through which the service is supplied to him; and
f) other commercially relevant information.
On-going supplies spanning 1 January 2015
Many suppliers will make continuous supplies of the services affected by the 2015 changes. For example, annual subscriptions or memberships.
Where supplies are made continuously on an on-going basis, the place of supply in respect of each chargeable event that occurs before 1 January 2015 shall be the place where the supplier is established, regardless of when the supply or continuous supply is completed.
The place of supply in respect of each chargeable event that occurs on or after 1 January 2015 shall be the place where the customer is established, has his permanent address or usually resides, regardless of when the supply or continuous supply commenced.
Electronic supplies made via aggregators, mobile phones and market places
It will be necessary for some transactions to be able to correctly identify who is making the supply, in order to confirm who is liable to account for the VAT. Scenarios where this will be the case will include supplies made through telecommunications networks or online market places.
The draft legislation indicates that in such circumstances an electronic services provider which manages a market place or supplies telecommunciations services will be treated as acting in its own name unless it is explicitly indicated and can be clearly demonstrated, both in terms of the contract and in the information provided to the customer, that it is some other person that is supplying the service. In effect, the default position is that market place operators (and similar businesses) will need to account for VAT under the new rules
For a different provider to be responsible it must be clearly identified as being the supplier on any invoice, bill or receipt issued or made available.
It should be noted, however, that a taxable person that is not an electronic services provider (i.e. where they only provide the processing of payments in respect of electronic services or telephone services provided over the Internet, including voice over Internet Protocol (VoIP)) who does not take part in the supply of electronic services or telephone services cannot fall within these provisions.
As a result, all suppliers should evaluate how they make supplies of their service when using third party agents or market places.
Alternative Mini One-Stop Shop Scheme (MOSS)
A business which is registered for MOSS will need to submit quarterly VAT returns detailing its sales of telecommunications, broadcasting and electronic services to non-taxable persons in other Member States, along with the VAT due. The returns will be filed in the business’ Member State of identification (typically the Member State in which the business has its business establishment). These returns and the VAT payable will then be transmitted to the relevant Member State of consumption via a secure communications network.
The MOSS VAT Returns are additional to the ‘normal’ VAT returns a business renders to its Member State under its domestic VAT obligations. Hence, if it signs up for MOSS it will be incurring additional administrative burdens. It will also need to be able to separate from its accounting system the different types of supplies it makes.
MOSS will be available to businesses which are established in the EU (the “union scheme”). For businesses which are not established within the EU the current VoES scheme will be known as the MOSS “non-union scheme”. Without MOSS, a supplier would be required to register in each Member State in which it has a customer.
That said, MOSS is an optional scheme for businesses and a business may choose to register in each EU Member State if it wishes. However, if MOSS is used then it must be applied in all applicable Member State (it is not optional on an individual Member State by Member State basis). The only exception to this is when a business also has an establishment in another EU Member State from which it makes relevant supplies. In that instance, those supplies should be declared on a domestic VAT return in that country, not via MOSS.
A taxable person who opts to use MOSS will register for it in the country where it has its business establishment or head office. The taxable person will be identified for MOSS with the same VAT identification number with which it is identified for its domestic VAT returns.
If a taxable person has not established its business in the EU, it can choose any Member State in which it has a fixed establishment to register.
A taxable person can only have one MOSS registration across the whole of the EU.
A taxable person using either of the special schemes will be required to submit, by electronic means, a MOSS VAT return for each calendar quarter. If there have not been any supplies in a period then a NIL return must be submitted. The MOSS VAT return and accompanying payment is required to be submitted within 20 days of the end of the period covered by the return.
The MOSS VAT return should contain the details of sales made across the EU by the taxable person using the scheme.
The Member State of Identification (“MSI”) generates a unique reference number for each MOSS VAT return, and informs the taxable person of this number. This number is important, as the taxable person must make a reference to it when it makes the corresponding payment.
Any VAT is due to the tax authority in the country for which it has registered for MOSS. It pays one amount, for the total of the MOSS VAT return (i.e. in respect of every country where it has made supplies). The money is then distributed to other Member States by the tax authority in the MSI.
The supplier will need to adhere to the invoicing rules in place where the customer belongs. This means the supplier will need to be aware of the relevant rules in all the Member States where they make B2C supplies.
Suppliers will be subject to audits in respect of these supplies from the tax authority in each Member State where it makes supplies. However, any questions and the audit itself will be coordinated by the tax authority of the Member State in which it is established. That said, the foreign tax authority may be allowed to visit during inspections and the taxable person will have to consider how to manage that position (i.e. how will it present its information, what language will be used, etc).