Magazine du Trésorier, November 2013
VAT package 2010-2015
The implementation of the VAT rules contained in the so-called “VAT Package” into the Member States’ legislations since 2010 has seen far-reaching changes to the VAT laws. We will summarize the main rules introduced by the “VAT Package” progressively in 2010, 2011, 2013 and 2015, and the practical impact for Luxembourg businesses.
What are the main changes introduced by the “VAT Package”?
The «VAT package» mainly contains a Directive on the place of supply of services and a Directive on the procedure for VAT refunds to non-established businesses.
Since the implementation of the VAT package on 1 January 2010, new rules on the place of taxation of services apply. According to those rules, most business-to-business (“B2B”) supplies of services are taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer (“B2C”) supplies of services, the place of taxation continued to be where the supplier is established.
However, in certain circumstances, these general rules for supplies both B2B and B2C are replaced by specific rules to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers.
Since 1 January 2010 a new procedure has been introduced for claiming refund of VAT incurred by a taxable person in another Member State than the one where it is established. Since 2010, applications for refund have to be filed electronically via the electronic portal set up by the Member State, where the VAT taxable person, requesting the refund, is established and no longer in hard copy with the Member State of refund. The Member State of establishment is liable to check the VAT taxable status and the right to deduct VAT of the applicant.
Practical impact for Luxembourg VAT taxable persons
Since 2010, for VAT the basic rule for the place of taxation of B2B services lays down that the services have to be subject to VAT at the place of establishment of the recipient. If the supplier is not established in this Member State of taxation, the recipient of the supply of the services is liable for the VAT (i.e. via the reverse charge mechanism). In this case the supplier does not charge VAT on its services. However, the supplier has to file EC sales lists for intra-community supplies of services subject to VAT in the recipient’s Member States.
In principle a Luxembourg VAT taxable person, who supplies services to VAT taxable recipients, established in another EU Member State than Luxembourg, will not charge VAT on these services but will file an EC sales list, wherein these services are reported. On the other hand, a Luxembourg VAT taxable person, who receives services from a supplier, who is not established in Luxembourg, should receive an invoice without VAT and should apply the reverse charge of VAT (i.e. self-assess VAT via its VAT returns).
As a result of the “new” rules, other the one hand, Luxembourg businesses-recipients should more exceptionally receive invoices with foreign VAT but be often liable to self-assess Luxembourg VAT on services received. On the other hand Luxembourg business-suppliers are necessarily concerned by the new provisions and at different stages depending on whether or not their clients are taxable persons.
New VAT rules specific to telecommunication, broadcasting and electronically supplied services
As from 1 January 2015, new place of supply rules will apply to B2C telecommunication, broadcasting and electronically supplied services in the EU. Indeed, instead of being taxed where the supplier is established, B2C supply of services will be taxable where the recipient has “his permanent address or usually resides”, with however the possibility for Member States to introduce an “effective use and enjoyment” rule.
Due to, on the one hand the intangible nature of those services and on the other hand, the need of fast delivery of high volume of small value items, these new rules will clearly introduce new challenges for businesses. The EU being aware of the difficulty or even impossibility in certain cases to identify where the customer belongs will introduce presumptions available to providers in four situations.
If the physical presence of the recipient is required for the service delivery, the supplier will be entitled to presume that this recipient is established at the place of delivery. If the service is supplied through a fixed land line or through mobile networks, the supplier will be entitled to presume that the recipient has his permanent address where the fixed land line is installed or in the country associated to the mobile code of the SIM card used. Finally, if the service is provided via a decoder or a viewing card, the recipient will be presumed to usually reside where the decoder is located or where the viewing card is sent.
For any other transaction, the place of supply will have to be determined using two pieces of non-contradictory evidence, such as the billing address of the customer, the IP address of the device, the bank details of the recipient (location of the bank), the mobile country code, the fixed land line location or any other commercially relevant information.
It should also be noted that these four presumptions can be rebutted by the supplier if three pieces of non-contradictory evidence give a different location or by the authorities in case of indications of misuse or abuse by the supplier.
Challenges to face in 2015
The adoption of these new rules will create challenges for businesses but also for the tax administrations which will need to ensure the proper collection of the tax.
The European tax administrations might indeed face some difficulties to monitor the correct application of the rules in particular in respect of the two pieces of non-contradictory evidence system.
No doubt “VAT rates shopping” will be tempting, mitigated however in case universal pricing policies are in place. This may add an additional layer of complexity for tax administrations.
The consequences will probably affect in particular Luxembourg. Indeed, with the previous rule, the place of taxation for B2C supplies was the place of establishment of the supplier. Luxembourg, with the lowest standard VAT rate in the EU, became thereby very attractive for broadcasting, telecommunication and e-commerce providers.
Yannick Zeippen, Partner, EY Luxembourg
Jacques Verschaffel, Executive Director, EY Luxembourg