The European Union (EU) place of supply VAT rules changed for specific supplies from 1 January 2015. The changes impact Business to Customer (B2C) supplies of broadcasting, telecommunications and e-services (digital services) often referred to as ‘BTE’ supplies by changing the place of supply to where the customer is located. This is a complete reversal of the current situation which is determined currently by where the supplier is located.
From 1 January 2015 the place of supply changed to being where the customer belongs.
The place of supply rule changes leads to a digital services supplier having to register in each member state they make supplies and suffer the administrative burden that comes with it: that’s a potential of 28 VAT registrations. The VAT MOSS is implemented from 1 January 2015, giving the supplier an option of registering in just one member state and accounting for any VAT due to any member states through a single VAT MOSS return.
This should remove the incentive for businesses to locate offshore and level the playing field for all digital service suppliers. The aim is to reduce the administrative burden and associated costs of multiple VAT registrations.
There will be additional changes to the place of supply rules to align with other member states and to close minor loopholes used by certain anti-avoidance schemes.
This is the reason for VAT Mini One Stop Shop (MOSS); it saves having to register for VAT in every EU member state, where you supply broadcasting, telecommunications and e-services.
Further guidance is available from the GOV.UK website at:
Defining digital services
This is an evolving sector and the list below is not exhaustive:
· broadcasting includes the supply of television or radio programs to a schedule by the person that has editorial control of those programmes
· telecommunications includes the services of sending or receiving signals by wire, radio, optical or other systems and includes fixed and mobile telephony, fax and connection to the internet
· e-services includes video on demand, downloaded applications, music downloads, gaming, e-books, anti-virus software and on-line auctions.
At this stage it is worth noting who is not affected by the changes:
· if you supply broadcasting, telecommunications and e-services, digital services to businesses only (including those who are self-employed) then these changes do not affect you
· if you are a business supplying digital services to consumers, these changes will affect you, so you need to start planning for them now
· if you supply digital services to a mix of businesses and consumers, then these changes affect you as far as the supplies to consumers are concerned
· if your customer does not provide you with a VAT Registration Number (VRN), and you have no other information that suggests that your customer is in business and VAT registered, you can treat this as a B2C supply
· if you supply consumers through an online store or gateway, and the online store or gateway is acting in its own name, then they will normally be considered to be supplying the consumer. This means that the online store or gateway will be responsible for declaring and paying any VAT due. You will be treated as supplying the store and so will be making a business to business (B2B) supply, rather than a B2C supply. If this is the case, these rule changes do not directly affect you.
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Who is making the supply?
It is normally easy to determine who is making the supply, however in certain circumstances it is not so clear especially when supplied via an internet portal, gateway or marketplace. Care must be taken to determine whether the digital service is made to the customer or the platform. For example if the platform sets the general terms and conditions, authorises payment, delivery and does not clearly state the name of the supplier on the receipt or invoice then the platform is making the B2C supply even if the platform is only the agent.
When determining the customer’s status it is normal practice to obtain the VAT registration number, though there are alternative forms of evidence confirming business status. Certain EU countries will only accept a VAT registration number as proof of business status and it is up to the supplier to accept alternative evidence as a customer cannot convert a supply to a B2B supply unless they have provided the relevant VAT registration number.
The place of supply of digital services
It is important to identify the customer’s establishment, which may be a permanent address or their usual place of residence. Article 12 and 13 of the VAT Implementing Regulations defines permanent address and usual residence. In some circumstances it is relatively easy to determine the place of supply of digital services, for example:
· through a telephone box/kiosk would be where the telephone box/kiosk is located
· on board transport travelling through various EU member states would the place of departure for the customer
· through a customer’s telephone landline would be where the landline is located
· through a mobile phone would be where the country code of the SIM card
· through a digital decoder would be the customer’s postal address or where the decoder is sent or installed.
If a particular situation does not fit into one of the examples in reaching their decision of where the place of supply is, they are required to obtain and retain two pieces of non-contradictory evidence, for example:
· the billing address of the customer
· the internet protocol address of the device used by the customer
· location of the bank account
· the country code of SIM card used by the customer
· the location of the customer’s fixed landline through which the service is supplied
· other commercially relevant information.
In order to determine the place of supply HM Revenue & Customs (HMRC) has recommended a three stage process:
1. determine whether a supply is a digital service
2. determine the place of supply
3. once point 1 and 2 are established determine whether an exemption exists as defined by the member state.
Invoices need to be raised in accordance with each member state where the customer is located, however most member states like the UK do not require VAT invoices to be issued for cross-border B2C supplies.
Registering for the VAT MOSS Schemes
There are two types of VAT MOSS schemes, Union and Non-Union. Already registered in the EU, you can use the Union VAT MOSS online service.
For businesses that have no EU establishment and make supplies to the EU of digital supplies there was only the VAT on E-Services (VoES) registration available.
Registration is open to B2C digital suppliers in any member state where you have a business establishment.
Similar to group VAT accounting, VAT MOSS will be available to groups, with the representative member registering and only one member of the group being allowed to register for VAT MOSS. On applying for VAT MOSS, any application must state that they are a member of the group. Other members of the group as with normal VAT groups will be able to use the VAT MOSS.
Due to the complications and different treatments of VAT groups across the member states, it has been agreed that when a VAT group registers for VAT MOSS any ties with VAT group members in other member states will be broken, only for VAT MOSS purposes. Also is a member of a VAT group has or will have a fixed establishment in another member state, those ties will be broken, only for VAT MOSS purposes. In this instance any supplies from that fixed establishment cannot be declared on the VAT MOSS return.
For further details on how to register for VAT MOSS please view guidance from GOV.UK
A business can voluntarily deregister at any point, however you will not be allowed to the join the scheme again in any member state for two calendar quarters. In addition once a business chooses a MSI then the minimum period it needs to be used for is two years unless the business structure changes in such a way that an immediate change is required.
To remain in the scheme a business needs to comply with the legal requirements of its use, such submitting declarations and making payments on time. For example, not making full payment within 10 days for three consecutive quarters would be a breach of the rules.
VAT MOSS returns
VAT MOSS returns and payment need to be submitted within 20 days of each quarter, the reporting periods are:
· 1 January to 31 March
· 1 April to 30 June
· 1 July to 30 September
· 1 October to 31 December.
There will be no flexing of the due date even if it falls on a bank holiday. If there is a period which resulted in no sales then nil returns will be accepted.
On the VAT MOSS return you will need to include the digital supplies at standard and reduced rates and Commission will be publishing a full list of VAT rates in the EU’s website.
There are no additional requirements to complete EC Sales Lists in connection with to B2C digital service supplies. As there is no de-minimis therefore even low value sales will need to be declared.
If you would like any support with VAT MOSS request a callback and one of our team will be in touch.