SESSION E DESIGN FRAMEWORK FOR FUTURE

GUIDELINES ON B2C SUPPLIES OF

SERVICES AND INTANGIBLES

17-18 April 2014 Tokyo, Japan Pia Michelsen, European Commission

• Tax policy perspective

• Ms Pia Michelsen, Policy Officer, VAT Unit, Taxation and Customs Union, EU Commission

2

Introduction

• Case study

• Associated challenges

• Possible solutions

3

EU VAT system

• The supply of services is subject to VAT if the place of supply is within the EU

• Reform gradually implemented between 2010 and 2015

• Distinction now made between B2B and B2C supplies

• Possible shift in liability when supplied B2B

4

EU VAT system

• After reform in 2010

5

Service Proxy Taxation

B2B in general* Customer location Subject to EU VAT if customer is established in the EU. Possible shift of liability (reverse charge).

B2C in general* Supplier location Subject to EU VAT if supplier is established within the EU

EU VAT system

• After reform in 2010

6

Service Proxy Taxation

Immovable property Location of immovable property

Subject to EU VAT if property is located within the EU

Restaurant and catering Place of performance Subject to EU VAT if physically carried out within the EU.

On board restaurant and catering Place of departure Subject to EU VAT if place of departure of transport is within the EU.

Passenger transport Place of performance Subject to EU VAT if and to the extent transport is within the EU.

Short-term hiring of means of transport*

Place of performance Subject to EU VAT if put at disposal within the EU.

EU VAT system

• After reform in 2010

7

Service Proxy Taxation

B2B admission to events Place of performance Subject to EU VAT if event actually takes place within the EU.

B2C cultural, artistic, sporting, scientific, educational, entertainment or similar activities

Place of performance Subject to EU VAT if activities actually take place within the EU.

B2C goods transport Place of performance Subject to EU VAT if and to the extent transport is within the EU.

B2C goods transport within EU Place of departure Subject to EU VAT in all circumstances.

B2C long-term hiring of means of transport*

Customer residence Subject to EU VAT if customer is resident within the EU.

EU VAT system

• After reform in 2010

8

Service Proxy Taxation

B2C telecom, broadcasting and electronic services*

Customer residence Subject to EU VAT if customer is resident within the EU. Payment facilitated through the MOSS (as from 2015).

B2C intermediation (agents) Supplier location/location of immovable property/place of performance/customer residence

Subject to EU VAT if the underlying supply is taxable within the EU.

Certain B2C services (legal advice, advice of consultants, banking, financial and insurance transactions etc.) supplied to place outside the EU*

Customer residence Not subject to EU VAT under the general B2C rule when provided by an EU-based supplier if customer is resident outside the EU.

EU VAT system

• After reform in 2010

9

Service Proxy Taxation

Certain B2B and B2C services (those marked by *) the place of supply of which is within the EU

Place of effective use and enjoyment

Although subject to EU VAT, possible to adjust if service effectively used and enjoyed outside the EU. If option used, the service will not be taxed.

Certain B2B and B2C services (those marked by *) the place of supply of which is outside the EU

Place of effective use and enjoyment

Although not subject to EU VAT, possible to adjust if service effectively used and enjoyed within the EU. If option used, the service will be taxed.

Case study – seen from the EU

10

Service Proxy Taxing rights

① Hotel Place of performance (B2B and B2C)

Country B (also taxable for non-residents)

② Car repair Place of performance (B2C)

Country B (also taxable for non-residents)

③ Restaurant Place of performance (B2B and B2C)

Country B (also taxable for non-residents)

④ Hotel Wi-Fi Customer residence or hotel (B2B and B2C)

Country B (also taxable for non-residents)

⑤ Download of digital movie Customer residence (B2B and B2C)

Country A （not taxable for non-residents）

⑥ International phone call Customer residence (B2B and B2C)

Country A （not taxable for non-residents）

Case study – comments

• Impact of reform

–①: no change

–②: change for B2B supplies only

–③: change but not substantial

–④ + ⑤ + ⑥: substantial changes which will see all such B2C supplies taxed at destination as from 2015

