At present, when a trader supplies a service to a private
consumer, the trader is responsible for applying VAT at the rate of
the country where he has his place of establishment. However, the
Commission is concerned that, with the increasing supply of
services across borders, this rule no longer always ensures that
the tax accrues to the Member State of consumption.
It can also cause problems of distortions of competition, as
companies have an incentive to locate their activities in Member
States with low VAT rates in order to be able to charge that rate
to their customers.
In particular, suppliers of digital products from outside the EU
are required to charge VAT on sales to private consumers at the
rate applicable in the Member State where the customer is resident,
but this rule does not currently apply where non-EU suppliers
establish themselves within the EU. Nor does it apply to EU or
non-EU suppliers of other services capable of being supplied at a
distance (such as distance teaching).
The Council is already working on another Commission proposal to
change the rules for the supply of services to businesses. When
implemented, there would be practical difficulties for businesses
if there were no corresponding changes to the rules governing the
place of supply of services to consumers.
So the Commission is proposing several exceptions to the
existing rules. These are:
- For certain services capable of being supplied at a distance,
including e-services and distance teaching, the place of taxation
would become the place where the customer is established.
- Restaurant and catering services would become taxable at the
place where the service is physically carried out, except for those
services supplied on board of a means of transport, which would be
taxable at the place of departure of the transport service.
- The short term hiring of means of transport would become
taxable at the place where the means of transport is actually put
at the disposal of the customer.
- Long term leasing would become taxable at the place where the
customer is established.
- All services rendered by intermediaries would become taxable at
the place where the main transaction in which they intervene takes
place.
The proposed changes would mean that traders supplying these
services to private customers in other Member States would have VAT
compliance obligations in those other Member States – a daunting
prospect if the trader is not fully acquainted with the language
and legislation of that other country.
The Commission says these obligations would be greatly
simplified if the Council adopts an earlier Commission proposal
setting out a VAT One-Stop-Shop, which would effectively allow all
companies to levy VAT at their place of origin (or establishment),
with the revenues then being reallocated to the appropriate Member
State.
"The economic potential of telecom services, broadcasting, and
e-services makes it imperative to ensure that the VAT revenues from
such services accrue to the Member State where those services are
consumed," said László Kovács, European Commissioner for Taxation.
"This proposal is designed both to ensure that Member States are
better able to collect VAT on services consumed by their residents
and to make the application of VAT to services simpler and fairer
for traders."
