The new EU-wide rules affecting the place of supply of e-services impose new record-keeping requirements of businesses. Don’t be caught out.
The first challenge for businesses is to distinguish between those digital services affected by the new rules, for example, cross-border supplies to non-business customers, and those unaffected, for example, services supplied to other businesses, via an intermediary platform or within the UK. “For affected services, businesses then need to identify where their customer belongs or resides, as this is what determines the place where VAT is due and the rate that must be charged,” says Mark Chesham, director of Indirect Tax Services, Moore Stephens South West.
Businesses are able to make certain presumptions about the location of the customer, depending on the particular circumstances surrounding the service delivery. Examples of the means of delivery and the presumed location of the customer are as follows:
- via wi-fi hotspot, telephone kiosk, internet cafe etc. – the relevant location of the hotspot, kiosk, cafe etc.;
- on-board transport between different EU member states – the place of departure;
- through a customer’s landline – location of the landline;
- through a mobile phone – country code of the SIM card;
- through a decoder – the address where the decoder was sent or installed.
“Where you are unable to apply these presumptions, your business will need to retain two pieces of non-contradictory evidence,” Mark says. “These could include the billing address of customer, the IP address of their device, the location of their bank, the country code of the SIM card used, or the location of their fixed landline. A business can also choose to rebut a presumption of place of supply, provided it can show three pieces of non contradictory commercial evidence.”
For supplies to consumers in other member states, the invoicing rules of the consumer’s member state apply. “Most don’t require VAT invoices to be raised for cross-border B2C supplies, but some may want simplified invoices,” Mark says. “Businesses need to check.”
There is also paperwork associated with returns by businesses using the VAT Mini One Stop Shop online service (VAT MOSS). By opting to use VAT MOSS, businesses can make VAT declarations and payments, in respect of all of their EU supplies of digital services, to a single elected member state on a calendar quarterly return. “MOSS returns need to be submitted within 20 days of the end of the quarter to the member state in which the business is registered,” Mark says. “There are no de minimis
rules or thresholds, so all sales must be declared. MOSS records must then be retained for 10 years – calculated from 31 December of the year in which the relevant transaction took place.”
If a business decides not to opt to use MOSS, it will be required to register in each member state within which it makes supplies. “The business will then need to comply with the record-keeping requirements of the relevant member state(s),” says Mark. This almost certainly creates more red tape than would result from using the VAT MOSS system.
“In general, the record-keeping requirements that result from the changing place of supply rules create a significant additional burden on businesses, particularly in the early days as record-keeping systems are set up,” Mark says. “Businesses will need to obtain and retain details that, to date, they are unlikely to have recorded. They must then retain these records for a considerable period of time – 10 years - with the clock starting at the end of the year in which the supply is made. So businesses need to prepare for complying with the new rules now, to make sure they don’t get caught out.”
Please get in touch for any further help or advice in applying the new place of supply rules.
MSUK VAT Group
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