European Union: Changes to VAT Rules on Place of Supply of Services
The EU have, with effect from January 1, 2015, introduced changes to the VAT payable on the supply of digital services (telecommunications, broadcasting and electronic). The VAT charge on such services is now determined by the VAT rules in the location of the consumer in all circumstances. This change will have the greatest impact where supplies are made by an EU business to an individual EU consumer in another state. This rule change may not have a major impact on all supplies since, for example, this treatment already applies to supplies to businesses and on supplies to individuals in the EU from suppliers outside the EU, however there are also revised procedures applicable to non-EU suppliers making supplies to individual consumers in the EU.
Since the VAT is now payable based on the rules in the consumer’s jurisdiction, this could potentially expose suppliers to multiple registration requirements across the EU. To mitigate these increased procedural requirements, the EU have introduced the Mini One Stop Shop (‘MOSS’) scheme, whereby suppliers of such services can make a single payment of VAT, via a single tax return, in respect of services made across the EU, with the VAT receipt subsequently being distributed across the relevant jurisdictions. This scheme also replaces the VAT on e-services (‘VoES’) scheme previously applicable to non-EU businesses making supplies of such services.
There would appear to be two key motivations behind the introduction of these new rules. Firstly EU suppliers and non-EU suppliers to consumers are now treated on an equal basis. Secondly, it reduces the inventive for suppliers of such digital services to locate in low-VAT jurisdictions, since the VAT applicable will now be driven by the consumer’s jurisdiction. An additional consideration may have been the Organisation for Economic Cooperation and Development’s continued review of Base Erosion and Profit Shifting (‘BEPS’), the aims of which are consistent with the new rules introduced by the EU.