Today we will take a look at the basics of the new Mini One Stop Shop (“MOSS”) VAT registration scheme and compare the EU and non-EU MOSS schemes with their alternative – the “standard” local VAT registration in up to 28 EU countries.
As you are most probably aware companies selling telecom, broadcasting and eservices to B2C customers in the EU will have to charge VAT in the country of the customer and at that country’s VAT rate. This will mean 28 countries and 28 VAT rates (or 56 rates if ebooks and similar eservices will potentially become taxable at reduced VAT rate).
What do MOSS and local VAT registration have in common?
Under both VAT registration schemes businesses will have to identify their customers as B2B or B2C, identify the location of their B2C customers and charge VAT at the rate of the country in which the customer is located.
Specifics of local VAT registrations
Local VAT registration is the default scheme (i.e. it must be applied if MOSS is not selected or conditions for MOSS are not met). In this case businesses will have to register for VAT locally in every EU country where their B2C customers reside, submit VAT returns in accordance to the local rules of each country, report in each country’s currency, apply locally defined exchange rates, deal with up to 28 different tax authorities in their local languages, assign fiscal representatives and provide bank guarantees where required, etc.
Two different sub-schemes hide under the common “MOSS” scheme – one sub-scheme for non-EU based business (also called “non-Union scheme”) and another for EU based businesses (also called “Union scheme”). Both sub-schemes have in common that they are optional (i.e. business can choose between MOSS and local VAT registrations) and that as soon as MOSS is chosen it must be applied in all EU countries (no “pick and choose” on individual country level).
Another important fact is that MOSS can be only used to declare the output VAT (i.e. VAT due on sales of telecom, broadcasting and eservice). Input VAT (i.e. VAT charged by suppliers) can be recovered by other means (in most cases via a VAT refund procedure, if applicable).
MOSS for non-EU business (“non-Union scheme”)
In principle a similar OSS (“One Stop Shop”) scheme is already available today for sales of eservices by non-EU businesses to their EU based B2C customers. Please note that the current OSS scheme and future MOSS are not identical; after 2014 OSS will not be used any longer; instead MOSS will have to be applied (in addition to eservices MOSS will be applicable also for telecom and broadcasting services).
Non-EU business will be able to freely choose the EU country, where it wishes to register for MOSS. This is also true today for the OSS scheme. We see in practice that the country of the OSS registration is usually chosen based on the language used by the local tax authorities to correspond with the taxable persons, based on the approach of the tax authorities towards taxable persons, how easy it is to submit the electronic VAT return, etc. We assume the same reasoning might applicable also after 2015, when the non-EU businesses will have to choose the country for their MOSS registration.
If a non-EU business is registered for VAT locally anywhere in the EU (either mandatory or voluntarily) it will not be able to apply the MOSS scheme (nor can it apply OSS today). This limitation is applicable on company basis – meaning that a local VAT registration of one company in a group will not prevent other group’s companies to use MOSS (same applies also for OSS today).
MOSS for EU business (“Union Scheme”)
EU businesses will not be bound by the above limitations to use MOSS only if they are not locally registered for VAT in the EU. This is logical as they will be by default registered for VAT at least in the country where they are established.
They will not be able to freely choose the country of the MOSS registration; this will always be the country of their establishment.
MOSS will be used only to report telecom, broadcasting and eservices sales to B2C customers and only in the countries where the EU business is not established or has a fixed establishment (e.g. where it does not have a head or branch office).
The EU business will have to report all other supplies (e.g. sales of goods and other services) by the means of the regular VAT returns. Further, in countries where it is established or has a fixed establishment it will have to report all its supplies by the means of the regular VAT returns.
Rest of Europe
MOSS is of course not applicable for the rest of the European countries that are not part of the EU. In those countries ebusinesses have to register locally in each individual country and follow the local VAT registration and VAT compliance rules.
First business reactions and next steps
We have spent a lot of time speaking with our clients in telecom, broadcasting and eservice sectors about their plans on how they will handle their VAT registrations after 2015. A lot of them found the new rules quite complicated and said that they will have to seriously consider whether they will apply for the new MOSS scheme or not. Some of them consider sticking with their existing local VAT registrations and others will probably adjust their business structures to make the best out of the new MOSS rules. Others again like the new MOSS rules and will make use of them.
It seems that even though the new MOSS rules were intended to simplify the setup and reporting obligations for telecom, broadcasting and eservice suppliers, there will not be a single “one size fits all” solution applicable for everyone; instead every business will have to think about which setup will provide the best outcome for their specific needs.