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2 June 2014 London seminar: Post event questions and answers (as prepared by HMRC and which therefore presents a UK point of view)
Session 1 Overview of 2015 EU VAT rules on the place of supply, what is a digital service, and who is making the supply
Q1 In a scenario where a live webinar is run, with a presenter, my understanding is that this is not an e-service, and therefore it must be treated as a supply of training/education. However, what is the position if this session is recorded and made available for purchase with slides and a voiceover?
A1 We fully agree that a live webinar, which by definition involves a presenter or facilitator, cannot be considered to be the supply of a digital service. However, if the event is recorded and made available as a video, that is a separate subsequent supply which can be treated as the supply of a digital service. We see a parallel here with ‘live’ television programmes or shows, which normally have a studio editor and are transmitted as a ‘broadcasting service’. However, if that programme is subsequently sold in a video on demand service then that should be treated as the supply of a digital service.
Q2 What VAT treatment would apply to automated distance learning packages, such as where there are just automated images or a pre-recorded voice of a speaker?
A2 Provided it is an automated distance learning package, which can be completed with minimal or no human intervention, and delivered over the internet or similar network, it would be seen as a digital service.
Q3 If a business pays for one of its employees to have access to an electronic magazine or newspaper as part of a subscription service, should this be treated as a B2C or a B2B supply?
A3 If the supplier contracts with the employee, rather than the employer, then the service will be B2C, even if the company pays. If the contract is between the supplier and the employer then it will be B2B.
Q4 I understand that the EU wide VAT rule change to the treatment of face value vouchers proposed by the European Commission was intended to come into effect on 1 January 2015. However, I have seen no confirmation that this will now happen. Do you have an update on the likely timetable for the adoption and implementation of any new legislation?
A4 It is not possible to speculate when any new EU legislation will be agreed and adopted. Until any new EU legislation is implemented, the current rules on the VAT treatment of vouchers will continue to apply.
Q5 A Single Purpose Voucher (SPV) is a voucher carrying a right to receive a supply of goods or services where the supplier’s identity, the place of supply and the applicable VAT rates for the goods and services are known at the time of issue of the voucher. Consequently VAT can be accounted for at the time of issue. My understanding is that where an online retailer supplying digital services sells an SPV to a consumer which can only be redeemed for digital services, then that supply is taxed at the time the voucher is issued as if it were a supply of digital services. Currently the position is relatively straightforward, as the supply will be taxed in the Member State where the supplier is established. However, post 1 January 2015, assuming all EU Member States adopt the view that an SPV is taxable at the time of its issue, the place of supply will be the EU Member State in which the consumer resides and so VAT will have to be accounted at that Member State’s VAT rate. Is this the case?
A5 Yes, VAT will have to be paid to the Member State where the customer resides (via Mini-one stop shop (MOSS) or not) and at the VAT rate applied there. It should be underlined that even if the voucher proposal is not yet adopted at EU level, telecommunications, broadcasting and electronic services will be taxable in the Member State of the customer as from 1 January 2015, including when paid for via any kind of voucher.
Q6 Can I assume that the position set out above (Q5) would not be any different if the voucher were to be sold by a retail distributor who is not the redeemer, as each supply of the voucher is taxed. I also assume that it makes no difference if the purchaser of the voucher gives the benefit of the voucher to another consumer as a gift, as the tax is due upon the sale to the first consumer not upon redemption.
A6 As long as there are no common rules agreed at EU level on the treatment of vouchers, the rules of the Member State where telecommunications, broadcasting or electronic services are taxable are decisive. Up to the end of 2014 it will be for the Member State of the supplier to decide. As from 1 January 2015 the rules of the Member State of the customer will apply.
Q7 Can I assume that it makes no difference to the VAT treatment if the voucher itself is not electronically supplied in an online transaction, but takes the form of a physical voucher containing information of the amount of credit available to the user, or an access code on a plastic card that can be used to purchase and download electronically supplied music or games?
A7 That is correct. What matters is the underlying supply.
Q8 Could the third party supply of an electronic voucher (normally a Single Purpose Voucher (SPV)) for a service (e.g. for a meal in a restaurant, or for a beauty treatment session) be seen as an electronically supplied service and therefore caught by the Article 9A presumptions regarding the place of supply?
A8 The treatment of a voucher is dependent upon the underlying supply. If it is for a meal in a restaurant, or for example a beauty treatment session, the supply of the voucher will not be seen as an electronically supplied service. This is no different than booking a service via a website. For example, a person may go online and through an automated procedure book airport parking, with a bar code being sent electronically to allow the person to exit the car park. The purchase of the right to access the car park may be automated, but the nature of the supply is still one of a right over land. That is not changed by Article 9a which provides a presumption as to who the supplier is and is NOT relevant for where the place of supply is. The latter is dealt with in Articles 24a and 24b of VAT Implementing Regulation No 282/2011.
