Under the present place of supply rules, companies in the European Union (EU) selling electronically supplied services to non-business consumers (B2C) in another EU country must collect the Value Added Tax (VAT) of the country where the supplier is established. However, the “present rules” will only be the “present rules” for a few more weeks. Effective January 1, 2015, suppliers will be required to register, collect, and remit the VAT of the country where the customer is established, has their permanent address, or usually resides. This is a major change which will affect any business that makes supplies of e-services within the EU to consumers in other EU member states. Taxware has spent the last several months enhancing both our systems and our content to accommodate this change. Are you ready? The following chart compares sample results pre-2015 versus post-2015:
| Supplier Establishment | Consumer Location | Result Pre- 1/1/2015 | Result from 1/1/2015 |
| Luxembourg | Hungary | 15% Luxembourg VAT | 27% Hungarian VAT |
Definition of Electronically Supplied Services Under Article 7 of Implementing Regulation (EU) No 282/2011 of 15 March 2011, electronically supplied services are considered those which are “delivered over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.” Some common examples include:
- Downloaded or remotely accessed software
- Website design and related services
- Database access
- Downloading or accessing music, books, films, or games
In some cases, the determination of whether a particular supply is considered an e-service can be quite tricky. For example, pursuant to the law, live training conducted over the internet would not be considered an electronically supplied service since the nature of live teaching involves more than minimal human intervention and is possible to ensure in the absence of information technology. Rest assured that Taxware has reviewed all of its content and has determined which good/service codes should be categorized as electronically supplied services and has made the necessary adjustments effective for January 2015. VAT Registration Requirement and the New “Mini One Stop Shop” (MOSS) In order to comply with the new rules, suppliers will be required to either register for VAT in each applicable customer’s country, or alternatively to register under the new “Union Scheme” in a country where the supplier is established. Under this new Union Scheme simplification (i.e. mini One Stop Shop or “MOSS”), the supplier would still be collecting the VAT of the customer’s country, but would be reporting and filing the VAT collected in the country where it registered via the Union Scheme. For purposes of registering under the Union Scheme, a supplier that has a business establishment (i.e. principal place of business or head office) in the EU must be identified for the mini One Stop Shop in the country of its business establishment. If the supplier does not have its business establishment in the EU, but has a fixed establishment (i.e. sufficient degree of permanence in terms of human and technical resources) in the EU and decides to register under the Union Scheme, the Member State of identification must be a Member State in which the supplier has the fixed establishment. Where such a supplier has more than one fixed establishment, it can choose any Member State in which it has a fixed establishment to be its Member State of identification. Suppliers can only be registered under the Union Scheme in one Member State. How is Taxware Addressing the 2015 Place of Supply Changes in the EU? Taxware Enterprise The recent release of Taxware Enterprise 8.4 includes functionality to address Union Scheme transactions by providing users with an option to select a new registration status to indicate where they are identified for the Union Scheme. With this new functionality, users will only be able to select one country of identification under the Union Scheme, which is the required result under the law. Some other new functionality includes the following:
- New place of supply rules to calculate the correct taxes effective January 1, 2015
- Updated logic to determine Customer Type (Business vs. Consumer)
- Error messages for validation of new registration requirements
- Additional audit information to identify MOSS transactions
VAT Reporting In April 2014, Taxware acquired VAT Resource, a European company based in the Netherlands which focuses on Tax technology and VAT compliance outsourcing services. VAT Resource offers VATware, a web-enabled VAT reporting and analysis solution that:
- Analyzes the VAT treatment of purchases and sales
- Validates VAT identification numbers and rates
- Reconciles VAT amounts and other relevant VAT data
- Completes VAT reports, analysis reports, customized reports
As part of the changes for January 1, 2015, a team of VAT experts and software engineers from Taxware and VAT Resource have reviewed the specific requirements relating to the MOSS VAT return procedure. A future release of the VATware application will adopt a specific MOSS return form for preparation and submission purposes. The return data can be extracted in an .xml format, ensuring automatic upload to the Web portals of the EU Member States. In addition, there will be a standard audit file for MOSS (SAF-MOSS), based on the transaction data uploaded in the application and will be extractable from the application in the required XML format. Consequences of Non-Compliance Penalties and interest are applied by local tax authorities in each Member State for VAT not accounted for, failure to properly register for VAT, incorrect record keeping, etc. That means 28 different penalty regimes with penalty amounts that sometimes can be as high as 200% of the VAT not accounted for. Thus, the VAT compliance burden for businesses will significantly increase effective January 1, 2015. Don’t be left unprepared. More Information For more detailed information regarding the complexity surrounding the 2015 place of supply rules and the new reporting requirements, please see the European Commission’s VAT MOSS portal at the following link: http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm
