The mini one-stop shop is coming. Last week’s release by the EU Council of amendments to Implementing Regulations 282/2011 is a timely reminder that 1 January 2015 is getting closer. What are the changes? From 2015 all B2C telecoms, broadcasting and electronics services are to be taxed in the EU member state where the customer is based (changing from supplier location). The implications for businesses in this sector, and indeed their customers, are wide ranging. As a quick example, from 2015 your kindle eBook will become subject to 20% UK VAT and no longer the 3% Luxembourg rate as you’ll currently find is the case.
Reasons for this change are fairly clear. Member states were not happy with the “VAT rate shopping” that had become relatively prevalent and straightforward in sectors where technology has increasingly permitted remote service delivery. This, on the surface, simple change in the place of supply from supplier to customer location effectively and quickly removes the competitive advantage gained by those businesses locating in low VAT rate jurisdictions. But the impact affects all businesses in the sector. And it presents a number of challenges...
Where is my customer?
Potentially the biggest challenge for all for businesses applying the 2015 place of supply rules is putting a process in place which can effectively and correctly identify the customer location. The new implementing regulations suggest that businesses will need to be able to identify where “the customer is established or has his permanent address or usual residence”. How individual member states interpret this requirement is yet to be seen, but it can be expected that different tax authorities will require a different burden of proof. Where credit card details with matching address may suffice in one member state, a cross checked national ID number may be required in another. Setting up a system that can handle such multiple requirements will be no easy task.
Whose VAT rules do I apply?
Whilst the place of supply change is superficially simple, the interaction with VAT “use and enjoyment” rules (that may apply to telecoms and broadcasting) makes the new position increasingly complex than the status quo. The starting point for applying EU use and enjoyment is that you should look first to the basic rule, and subsequently override that basic rule in specific situations. Pre-2015 you therefore look first to the basic rule of where the supplier is based, and would defer from that position based on the application of the use & enjoyment rules within the member state of that supplier. Post-2015 you look first to the basic rule of where the customer is based, and would defer based on the use & enjoyment rules within the member state of that customer. In order words, whereas currently each supplier operates one set of use & enjoyment rules (those in the member state where they are established) going forward they may need to operate twenty-seven different sets of rules. And none of them are especially simple.
Where should I register?
Finally, despite the name, the one-stop shop may ultimately involve a number of stops for businesses. Whilst MOSS will permit businesses to submit a single VAT return for all twenty seven member states, it may not be used in any member state in which that business has an establishment. As a consequence it is likely that a number of EU based business will end up in a hybrid situation where they operate separate VAT registrations in certain member states and a MOSS registration for the remainder, and will need to continuously monitor this position. The location of the business’s MOSS registration will be optional (to an extent) and the UK may well be a popular choice due to both the language advantage and a relatively accommodating tax authority.
Plenty to think about.