Q9 I understand that under the proposed EU vouchers legislation a Multi-purpose voucher (MPV) is a voucher other than a SPV, for example one where the type of goods or services for which it will be redeemed is not known at the time of its sale. An example might be one which entitles the holder to purchase either a physical book or an e-book. I have some questions regarding their VAT treatment.
Q9(a) Vouchers issued and redeemed by the retailer
Since the nature of the supply for which the voucher is to be redeemed is not known until redemption, the Commission proposal is that such vouchers should only be taxed upon redemption. I am unclear if all EU Member States currently adopt this approach. The current UK law in Schedule 10A of VAT Act 1994 says that where a “retailer voucher” is issued by the retailer to the customer its supply is disregarded. Tax is due on redemption at the appropriate rate. In that case, post 1 January 2015, once the redeeming retailer knows what goods or services the voucher is to be redeemed for, I presume that it will determine the place of supply according the appropriate VAT place of supply rules for goods or services and in the latter case, by reference to the Member State where the redeemer resides. Is that the case?
A9(a) Until rules are adopted at EU level it will depend on the rules in the Member State of taxation. In the case of telecommunications, broadcasting and electronic services as from 1 January 2015 that will be those applicable in the Member State of the customer.
Q9(b) Vouchers sold by third party distributors who do not redeem
If, subsequent to its issue, the voucher is sold by a person other than the person who offers to provide goods or services upon redemption, then UK VAT law provides that the supply of the voucher is treated as taxable at the standard rate, unless the voucher is used to obtain goods or services in one particular non standard rate category. In that case, the voucher falls to be treated as a supply in that category (e.g. a voucher for a book would be zero rated in the UK, but a voucher for an e-book standard rated). It seems to me that there are a number of possible difficulties with MPVs issued by distributors as they will not know what type of supply the voucher has been redeemed for, nor by whom the voucher has been redeemed or where the redeemer is located. I think it is fair to say that some of these problems exist currently. From 1 January 2015, suppliers will also need to comply with the rules of the EU Member States in which the supplies are treated as taking place, if the supplies are cross border and governed by the new B2C place of supply rules for ESS. Is that the case?
A9(b) Until rules are adopted at EU level it will depend on the rules in the Member State of taxation. In the case of telecommunications, broadcasting and electronic services as from 1 January 2015 that will be those applicable in the Member State of the customer.
Q10 What is the place of supply where someone buys an e-book as a gift, for subsequent download by the recipient in another Member State? Apparently one can purchase knitting patterns online that are delivered electronically. These can be requested as gifts and delivered to somebody else. I understand this can also be done with e-books and the like. Would the customer, and therefore the Member State of consumption, be the recipient of the service, or the provider of consideration?
A10 The contract for the purchase of the product is between the person ordering and paying, and the supplier in so far as it reflects the economic reality. The supplier’s customer is then the person ordering and paying.
Session 2 Who is the customer, and how to determine the place of consumption
Q11 My question goes back to the issue of identification of the country of the customer and the presumptions: (a) If you are supplying an over-the-top service, but it is accessed through a mobile device, and as supplier, you have as a result the country code of the SIM card, can you rely on the presumption in Article 24b? (b) Alternatively, does the presumption in Article 24b only apply to mobile services (i.e. non over-the-top service)?
A11 (a) Yes, the supplier may rely on presumption from Article 24b (b).
Q12 Can a business presume a customer is not in business if they do not provide the supplier with a VAT number?
A12 Yes, but if the customer later provides his VAT number, that was valid at the time of the supply, he will have to make appropriate corrections.
Q13 There will be numerous occasions in the education and examination sector where the beneficiary of a supply is an individual, but where the supply is paid for by an employer, for example where a student is in receipt of vocational training. In such circumstances, the supplier may invoice the student or the employer. If the invoice is to the student, it will normally be a B2C transaction, unless the student can provide a VAT number for his own business. If the invoice is to the employer, who provides an overseas VAT registration number, then can the supply be treated under the B2B rules?
A13 Assuming that the invoicing reflects the contractual position and economic reality, the correct treatment is that which you describe above.
Q14 I am confused by the way the Article 9A presumptions are intended to apply when the supply is known to be made through a fixed landline, because if the supply is made through that land line, surely the location of the land line determines the place of the supply and I need do nothing more unless I am convinced it gives the wrong result (in which case I shall need to collect three pieces of non-contradictory evidence to refute it). Therefore, it is confusing to see that ‘location of fixed land line’ is one of the two pieces of non-contradictory evidence I can obtain and use to support the place of supply decision when the presumptions do not apply. Could you clarify the position please?
A14 You are right to conclude that where the supplier knows the supply of the service is via a fixed land line, the business need take no further action to determine the place of the supply. The reference to a fixed land line in the list of evidence allowing for rebuttal of the presumption can be used by the supplier in other situations. It is worth remembering that presumptions for the location of the customer, such as a reference to a fixed land line, are included in Articles 24a and 24b of VAT Implementing Regulation No 282/2011. On the other hand Article 9a of that VAT Implementing Regulation deals with the presumption as to who is the supplier. More information on Article 9a and other new provisions can be found in the Explanatory Notes prepared by the European Commission).
