Important changes to the VAT place of supply of digital services rules

1st January 2015 will see changes made to the EU VAT place of supply of services rules. The changes will apply to all businesses that provide digital services to consumers (B2C / private individuals). If you’re not aware of these changes and how they’re likely to impact your business then you should find the information below helpful.

What are the changes?

At present, the place of taxation for digital services supplied is the location of the supplier. However, from 1st January 2015, the place of taxation will be the location of the consumer. This means that it’s your responsibility to establish where your consumers are based and therefore what level of VAT needs to be paid. You will therefore be required to keep additional information that was not required before.

Who do these changes affect?

These changes affect businesses who are supplying broadcasting, telecommunications and e-services (‘digital services’) to consumers. The current VAT place of supply rules for business to business are unaffected.
In high level terms digital supplies are defined as follows:

  • Broadcasting includes the supply of television or radio programmes to a schedule by the person that has editorial control of those programmes.
  • Telecommunications includes the service of sending or receiving signals by wire, radio, optical or other systems. It includes fixed and mobile telephony, fax and connection to the internet.
  • E-services include: video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions.

Please note, if you supply digital services to consumers through an online portal, gateway or marketplace then it is important to determine whether you are making the supply to the customer or to the platform operator. Where the platform operator sets the general terms and conditions, authorises payment or delivery, or does not clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they will be seen as making the B2C supply. This means that they will be responsible for declaring and paying any VAT due and you will be treated as supplying the store, which is a business to business supply, so the changes may not affect you directly.

What do you need to do?

If you provide consumers with any of the digital services listed above, then you must determine the location of the consumer so that you know to which country the VAT is due.
There are some rules to follow, for example if the services are delivered to a consumer who’s travelling between two EU countries on a train, then the location of the consumer would be the destination of the departure platform. For services delivered to a consumer’s mobile phone, then the location would be the country code of the SIM card being used.
If you feel that the defined rules do not properly determine where your consumer is located, then you can select the correct location but you must obtain three pieces of evidence to support this, such as the IP address the customer is using to purchase or download their services.
For a list of the rules that determine the place of taxation, and for further information, please visit the HMRC website.

VAT Mini One Stop Shop

To save you having to register for VAT in every EU Member State where you supply digital services, HMRC has created a VAT Mini One Stop Shop online service (VAT MOSS). This will be available from 1st January 2015, but you will be able to register to use it from October 2014. Using this service means you can submit a single quarterly VAT MOSS return and payment covering all your EU digital service supplies. You can find detailed guidance about the VAT Mini One Stop Shop here and instructions on how to register can be found here.

How can NetSuite help with these changes?

NetSuite can already automatically handle the required functionality to comply with the major new tax regulation change, but in order to make it easier for its digital customers – which include the likes of Shazam, Box.com and Zendesk – to remain VAT-compliant, NetSuite is planning to release a free and seamless enhancement to address the specific issue of e-services consumption location. Find out more about this enhancement in our related article: “NetSuite enhancement will make complying with EU VAT changes easy“.
NetSuite is running a free one-hour webinar for NetSuite administrators. financial controllers, and accountants in businesses that provide services electronically. Titled “Enabling EU VAT Changes Coming in 2015″, the webinar will be held from 3pm – 4pm on Tuesday 9th December. Register here.
If you would like any further information on the changes that are taking place, please consult the HMRC website and the guidance found here.
If you’d like any information regarding NetSuite and how it could be used to help you manage your financials, please don’t hesitate to get in touch.
 

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Eva Caballero
NoBlue
[email protected]

(+34) 660 10 87 20
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