Nieuwe ontwerp-richtlijn inzake BTW-verrekeningen in grensoverschrijdende tussenhandel (en)

The European Commission has presented a proposal to change the place of supply of services for Value Added Tax (VAT) purposes where the customer is a trader. The proposal would shift taxation in most cases from the place where the supplier is established or has a fixed place of business to the place where the customer is located. However, there would be exceptions to this general rule for certain services for which special arrangements currently exist (e.g. services related to immovable property and transport services), so as to avoid imposing disproportionate administrative burdens upon certain traders. The rule of taxation in the place where the supplier is located worked adequately when the VAT system was first introduced but, with increased supplies of services across borders, this rule can now lead to administrative complexities, distortions of competition and double or non-taxation of international supplies of services. The Commission intends to put mechanisms in place to ensure that the proposal would not lead to increased tax evasion. The Commission plans a follow-up proposal concerning the place of supply of services to individuals and entities not subject to VAT in 2005.

"The Internal Market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services in Europe" commented Frits Bolkestein, European Commissioner for Taxation and the Internal Market. "This proposal will make the application of VAT to services acquired by business simpler and fairer, balancing the need to minimise administrative obligations for traders with the control needs of tax administrations."

Simplifying the rules for business

The proposal would ensure that the main rule for services provided to traders would be that the customer rather than the supplier would be responsible for paying the VAT on services supplied to him on a self-assessment ("reverse charge") basis. In other words, the rules for applying VAT to services supplied to a business customer in another EU country would be modelled on the current rules for VAT on goods sold to a business in another Member State.

This proposed general rule would be subject to certain exceptions, essentially for administrative reasons and to ensure that taxation takes place at the place of consumption.

These exceptions, which are largely identical to exceptions to the present general rule on the place of supply of services, would be as follows:

• Services connected with immovable property (such as estate agency services), would continue to be taxable at the place where the property is situated. The existing arrangement is reasonably straightforward and generally results in taxation where the service is consumed.

• Passenger transport services would remain taxable at the place where the transport takes place. It would be very difficult to make a change in the present rule for traders only so the Commission proposes to address this issue in a follow-up proposal concerning the place of supply of services to private consumers and bodies not subject to VAT, currently scheduled for 2005.

• Cultural, artistic, sporting, entertainment or similar services would continue to be treated as supplied, and therefore taxable, where the services are physically carried out. Again the existing rule generally results in taxation where consumption occurs.

• Services that are tangible in nature, such as restaurant services, are obviously supplied for immediate consumption at a readily identifiable location so it is appropriate for the supplier to apply VAT.

This proposal would limit the instances where a supplier would, as is often the case at present, be required to register for VAT purposes when performing services in a Member State other than where he is established. Furthermore, it would increase the reliance on the reverse charge mechanism (i.e. self-assessment) where a taxable person receives services from a person not established in the same country. Both of these effects can be regarded as major simplifications of VAT compliance obligations. In addition, as the changes would bring the VAT rules more into line with rules concerning the taxation of supplies of services in many non-EU jurisdictions that apply consumption taxes, there would be less risk of double or non-taxation in the case of international supplies of services.

Since such a change would mean that a service provided to a business in another country would be exempted from VAT in the Member State of the supplier, information exchange between Member States' tax administrations would be important to ensure that the VAT is actually accounted for by the receiving trader. Therefore, the Commission also believes that a change to the place of supply rules warrants an extension of the system of electronic information exchange used between tax authorities, known as the "VAT Information Exchange System" or "VIES". VIES allows tax authorities, for example, to verify whether a VAT number provided by a given trader is genuine. The Commission intends to review the technical functioning of the present VIES system and make improvements that would make the system generally simpler, faster and more reliable. The review will commence in January 2004 with a view to extending the reporting obligations to include services from January 2008 onwards.

The proposal only deals with supplies between traders. Supplies to a customer who is an individual or entity not subject to VAT (i.e. a non-taxable person) will be addressed in a subsequent initiative, work on which will commence in 2004.

Background

Article 9 of the Sixth VAT Directive (77/388/EEC) establishes as a basic rule that the trader supplying services must collect and pay over the VAT due on the supply. The legislative aim at the time this provision was drawn up was essentially simplicity and prevention of tax avoidance. Article 9 created a series of exceptions, also for reasons of administrative simplicity, locating supplies of services, and therefore taxation, in particular countries according to the type of service or the location and status of the customer.

At the time the rules were established, services were rarely supplied on a remote basis for consumption elsewhere, possibly in another Member State, but were rather consumed at the place of supply. Therefore, to a very large degree, these rules in fact resulted in the tax accruing to the country of consumption, which is logically where taxation should occur given that VAT is a consumption tax.

However, the realities of the Internal Market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services. It is increasingly possible for a number of services to be supplied at a distance and firms providing remote services (e.g. telecommunications or e-commerce services) increasingly choose their place of establishment mainly for tax-planning reasons. In addition, the nature of these supplies (e.g., intangible, composite, etc.) has changed and the rules have not kept pace with the result that the question of where the place of supply of services is located often has to be determined by the courts.

As long as there is no political will on the part of Member States to switch to an origin-based VAT system (whereby VAT on goods and services traded between Member States would be paid in the Member State of origin with a compensation mechanism to offset trade imbalances), the existing system must be adapted both to ensure that revenues continue to accrue correctly to the Member State of consumption and to prevent distortions of competition and administrative complexities.

As an example of the problems that occur at present, where a trader receives services, his right to obtain a deduction or refund in respect of VAT on the costs of services supplied to him depends on the deduction rules in the country where the supplier of the service is established. Thus, for example, if a trader wants to lease cars, and the country where the trader is established allows no deduction for the VAT incurred on car leases while a neighbouring country does, it will be in the trader's interest to lease the cars from a supplier in the neighbouring country. This situation causes distortions of competition between suppliers in different countries.

Where a trader provides services in another Member State, the current VAT rules would often require him to register and pay VAT in the country to which he supplies the services. This could happen, for example, because, under the present complicated rules with various exceptions for different types of services, the place of supply of certain services would be in the country to which the service is supplied. This obligation can create great difficulties when the trader is not fully acquainted with the language and legislation of that other country and is a major obstacle to the smooth functioning of the Internal Market.

The Commission undertook public consultations on this matter earlier this year (see IP/03/829). The overwhelming majority of respondents, mainly from national and European associations and businesses, support a change of taxation from the place of origin to the place of destination. For further information see:

http://europa.eu.int/comm/taxation_customs/taxation/consultations/supply/supply_en.htm

Some changes have already been made to the rules on the place of supply of services in recent years to cope with international trends in the supply of services e.g. in the case of supplies of digital services (see IP/02/673).

The Commission undertook to review the rules on the place of taxation of supplies of services in July 2000 as part of its new VAT strategy (see IP/00/615).