Be clear on place of supply

If you supply some form of e-service, you will almost certainly be affected by new VAT rules being applied across Europe. Your first priority should be to understand the new importance attached to the place of supply, says Moore Stephens partner Scott Craig.

At present, e-services such as music/game downloads, e-books, online streaming of music and videos, and internet telephone services are liable to VAT in the country where the supplier is situated, where the service is supplied to a private customer. On 1 January 2015, these rules will change and the services will be liable to VAT where the customer is located.
 
This will require companies providing e-services to register and account for VAT in other European countries and result in additional cost and accounting responsibilities. The VAT rate applicable in other European countries may be different from the UK and could be subject to change. It is worth noting that steps have been taken to ease the accounting requirements and the introduction of the ‘mini one stop shop’ (MOSS) for VAT on e-services is undoubtedly welcome news. (We will cover this in a later e-alert.)
 
At this stage, affected parties should consider the changes and confirm what this means for them. The rules that will apply to the actual ‘use and enjoyment’ of the services need to be understood. The aim of the changes is to ensure that VAT is accounted for where the consumer uses the services. This means that the sale of a music track that is downloaded in Germany should be liable to German VAT – even if the track is downloaded by a UK citizen who pays using a UK-registered credit card.
 
The impact this will have on business activities could be significant. Anyone affected should plan ahead to ensure their systems and procedures can deal with the new VAT accounting requirements. Sales contracts and prices may need to be amended and staff will need to understand how the changes affect budgets and prices.
 
The new rules will affect different businesses in different ways. The specialist VAT group at Moore Stephens can explain what the changes mean for your business and help you to ensure you account for VAT correctly and cost effectively.

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