11

Case study – comments

• 2015 challenges – determining whether B2B or B2C

• relevant for who accounts for the VAT

• mainly based on VAT number

• with telecom, broadcasting and electronic services, supplier can treat as B2C if no VAT number

– establishing who is the supplier • particular challenge when long supply chain

• presumption put in place to tax as close as possible to customer

12

Case study – comments

• 2015 challenges

– identifying where customer resides

• specific presumptions to cover certain situations

• otherwise need for 2 items of non-contradictory evidence

– accounting for the tax

• can be done through single electronic portal (MOSS)

• guidance given on its working

13

Case study – comments

• Customer residence ④ when together with hotel accommodation, regarded supplied at location of hotel

⑤ if SIM card used for download, then presumed resident in country of issue

otherwise presumed resident in country identified on the basis of 2 items of non- contradictory evidence

⑥ presumed resident in country of issue of SIM card

14

• Associated challenges

– Most (other) B2C services are taxable at the place of the supplier

– Technology increasing allows some supplies to be made at a distance

– Main challenge is to ensure taxation of those supplies at the place of consumption but also for VAT to be collected

15

• Possible solutions – Need for common approaches at international

level

– Customer residence seen as solution where supply is made at a distance

– Solution already adopted by the EU for telecom, broadcasting and electronic services

– Need for facilitation measures (for business) and international cooperation (between tax administrations)

16

• Possible solutions

– Common approaches needed

• where to tax: at customer residence or …

• when to use that as proxy: particularly relevant for remote supplies

• how best to facilitate collection: to MOSS or not to MOSS

• improving cooperation

17

• Possible solutions – MOSS as introduced by the EU

• will be available for both EU and non-EU suppliers

• provides a single point of contact

• standardises registration, reporting, payment and record keeping

• leaves other elements governed by rules of country of destination (VAT rate, bad relief and invoicing)

• calls for a coordinated approach to audit

• covers only telecom, broadcasting and electronic services but is likely to be extended to other B2C supplies in due time

18

• Possible solutions – Could the MOSS serve as model?

• part and parcel of making the destination principle operational

• facilitates compliance by business

• serves to better ensure collection

– How could this come about? • world-wide or on a bilateral basis

• based on multilateral or bilateral agreements

• need for exchange of information

19

• EU legal framework

VAT Directive

• as amended by Directive 2008/8/EC

Article 58

The place of supply of the following services to a non-taxable person shall be the place where that person is established, has his permanent address or usually resides:

(a) telecommunications services;

(b) radio and television broadcasting services;

(c) electronically supplied services, in particular those referred to in Annex II.

Where the supplier of a service and the customer communicate via electronic mail, that shall not of itself mean that the service supplied is an electronically supplied service.

Article 359

Member States shall permit any taxable person not established within the Community supplying telecommunications, broadcasting or electronic services to a non-taxable person who is established in a Member State or has his permanent address or usually resides in a Member State, to use this special scheme. This scheme applies to all those services supplied within the Community.

Article 369b

Member States shall permit any taxable person not established in the Member State of consumption supplying telecommunications, broadcasting or electronic services to a non-taxable person who is established or has his permanent address or usually resides in that Member State, to use this special scheme. This special scheme applies to all those services supplied in the Community.

20

• EU legal framework

VAT Implementing Regulation • as amended by Regulation 967/2012

Listing the main obligations of taxable persons under the special schemes and regulating issues such as registration, deregistration and exclusions

• as amended by Regulation 1042/2013

Dealing with the place-of-supply rules and clarifying how to apply them

Commission Implementing Regulation

• Regulation 815/2012

Standardising declarations and exchanges of data between Member States to ensure interoperability of the MOSS

21

• EU legal framework

Guidance • on place-of-supply related issues

• on the MOSS

published on Commission’s website

Information • on specific national rules applied in the 28 Member States

will be published on Commission’s website

22