On July 17, 2014, the U.K. implemented the EU rules regarding the supply of EU cross-border digital services to consumers, which entered into force on January 1, 2015. The EU VAT amendments provide for the following:
- Change in place-of-supply VAT rates: EU-based providers of electronic, broadcast and telecoms services will have to charge the VAT rate of where their customers (individuals and non-business entities such as public authorities) are based (i.e., where the consumer is normally resident) rather than where the seller is established; and
- Mini One-Stop-Shop VAT returns portal: So that the above place-of-supply change does not require all providers to VAT register in each EU country, new reporting portals, Mini One-Stop-Shop (MOSS), were launched in each of the 28 member states. Providers can now register on their local MOSS portal and make a single, quarterly VAT declaration to report sales and VAT collected in each EU country. The tax authorities of each country will then distribute the VAT to the appropriate countries.
The new rules apply only where a U.K. business meets all of the following criteria:
- Supplies digital services from the U.K. to a private consumer in another EU member state (goods and non-digital services sold over the internet are not within scope).
- Charges for that supply (digital services provided free of charge are outside the scope of VAT).
Businesses outside the EU (for example, the U.S.) that supply digital services to consumers in one or more EU member states are also affected by the changes.
The guidance says that taxpayers should approach the issue as follows:
- Determine whether the service is a digital service (if not, the general place of supply of services rules apply).
- Determine the status of the customer (i.e., business or non-business).
- Determine the place of supply (i.e., member state).
- Determine whether the supply must be taxed at the member state’s standard or reduced VAT rate, or whether it’s eligible for any VAT exemptions.
Businesses should identify the place where their consumers are based, have their permanent address, or usually reside. This will be the member state where VAT on the digital services supply is due. For example, if a U.K. citizen is an ‘expat’ who works or lives most of his time in Spain, then the business supplying digital services to that consumer should be charging Spanish VAT on those services.
The guidance lists examples of digital services, including (list is not exhaustive): (1) Radio and television broadcasting services; (2) telecommunications services; (3) electronically supplied services (includes online magazines, website supply, software updates, etc.). The guidance also provides examples of how to determine the place of supply of educational services.