As of the 1st of January 2015, Business to Consumer (B2C) providers of Telecommunications, Broadcasting and Electronic (TBE) services will have to comply with changes in EU VAT regulations.
Currently, taxation for the supply of digital services is determined by the location of the provider of the services, whereas the changes in the rule indicate that businesses supplying digital services to a consumer in another Member state have to charge VAT on the supply in that Member State and register for VAT in that Member State.
The European Commission has indicated that the underlying reason of the upcoming changes was to bring the VAT treatment of these services in line with one of the main principles of VAT that, as a consumption tax, revenues should accrue to the Member State in which goods or services are consumed.
More precisely, suppliers of digital services to consumers will be taxed in the EU member state that the customer belongs to, regardless of whether the customer is a business or an individual (in cases where the customer does not provide you with a VAT Registration Number (VRN) and you have no other information that suggests that your customers is in business & VAT registered), and whether the supplier is EU-based or not.
In principle, according to the new rules, if a TBE provider has customers in all the 28 EU Member States then they would need to register for VAT, file VAT returns and charge local VAT with different rates in each of the 28 countries.
Example: place of taxation for TBE services
When providing digital services in the circumstances below, you can presume that the location of the consumer, and therefore the place of taxation is as follows:
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if the service is provided through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided
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if the service is supplied on board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the journey
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if the service is supplied through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located
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if the service is supplied through a mobile phone, the consumer location will be the country code of the SIM card
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if a broadcasting service is supplied through a decoder, the consumer location will be the postal address where the decoder is sent or installed
To keep the administrative burden on businesses to a minimum, you can apply the above consumer location guidelines without needing to collect and keep any supporting evidence.
However, if you think that the above bullets do not properly determine where the consumer is located, you can select the correct location and support your decision, by obtaining and keeping three pieces of non-contradictory commercial evidence (for example, evidence of the consumer's billing address, their bank details, their internet protocol (IP) address) in order to support your view.
If you are a TBE supplier in digital services in circumstances not listed above, you will need to support your decision on the consumer's location by obtaining and keeping two pieces of non-contradictory commercial evidence.
VAT Mini One Stop Shop (VAT MOSS)
To save you having to register for VAT in every EU Member State where you supply digital services, you may opt to use the VAT Mini One Stop Shop online service (VAT MOSS). This will be available from 1 January 2015, but you will be able to register to use it from October 2014.
If you are an EU business, you may register and use the 'Union' VAT MOSS online service in the Member State where you have your business establishment (usually the principal place of business or head office). Using the VAT MOSS online service means you can submit a single calendar quarterly VAT MOSS return and payment covering all your EU digital service supplies. For example, if you register for the VAT MOSS online service in the UK, you will be able to account for the VAT due on your B2C digital service sales in any other Member States where you do not have an establishment by submitting a single VAT MOSS return and any related payment to HM Revenue & Customs (HMRC). HMRC will send an electronic copy of the appropriate part of your VAT MOSS return, and the related VAT payment, to each relevant Member State's tax authority on your behalf. The VAT rate used will be that of each Member State of Consumption at the time the service was supplied.
The European Commission have released the Explanatory Notes for 2015 which are available in 23 languages.
If your business is a B2C digital services provider to EU consumers you need to take action now. During the following month our team of experts will be working on ensuring that the businesses of our existing clientele comply with the new changes in regulations. Moreover, we are happy to assist new clients if the changes affect your business. Don't hesitate to contact us to discuss your requirements in detail.
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