European Commission, Brussels December 18, 2012
Grounds for and objectives of the proposal
Article 397 of Council Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’) provides that ‘the Council, acting unanimously on a proposal from the Commission, shall adopt the measures necessary to implement this Directive’.
On that basis, the Council adopted Council Implementing Regulation (EU) No 282/2011 (‘the VAT Implementing Regulation’), setting out rules on how to apply certain provisions of the VAT Directive and also enshrining in law a number of guidelines agreed by the VAT Committee since 1977.
Large parts of the VAT Implementing Regulation relate to changes to the rules on the place of supply of services introduced in 2008 (by the ‘VAT Package’).
Some of those changes need further clarification, in particular those concerning telecommunications, broadcasting or electronic services supplied to non-taxable persons, which from 2015 become taxable in the Member State in which the customer is established, has his permanent address or usually resides.
Suppliers of such services will need to identify and account for VAT in that Member State.
Measures have already been taken to implement the special schemes for those suppliers who are not established in the Member State of taxation.
Further measures are needed to ensure that the rules governing the place of supply of these services are applied uniformly.
It is essential to amend the VAT Implementing Regulation to lay down rules on how to apply the relevant provisions of the VAT Directive.
These measures should be adopted by the Council as soon as possible and certainly by the end of 2013, in order to give businesses and the Member States sufficient time to prepare for the changes.
This proposal and the definitions it contains do not preclude the outcome of ongoing discussions on applying reduced VAT rates to online products and services.
Telecommunications, broadcasting and electronic services are, in general, taxed at the place where the customer is established or resides.
Where the supplier is established within the EU and the customer is a non-taxable person, the supply is, however, currently taxed at the place where the supplier is established.
From 1 January 2015, all telecommunications, broadcasting and electronic services will be taxable at the place where the customer belongs (unless the rule on effective use and enjoyment applies), even if the customer is a non-taxable person.
For non-taxable persons, EU and non-EU suppliers will need to identify where the customer is established, has his permanent address or usually resides. Without a VAT identification number (which is usually reserved for taxable persons) for guidance, the supplier will have to rely to some extent on information from the customer.
To ensure legal certainty, and avoid double taxation or non-taxation, suppliers need clear and binding rules on how to do this.
Detailed explanation of the proposal
The proposed implementing measures relate to the following types of services:
- telecommunications, broadcasting and electronic services
- services connected with immovable property
- distribution of tickets granting entry to cultural, artistic, sporting, scientific, educational, entertainment and similar events.
The proposals for each are as follows.
Telecommunications, broadcasting and electronic services
From 1 January 2015, EU (and non-EU) businesses will need to determine where their customer (non-taxable person) belongs in order to ensure correct taxation of these services.
In order to ensure that the transition is smooth and coordinated at EU level, the Commission is proposing measures for the implementation of the new rules.
This follows in-depth and close consultations with businesses and Member States.
These measures will not change the rules for telecommunications, broadcasting and electronic services laid down by the VAT Directive but will clarify how those rules should be applied in practice.
Articles 6a and 6b, together with the changes proposed to Article 7 and Annex II, seek to clarify the nature of telecommunications, broadcasting and electronic services.
Each of these services should be defined so as to set the boundaries of the new rules.
A definition of broadcasting services is therefore included together with examples to illustrate which services are covered and which are not.
To provide legal certainty, preference is given to qualifying the services in positive terms.
The existing list of examples of electronic services has been adapted and similar lists drawn up for telecommunications and broadcasting services. The lists are neither definitive nor exhaustive.
Article 9a clarifies the treatment of broadcasting and electronic services when supplied through the telecommunications network or via an interface or a portal such as a marketplace for applications belonging to an intermediary interface or a portal (or a third party intervening in the supply).
The presumption is that in supplying those services the intermediary acts on behalf of the supplier but in its own name.
Unless stated otherwise, the intermediary will be deemed to have received and supplied those services.
Where supply is made to a non-taxable person, the intermediary then has to account for VAT in the Member State of its customer.
Article 13a specifies that, similar to a taxable person, a non-taxable legal person is established at the place where his business is established or where he has a fixed establishment.
Article 18 deals with the status of the customer.
It allows a supplier to treat a customer who does not communicate his VAT identification number as a non-taxable person but only if the supplier does not have information to suggest otherwise.
Where the place of taxation depends on whether the customer is a taxable or a non-taxable person, the risk of relying solely on the VAT identification number is that the supply could be displaced if a taxable customer chooses not to communicate the number.
No such risk exists with telecommunications, broadcasting and electronic services, which in any circumstance will be taxable at the place of the customer.
The new paragraph 2 clarifies that for such services, the supplier can regard any customer who does not provide a VAT identification number as a non-taxable person.
This will allow the supplier to determine immediately and with certainty whether payment of VAT falls to the supplier (as it does for supply to a non-taxable person, or to a taxable person in the same Member State) or whether the customer needs to account for the tax (because the supply is to a taxable person in another Member State).
However, this initial assessment will have to be reviewed and corrected should the customer subsequently communicate his VAT identification number.
Article 24 deals with situations where the customer is established or resides in more than one country.
The aim is to avoid conflicts concerning jurisdiction between Member States.
The new paragraph 3 clarifies what should be taken into account in order to determine the place that best ensures taxation at the place of actual consumption.
Subsection 3a provides for non-rebuttable presumptions where it is impossible or almost impossible for the supplier to establish the capacity of a customer or to know where the customer is actually established, has his permanent address or usually resides.
Article 24a deals with cases where a supplier of telecommunications, broadcasting or electronic services provides those services to a customer at certain locations.
