Obligatory VAT reverse charge rule for telecommunication services as of 1 September 2017
As announced earlier in our Indirect Tax Alert of 1 June 2017, the obligatory VAT reverse charge rule for telecommunication services will become obligatory as of 1 September 2017.
31 August 2017
On 1 June 2017 the State Secretary of Finance (“Secretary”) published a decree to allow taxable persons to immediately apply a voluntary VAT reverse charge rule for telecommunication services between taxable persons (B2B) in the Netherlands. This decree had been issued in anticipation of the expected change in legislation. Today, the Dutch Government Gazette confirmed that the change in legislation for the obligatory reverse charge mechanism will enter into force as of 1 September 2017.
VAT carousel fraud
The reason for the change in legislation is due to recently detected VAT carousel fraud. As a result of this fraud the Inspector may refuse entitlement to the right to deduct input VAT where it is ascertained, having regard to objective factors, that a taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with VAT carousel fraud. This leads to uncertainty among taxable persons, who purchase telecommunications services, about the right to deduct the input VAT charged to them, which could seriously impede the conduct of regular transactions in these services.
Obligatory reverse charge mechanism
In order to remove these uncertainties from taxable persons who purchase telecommunication services, taxable persons are obliged to apply the VAT reverse charge rule for telecommunication services.
The VAT reverse charge rule is only applicable to transactions between taxable persons who (also) supply telecommunication services and of which the place of supply is the Netherlands.
The supply of services to end-users falls outside the scope of this reverse charge rule. In this context, end-users are understood to be not only private individuals but also entrepreneurs who purchase such services to use them within their own organisation.
With regard to definition of telecommunication services, reference is made to telecommunication services as described in article 2a, paragraph 1, point (r) of the Dutch VAT Law.