United States

EU's value-added tax for electronically supplied services

The European Union (EU) is currently comprised of the following 28 member states.

  • Austria
  • Belgium
  • Bulgaria
  • Croatia
  • Cyprus
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Ireland
  • Italy
  • Larvia
  • Lithuania
  • Luxembourg
  • Malta
  • Netherlands
  • Poland
  • Portugal
  • Romania
  • Slovakia
  • Slovenia
  • Spain
  • Sweden
  • United Kingdom1

The EU has implemented value-added tax (VAT) laws and regulations that apply equally across all 28 member states and as such, the electronic invoicing guidelines represented here can be discussed as being effective across all member states, subject to any specifically identified variations.

The following content is reviewed and updated as of Jan. 15, 2018.

Legislative effective date

Jan. 1, 2003, for non-EU suppliers and Jan. 1, 2015, for EU suppliers.

Name of tax

VAT although it should be noted that language differences mean that VAT is represented differently across the region.

Statute of limitation

Varies depending on the member state, but typically between three and five years.

Standard rate of VAT

Minimum standard rate is 15 percent, but each member state can set its own rates above this level. At the time of writing, Hungary has the highest rate at 27 percent.

Electronic supplies

Electronic supplies are as defined in the introductory chapter and cover broadcasting, telecommunication and electronic delivery methods, such as mobile devices and the internet.

Registration

Whereas a supplier could technically register in each member state where it has a business to customer (B2C), the EU has introduced a simplified VAT registration and reporting model referred to as the Mini One-Stop Shop (MOSS).

 

Under the MOSS procedure a nonresident supplier (EU or non-EU) registers in one member state and uses that registration to collect and remit VAT across all 28 member states.

 

The non-union MOSS registration process should be adopted by suppliers who are established outside of the EU.

Customer identification

EU legislation distinguishes between taxable and nontaxable persons. For the purposes of this guide nontaxable persons are referred to as B2C and taxable as B2B.

A taxable person, as defined in the Principal VAT Directive, is any person who independently carries out in any place any economic activity, whatever the purpose or result of that activity.

A taxable person is therefore, not determined by VAT registration status—VAT registration is not a qualifying criterion. Consequently, a taxable person does not need to be VAT registered. That said, the EU guidance on the identification of a customer makes it clear that, whereas a VAT-registered person is clearly a taxable person, if a supplier is going to rely on other evidence, it is assuming a degree of risk as the onus remains on the supplier to determine and verify customer status.

Many businesses, therefore, adopt a less risky route and only treat customers who can provide a valid VAT number as a taxable person and therefore, within the B2B customer category.

Any customers not falling within the business to business (B2B) category automatically allocate to the B2C category.

Customer location

VAT is charged to customers under the B2C analysis, in most cases, by reference to their permanent address or where they usually reside. Two forms of corroborating evidence are required to confirm this location. This can be an onerous request for a supplier to make given the sensitivity attached to providing personal data and so an IP address and billing details taken from the payment card are often used for this purpose.

There are a number of variations to this rule, which broadly adopt the location where the service is used and enjoyed, but for clarification on specific scenarios, please consult a subject matter specialist.

An example of this is supplies made to B2C customers in transit. These are deemed to be supplied in the country where the journey begins—for example, at the airport, port or station where the customer starts the journey.

Other areas as set out in the explanatory notes to Council Implementing Regulation (EU) No 1042/2013 are:

  • Services supplied through a fixed landline, the customer is presumed to be established where the landline is installed.
  • Services supplied through mobile networks are presumed to be the country identified by the mobile country code of the subscriber identity module (SIM) card.
  • Services supplied through a decoder or similar device is where the device is installed.
  • Services provided in the hotel sector are where the hotel or similar establishments are located.

Supplier identification

The supplier location rules broadly follow the comments laid out in the introductory paragraphs, but note should be taken of the additional complexity of working with agents. This is particularly relevant if the agent is not also providing VAT compliance support services as these will still need to be met by the supplier on a multiterritory basis.

Procedural matters

Invoices raised under the MOSS program do not entitle the recipient to recover the VAT charged. Consequently, if a customer subsequently evidences himself as a business customer, the VAT incorrectly charged would need to be refunded by the supplier. The supplier would then adjust the amount in its VAT account and reduce future payments to the tax authority through the MOSS return.

The EU provides free access to an online database to enable suppliers to check and verify VAT registration numbers. This is a useful tool when confirming the status of a VAT registered taxable customer.

Historic transactions

EU countries, more likely than not, will seek to recover historical amounts of VAT covering periods before the registration date, but within the local country statute of limitations.

Most EU countries have a voluntary disclosure program which might assist in mitigating the risk of penalties, particularly for late notification of registration liabilities.

Germany, in particular, has announced that it is actively seeking out noncompliant businesses and will require historical transactions that predate the Jan. 1, 2015, changes to be brought to account.

 

1    Please note that the United Kingdom is in the process of exiting the EU which is scheduled to be effective March 2019.

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