EU approves new VAT regime on e-services

Thu 3rd Jan 2013

The European Commission, part of the European Union, has approved on 18 December 2012  the final stage of the 2015 VAT Package, aimed at helping simplifying many components of the European Value Added Tax regime.

Making EU VAT equal

The new VAT Package will reform the rules on determining in which country or jurisdiction will the provision of electronic services to consumers for VAT purposes be determined.  In this context, VAT services refers to telecommunications, broadcasting and other electronic services.  This will impact services provided by the likes of Amazon (ebooks), Skype (internet telephony) and Netflix (streaming videos).

Currently, the place of supply of the services is where the services provider is.  Based on this, many companies have located themselves in Luxembourg, which enjoys the lowest VAT rate in the EU – 15%.

From the 1 January 2015, the place of supply will instead be where the consumer is based.  So, for example, Amazon will have to charge VAT at the rate of the country where each consumer is located, and then pay that over to the local authorities.

This proposal was first put forward in 2008 as part of the negotiations for the 2010 VAT package.  It is aimed at preventing distortions in pan-European trade, and that tax is not a determining factor in the provision of goods or services.

European VAT compliance burden on companies

Suppliers of such services to consumers will have to implement adequate systems to ensure they are reliably capturing location details of their customers – including EU VAT invoice disclosure requirements.  Also, that they are properly recording the VAT charged and received by country, and this is then paid over to the local authorities.