Briefing paper: EU  2015 changes - Where does your customer belong?
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Briefing paper: EU 2015 changes - Where does your customer belong?

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The final piece of the current VAT Package jigsaw – the change to the 'place of supply' of Business to Consumer (B2C) supplies of electronic services – comes into effect on 1 January 2015. ...

The final piece of the current VAT Package jigsaw – the change to the 'place of supply' of Business to Consumer (B2C) supplies of electronic services – comes into effect on 1 January 2015. Businesses supplying affected services (telecommunications, broadcasting and electronically supplied services (TBES)) need to determine in exactly which Member State their customer belongs. Businesses need to ensure that their systems can identify the correct place of supply or risk accounting for VAT in the wrong Member State.

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    Briefing paper: EU  2015 changes - Where does your customer belong? Briefing paper: EU 2015 changes - Where does your customer belong? Document Transcript

    • Issued: March 2014 Briefing paper: EU – 2015 VAT Changes – Where does your customer belong? – 300 days to go! The final piece of the current VAT Package jigsaw – the change to the 'place of supply' of Business to Consumer (B2C) supplies of electronic services – comes into effect on 1 January 2015. Businesses supplying affected services (telecommunications, broadcasting and electronically supplied services (TBES)) need to determine in exactly which Member State their customer belongs. Businesses need to ensure that their systems can identify the correct place of supply or risk accounting for VAT in the wrong Member State. What's changing? From 1 January 2015 the place of supply of TBES services to consumers (ie customers that are not businesses) will change. From that date, the place of supply will be determined by reference to where the customer is established, has his permanent address or usually resides (hereafter the customer's 'place of belonging'). In an attempt to ensure the uniform application of the new rules across the whole of the European Union (EU), the Council of the EU has issued implementing regulations to help affected businesses determine the correct place of supply and thus the Member State entitled to collect the VAT. Presumptions To determine the customer's place of belonging for such services, the regulations make a number of presumptions which suppliers can rely on. For example, where a supplier of affected services provides those services at a physical location such as a telephone box or kiosk or at a Wi-Fi hotspot, internet café, a restaurant or a hotel lobby where the physical presence of the customer at that location is necessary for him to receive the service from the supplier, it is presumed that the customer's place of belonging is at that physical location. Similarly, where a supply of telecommunications, broadcasting or other electronic services is supplied to a consumer through his fixed land line or through a mobile network, the customer's place of belonging is presumed to be either at the place where the fixed land line is installed or, in relation to supplies through a mobile network, in the country identified by the mobile country code of the SIM card used to receive the services in question. For services provided through a decoder or similar device or a viewing card (such as subscription television), the customer's place of belonging is presumed to be either the place where the decoder or similar device is located or at the place where the viewing card is sent. In all other circumstances, the customer's place of belonging is presumed to be at a place identified by the supplier on the basis of two items of non-contradictory evidence from the following list;  the customer's billing address  the internet protocol (IP) address of the device used by the customer (or any other method of geolocation)  bank details such as the location of the customer's bank account used for payment of the service  the mobile country code stored on the SIM card of a device  the location of the customer's fixed land line through which the service is provided and  any other commercially relevant information. Rebuttal of presumptions Suppliers of affected services do not necessarily have to accept the above presumptions. If the supplier has three
    • © 2014 Grant Thornton UK LLP. All rights reserved. 'Grant Thornton' refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. www.grant-thornton.co.uk or more items of non-contradictory evidence indicating that the customer's place of belonging is actually elsewhere he can elect to use the alternative place of belonging. It should also be noted that a Tax Authority can rebut a presumption made by a supplier in cases of abuse or misuse. Interestingly, the customer has no right of rebuttal. Practical implications Suppliers of affected services need to give due consideration now to how they are to establish the place of belonging of their customers and put systems in place to both capture and store the data in a format that can, if necessary, be tested by the tax authorities. What steps will you take to determine your customer's place of belonging? Examples Example 1 - a UK business supplies software over the Internet from a server based in the UK to consumers in France, Germany, Spain and Italy. This supply is an 'electronic service' and, from 1 January 2015, the place of supply is where the customer belongs. These supplies of software are downloaded by the customer using the customer's fixed land line. As such, the general rule will mean that the customer's place of belonging will be the country where the land line is installed. In the example, from 1 January 2015, the supplier will be required to account for VAT in France, Germany, Spain and Italy. Example 2 – a UK business owns the rights to a catalogue of music and films and sells digital downloads of the content via the internet. The business' website is hosted on a server located in California. Customers pay by either credit or debit card. In this example, customers may be located anywhere in the world and download the music/film onto any number of portable or mobile devices. Each device has its own, unique, internet protocol address (IP address). As such, the evidence for the place of belonging could be the billing address of the customer and the IP address for the device used (assuming they are non- contradictory). For each supply made in the EU, the supplier will be liable for VAT in the Member State corresponding with the IP address of the device. VAT compliance For every TBES supply that takes place in the EU, from 1 January 2015, the supplier will be liable to account for VAT in the country where the supply takes or is deemed to take place. Not only will suppliers need to account for VAT on each supply (see below) but they will also need to ensure that they are compliant with the VAT rules in each Member State. For example, whilst there is no requirement under UK VAT law to issue a VAT invoice to a non-VAT registered consumer, Italy generally requires an invoice for all such supplies. To be compliant, a business will, therefore, need to have a system in place for issuing invoices to consumers who reside in a member state that require and an invoice to be issued (and to meet specific invoicing content requirements). VAT accounting Every TBES supply taking place within the EU will need to be accounted for by the supplier. This can be done either by registering for VAT in each Member State and by completing a VAT return for each country within which supplies take place. Alternatively, businesses can register for VAT in an EU country where established, under a system known as the "mini one-stop shop" or MOSS. Whilst accounting for output VAT under the MOSS will only entail the completion of a single VAT return (albeit with output VAT boxes for 27 Member States), the MOSS system will not enable a business to reclaim any input VAT which it incurs in connection with its supplies of electronic services in any Member State. Input VAT can only be claimed through either the 8th Directive claim system or by registering for VAT in the relevant Member State. Whilst there is generally no "force of attraction" to a VAT registration held in an EU Member State, where a business has a fixed establishment, sales to residents of that Member State must be reported through the local VAT registration rather than MOSS. What should suppliers be doing now? All suppliers of affected services should be urgently reviewing their systems to ensure that the have the ability to identify and permanently record the place where their customer is established, has his permanently address or usually resides. Affected businesses should also be investigating the particular nuances of each Member State's VAT rules to ensure compliance. Finally, businesses should be giving due consideration to whether to adopt the MOSS accounting regime or whether individual VAT registrations are preferred in separate Member States. Alex Baulf International Indirect Tax Senior Manager T +44 (0)20 7728 2863 (UK) T +1.312.602.8732 (USA) E alex.baulf@uk.gt.com