VAT Package - Introduction of new place of supply and related legislation
Peter O'Hare, Senior Manager
Much has been written about the VAT package since it was first proposed and the content has been revised many times as a result of discussions between the 27 Member States of the European Union. In December 2007, the European Council confirmed that Member States had agreed the VAT package. This was subsequently adopted by the Economic and Financial Affairs Council (ECOFIN) in February 2008. As a result, new VAT legislation will come into force in all Member States on 1 January 2010.
The VAT package contains a number of important changes, including; the VAT liability of services supplied cross-border, changes to the procedure for securing refunds of VAT for non-established businesses and obligations arising from changes aimed at improving administrative cooperation and the efficient exchange of information between the tax authorities of the Member States.
One of the key changes effective from 1 January 2010 arises in relation to the VAT treatment of services supplied cross-border. The revised rules aim to ensure that VAT is chargeable where the services are consumed rather than where the supplier is established. Therefore, the majority of services supplied cross-border between businesses (B2B) will be liable to VAT in the Member State where the customer is located. This means that business customers receiving services from suppliers in another Member State will be required to self-account for VAT via the reverse charge rule in their own VAT return. Supplies of services between businesses and individuals (B2C) will, with the exception of a small number of services (e.g. catering, short term hire of means of transport, broadcasting and electronic services) continue to be taxed where the supplier is located.
The new VAT rules will require careful consideration since services will be taxed by reference to the establishment most closely linked to receipt of the service. Therefore, if a service is provided to a business with multiple locations in the Member States it will be important to determine the extent to which each entity receives the service concerned. This focus on the recipient of the services may result in additional work for businesses that enter into global contracts at the level of the parent entity and recharge an element of the costs to other group entities based in other Member States.
The package also includes measures aimed at enhancing the information available for exchange between Member States and combating VAT fraud. Key among the anti-fraud measures is the introduction of VIES statements in respect of services mirroring the existing requirement for VIES statements in respect of goods. This is a new requirement and as the legislation does not provide for any threshold it will affect all businesses supplying services (that are liable to a taxable reverse charge) to business customers established in other Member States. VIES statements for services will be required on a calendar quarterly basis. In addition, the deadline for the submission of such VIES statements is expected to be much shorter than that currently applicable to VIES statements for goods.
New regulations will be introduced in respect of VIES statements for intra-Community supplies of goods effective 1 January 2010. The declarations will be required monthly unless the total value of the goods supplied exceeds €100,000 in a previous quarter or any of the previous four quarters. This €100,000 threshold is at the discretion of the Member States otherwise the threshold will be €50,000.
The changes will require businesses to review their accounting systems to ensure that all details in relation to cross-border supplies are correctly captured and reported. In addition, consideration will need to be given to reviewing the VAT liability determination (also referred to as VAT logic) in respect of services provided or received between parties based in different Member States.
The changes in respect of the VAT refund scheme for non-established EU traders, commonly known as the Eighth VAT Directive refund scheme, provides for a very welcome simplification to the process of submitting a refund claim. With effect from 1 January 2010, a business established in one of the Member States will only be required to submit a single application electronically in the Member State of its establishment to claim deductible VAT incurred in any of the other 26 Member States. The revised VAT rules also provide that the payment of the VAT due will be made within four months of receipt of the information necessary to successfully process the VAT claim. This is a welcome move away from the requirement to submit multiple claim forms in multiple languages and in some cases wait for a considerable time to secure a refund of VAT incurred in another Member State.
The deadline of 1 January 2010 is fast approaching and the Tax Authorities do not have much time left to transpose the detailed provisions of the VAT package into national legislation. The Irish Revenue has published a public consultation paper in which they outline the manner in which the legislation will be implemented. The majority of the other Member States are not much more advanced in their preparation for 1 January 2010. However, despite the lack of detail regarding how the tax authorities will practically enforce the changes (e.g. imposing penalties for non-compliance)what is clear is that businesses need to act now to familiarise themselves with the new provisions and consider the practical impact on their business.
