As reported end of last year, EU Commission has on 18 December 2012 published a new proposal for amending the VAT Implementing Directive 282/2011, which provides additional rules and clarifications regarding the place of supply rules – i.e. defines in which country VAT should be levied.
For the purposes of this post I will limit myself only to those relevant for us telecom, broadcasting and e-services, even though the proposal deals also with some other issues (e.g. work on immovable property).
The most important amendments can be summarized in the following there categories, one of which can be probably described as most unwelcome news for those businesses that rely on annual subscription model (or even loner subscription periods).
The bad: The proposal hides an unpleasant surprise. It essentially states that under special (and in practice quite common) circumstances the new place of supply rules will become effective prior to 2015. In practice this could mean as early as this year (jump to the last bullet point below for some more info on this issue).
The good: The proposal provides welcome simplifications regarding on how to identify the correct place of VAT taxation in cases where it is in practice impossible or almost impossible to determine the residential address of customer.
And the rest: The proposal provides some further clarifications and implementation of rules that have been already adopted in practice (e.g. lists evidences on how to identify customer’s location, clarifies the role of the intermediary, etc)
With the above in mind I welcome you to spent some more time on a brief highlights of the most important items related to telecom, broadcasting and eservices:
- Examples of broadcasting, telecom and eservices (with attempts to clarify the border between them). Two interesting examples: VoIP is regarded as telecom service. Radio and TV programs distributed via internet are considered broadcasting services only if they are broadcast (i) live or (ii) simultaneously to being transmitted over radio or TV network (otherwise they are eservice).
Preliminary comment: Nothing ground shaking – every bit helps.
- Presumption, that broadcasting services and eservices provided by an intermediary (acting in its own name and on behalf of the content provider – e.g. third party apps in an online store) count for VAT purposes as being provided by the intermediary and not the content provider. This would mean that in our example above the online store provider (and not the content provider) will be deemed as the seller of the apps and will have to deal with all VAT consequences. The only exemption to this would be if the intermediary is clearly stating that the content provider is acting as the “direct” supplier of these services (and intermediary only collects the payments as its payment agent).
Preliminary comment: Implements rules as used in practice in most countries (e.g. Germany ) and also puts a stop to Sweden’s attempts to tax the content provider also in cases where e.g. apps are sold in a third party’s online store. Useful clarification.
- Several presumptions / simplifications about the place of customer’s location, some of them refuttable (i.e. applicable only if no contrary information is available) and some of them irrefuttable (i.e. mandatory, to be applied as written) – we will discuss them in a separate post in more details:
- Examples of irrefuttable presumptions: Place of taxation of telecom, broadcasting and eservices supplied at a telephone box or kiosk, Wi-Fi hot spot, internet cafe, restaurant, hotel l0bby and similar places is regarded to be at that location (there is an exemption in case these services are provided on board of a ship, aircraft or train). In case of prepaid SIM cards the place of taxation is identified based on the mobile country code of that SIM card.
Preliminary comment: These were already announced, good to see that they will probably be implemented.
- Examples of rebuttable presumptions – they are applied only if the supplier does not have other information indicating that the supplier is resident somewhere else: Place of taxation of telecom, broadcasting and eservices supplied by a fixed land line is at the address of the installation of the fixed land line. For mobile phone the place of taxation is the country as identified by the mobile country code of the SIM card. Where a special device or a viewing card is needed (e.g. digital TV) the place of taxation is the location where the viewing card has been sent to or the device has been installed.
Preliminary comment: I know for a fact that these simplifications have made a lot of companies in telecommunication and broadcasting sector very happy. A very practical proposal.
- List of evidences that can be used to define the customer’s location (ranging from an IP address to bank details and “other commercially relevant information” – will be covered in more details in a separate post): At least two separate pieces of evidence are required to prove the correct location, whereby they must not be contrary (i.e. pointing to two different countries). Unfortunately no specific instructions are given what to do in case of contrary evidence. The general rule is merely that priority shall be given to the place that best ensures taxation at the place of actual consumption – whatever this means in practice.
Preliminary comment: The list represents more or less what is already being used in practice. “Two evidences” rule is good to have. I am missing some binding instructions on what to do if evidences point to two different countries. Update: See here for some additional info.
- If telecom, broadcasting and eservices are provided together with accommodation (e.g. hotel room, camping site, etc.) the tax treatment depends upon the fact whether these services are provided as an auxiliary supply to the accommodation service or separately.
Preliminary comment: Logical clarification, even if nothing new in practice.
- Last but not least the proposal clarifies that in cases when the supply of telecom, broadcasting and eservice starts before 1 January 2015 and ends after 1 January 2015 the new VAT rules will already apply, even if the VAT has become chargeable prior to 2015. This essentially means that the new B2C VAT rules can apply even before 2015 – which leaves the ebusiness with even less time to get their systems up and ready. In practice this means that if a company offers a one year (or three years) subscription to these services, it will be concerned with these new rules that much earlier. Here are some practical examples:
- A Luxembourg based company offers a one year software update subscription to a Hungarian resident in January 2014 – and is therefore required to charge VAT at 27% rate instead of 15%.
- A web hosting service provider offers a three year subscription to web hosting and domain purchases.
- An online game provider offers a one year subscription
- A Pay TV company offers an annual subscription to their services.
Preliminary comment: I bet nobody has seen this coming. Let’s hope that this rule will not be included in the final version of the Regulation. We are looking into options on how to limit the negative implications of this provision.
Here you have it – a short overview of the most important proposed changes and amendments to EU VAT rules for telecom, broadcasting and eservices. I hope you will find it useful. We will address these issues in 0ur live webinar on 28 January 2013 and also during our B2C 2015 work group meeting on 6 February 2013. You can also contact us anytime to discuss your questions.