In cases such as a telephone booth or a visit to an internet cafe, the supplier will not know who the customer is or may find it virtually impossible to check where that customer actually belongs.
As the physical presence of the person receiving the service is needed for the service to be rendered to him, the presumption is that the customer belongs in that country.
Article 24b deals with cases where use is made of pre-paid credits stored on a SIM card to receive the services.
As, in general, there is no collection of personal details upon the sale of such cards, the supplier who is not necessarily supplying the customer with the card, will not know who that customer is.
The country of issue of the SIM card is key to establish where the customer is.
As use will often be in that country, the presumption is that the customer also belongs there for this purpose.
Subsection 3b provides for rebuttable presumptions where it is difficult, but not impossible, for the supplier to know where the customer is actually established, has his permanent address or usually resides.
Where the supplier has information to indicate that the customer belongs elsewhere, the presumptions shall not apply.
Article 24c deals with cases where services are supplied to the customer via a fixed land line connected with a residential building. As that is also where the service will be used, the presumption is that the customer belongs there.
Article 24d covers cases where the customer makes use of a post-paid SIM card to receive the services.
As with pre-paid credits, the presumption is that the customer belongs in the country of issue of the SIM card. Given that with services received through the use of a post-paid SIM card, the supplier will know the customer, there needs to be scope for this presumption to be rebutted.
Article 24e suggests that a customer who needs a device or a viewing card in order to receive the services can be presumed to belong where the device is installed or where the viewing card is sent for use.
The presumption does not apply in cases where the device is sold without installation or where the viewing card is sold but not sent to the customer.
Article 24f covers all other cases where the presumption is that the customer belongs at the place as established by the supplier through sufficient evidence.
This presumption applies to the extent that the supplier does not have contradictory evidence. Subsection 3c focuses on evidence for use in identifying customer location.
Article 24g sets out a list of items of information which can be used as evidence by the supplier in identifying where a non-taxable customer belongs.
As there is no VAT number for guidance, the supplier needs to know what other information can be relied on. The list, whilst not exhaustive, suggests which are the most relevant items of information for use as evidence.
To be proportionate, the evidence used must be sufficient to determine with relative certainty where the customer belongs but the burden of proof must not be excessive.
That is best achieved by setting a common level of evidence.
Relying on a single piece of evidence is not appropriate as that leaves too much scope for differences in application.
Two convergent separate pieces of evidence are therefore required.
Services connected with immovable property
Article 47 of the VAT Directive provides for the place of supply of services connected with immovable property to be the place where the property is located. Measures are included to clarify the scope of that provision based on guidelines agreed by the VAT Committee.
Article 13b provides a definition of what constitutes immovable property. The concept of immovable property is a common notion independent of national law. A definition of this concept is needed to facilitate the correct application of the place-of-supply rules. The definition is largely based on the case law of the Court of Justice of the European Union.
Article 31a specifies that for services to be connected with immovable property, the connection needs to be sufficiently direct (paragraph 1). That covers services derived from an immovable property if the property makes up a constituent element of the service and is central and essential for the services supplied such as the granting of fishing permits; or provided to, or directed towards, an immovable property having as their object the legal or physical alteration of that property such as the services of architects or estate agents.
Examples are included to illustrate which services are connected with immovable property (paragraph 2), and which are not (paragraph 3).
Article 31b provides that the hiring of equipment to a customer, with or without accompanying staff, with a view to carrying out work on an immovable property shall only be regarded as a service connected with immovable property if the supplier assumes responsibility for the execution of the work.
Where the equipment is put at the disposal of the customer together with sufficient staff for its operation, the presumption is that the supplier has assumed such responsibility.
In this case, the service must be taxed in the country where that immovable property is located.
Article 31c clarifies that telecommunications, broadcasting or electronic services provided by hotels or the like to their customers in connection with accommodation will be treated for VAT purposes in the same way as the supply of the accommodation itself.
Depending on the way those services are charged, they either form part of a single supply of accommodation (in the case of ‘all inclusive’ prices) or are regarded as being ancillary to the supply of accommodation.
Distribution of tickets granting entry to cultural, artistic, sporting, scientific, educational, entertainment or similar events
Entry to cultural, artistic, sporting, scientific, educational, entertainment or similar events continues to be taxable at the place where the event actually takes place.
Where entry to such events is granted to a taxable person, the supply is covered by Article 53 of the VAT Directive. Article 54 of the VAT Directive comprises the supply of entry to such events to a non-taxable person.Article 33a confirms that tax treatment is not influenced by the way in which the distribution of tickets for such events is organised. In all circumstances, the supply of tickets must be taxed at the place where the event takes place.
Under Article 63 of the VAT Directive, the chargeable event occurs and the VAT becomes chargeable when goods or services are supplied. If payment is made on account under Article 65 of the VAT Directive or if Member States have availed themselves of the option in Article 66 of the VAT Directive, VAT can, however, become chargeable prior to or soon after supply.
For telecommunications, broadcasting or electronic services supplied around 1 January 2015, i.e. the time when the new rules on the place of supply become applicable, conditions linked to the supply or differences in application between Member States could result in double taxation or non-taxation.
To prevent this from happening, Article 2 of the proposal makes it clear that, no matter when the VAT becomes chargeable, the decisive moment for determining the place of supply is when the services are supplied or, for ongoing supplies giving rise to successive statements of account or successive payments, when each supply is completed.
That is when the chargeable event occurs in any of the Member States.
Those measures are necessary to ensure a smooth transition to the rules put in place as of 1 January 2015.
European Commission – Read full report of Council Regulation – EU Place of supply services