VAT News - telecommunications, broadcast and electronic service firms
Changes to the VAT legislation that will come into force in January 2015 will have a significant impact on businesses that make supplies of telecommunications, broadcasting & electronic services to customers in the EU. The changes shift the place of supply from the location of the supplier, to the location of the customer, so the effect is that VAT will be due in every member state that the business makes supplies to. This new legislation will apply to all businesses which supply apps, music streaming, and any service which is an ‘electronically supplied’ services to final consumers.
The change in VAT rules from January will mean VAT will be charged at the rate of the customers' country. This will apply whether it is an EU or non-EU business doing the sale. So a customer living in Copenhagen will be charged the Danish VAT rate, regardless of whether the supplier is from Denmark, the UK or the USA.
Under current rules for e-services within the EU, VAT is due where the supplier is based, and at the rate set by that member state. With the standard rate of VAT varying from 15% to 27% across the EU, businesses frequently establish in a member state with a low standard rate, which then applies for the e-services they supply to all private customers throughout Europe.
This change to the legislation brings the VAT treatment of these services in line with one of the main principles of VAT, in that, as a consumption tax, it accrues to the country in which the goods or services are consumed.
Although this will mean that smaller businesses will be more competitive, there will be significant additional VAT reporting responsibilities. In the light of this, a Mini One Stop Shop (MOSS) will be introduced at the same time, so that business can declare and pay all of their EU VAT in one member state. It will allow the supplier to register, declare and pay the VAT due on supplies of telecommunications, broadcasting and electronic services to consumers in other member states via a web portal
Businesses affected by these changes may also wish to consider whether to alter the price of their services to reflect the prevailing VAT rate in each member state.
HMRC have provided further guidance on the types of services that will be caught under these new rules:
‘Broadcasting Services’: this includes audio and audio-visual content provided to the general public via communications networks by a media service provider, for simultaneous listening or viewing, on the basis of a programme schedule. It also includes ‘quasi-simultaneous listening’ i.e. time-lag, or where the customer is able to record for later listening, pause, forward or rewind. It does not include services where the customer can demand the program they want to watch from a list individually, and they are paying a fee for this extra service.
‘Electronically supplied services’: these include services delivered over the internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of IT.
‘Telecommunications services’: means services relating to the transmission, emission or reception of signals, words, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of the right to use capacity for such transmission.
Any business that makes supplies of telecommunications, broadcasting & electronic services to customers in the EU should review their position specifically in relation to this new legislation. Those businesses that are affected can then take steps to ensure that the transition is handled a smoothly as possible.
Our VAT specialists would be happy to discuss the effect of these changes on your business with you, and help you plan and implement a system to ensure your VAT affairs are correct and handled as expediently as possible.
For further information, please contact Gemma McCaldon-Gower at firstname.lastname@example.org