Q15 If an app store is the intermediary, is it the location of the app store that is the key consideration, or do you look through to the location of the end consumer?
A15 VAT will be due by reference to the location of the end consumer. However, if the app store is the business supplying the consumer, then the business who has supplied the app store will be considered to be making a B2B supply and will apply the VAT rules for a B2B supply accordingly. The app store would then be the business responsible for considering the location of the end consumer, and making the appropriate VAT charges based on a B2C supply.
Q16 If a consumer has a mobile telephone with a SIM registered in the UK, but that person is currently travelling in France when they ‘consume’ the electronic service, is the place of consumption the UK because of the “permanent address” of the SIM card?
A16 Yes, the country code of the SIM card is decisive.
Q17 In respect of broadcasting, what does ‘posted’ mean in terms of card readers and decoders?
A17 It means what is the postal address of the person who has been sent the card reader decoder.
Session 3 VAT MOSS Registration, Returns and Payments and Member State portals
Q18 It is my understanding that online gaming/betting companies may need to charge VAT if they happen to have any customers (players) established within an EU Member State that does NOT exempt online gaming / betting. This basically means that online gaming / betting companies will need to know whether the online gaming / betting service is VATable, or VAT exempt, in each of the 28 Member States of the EU and configure their systems and pricing accordingly. Is that the case?
A18 Yes. The intention is to make this information available later this year on an EU MOSS Web-Portal prepared by the European Commission.
Q19 It seems the French and Spanish MOSS VAT Return systems calculate the ‘VAT payable’ after submission of the product value and the country. Does the UK system do this? Will this be a feature of all MOSS systems? If that is the case, it appears that the supplier only really has to concern themselves about the country of supply rather than the rate.
A19 The UK MOSS system will operate in the same way as the French and Spanish systems, and automatically calculate a ‘VAT payable’ amount once the business has entered the product value and the appropriate Member State of Consumption VAT rate on the MOSS VAT Return. However, it should be noted that if for some reason the MOSS business decides that it does not want to use this automatically calculated figure, it will be able to overwrite the ‘VAT payable’ figure prior to submitting the MOSS Return. For example, this might be the case where the actual amount of VAT payable differs from the automatically calculated figure because of the application of national rounding rules concerning the calculation of the amount of VAT to be charged.
Q20 In relation to the calculation of tax rates, the MOSS return must be completed and submitted within 20 days of the relevant quarter end. During this period there could be multiple changes to VAT rates across different Member States on different dates. Will the domestic MOSS systems be updated sufficiently quickly to allow for updating of the national VAT rates?
A20 Member State tax authorities will be asked to update their national MOSS Web Portals to ensure that any quoted VAT rates are accurate and fully up to date. Most tax administrations have said this will happen, particularly as in most Member States VAT rate changes are planned in advance of the implementation date. In any event, if a quoted VAT rate is incorrect, the business can over-write the rate with the correct rate.
Q21 How are VAT payments calculated in the MOSS system, and will this involve any rounding of figures?
A21 According to Article 59a of the Council Regulation, the payment amounts shall not be rounded. Therefore, in the UK, the business will calculate to the nearest 1p the VAT payable amount for each individual service at the applicable VAT rate. The sum of all the individual VAT payable amounts will give the total VAT payment for the quarter.
Q22 In the UK, will agents be allowed to register a business for MOSS via the UK (HM Revenue and Customs (HMRC)) MOSS portal?
A22 No. As a tax authority with a very successful ‘agents strategy’, HMRC carefully considered this issue, but decided not to provide agents with the ability to register a business for either of the MOSS schemes. The main reason for this decision was because HMRC is legally obliged to issue a VAT Registration Certificate to a business by post to prevent identity theft and there would be problems doing this in respect of businesses registering for the Non-Union MOSS Scheme. In addition, HMRC’s system for registering MOSS businesses electronically will be very simple and easy to use. It should also be noted that once a business has registered for MOSS, it will be able to arrange for an agent to undertake all the other agency functions such as completing and submitting VAT MOSS returns and making MOSS payments. It should be noted that from an EU point of view, as laid down in the MOSS Guidelines, agents should be able to undertake MOSS obligations in accordance with the provisions set out in each Member States’ national Law.
Q23 If I am a non-EU business with no EU establishments, but with a VAT registration in one Member State, can I register to use either of the EU MOSS schemes?
A23 No, it will not be possible for such a business to register to use either of the EU MOSS Schemes. The reason for this is that when in 2008 the MOSS legislation was being discussed, Member States took the view that in the situation described the non-EU business would account for any VAT due through its Non Established Taxable Persons VAT registration. However, if once MOSS is implemented it becomes clear that this will deny a significant number of businesses the opportunity of voluntarily registering to use the MOSS schemes, the position will be reviewed.
Q24 Are there any thoughts of expanding MOSS to non-BTE services?
A24 If MOSS is successfully implemented across the EU from 1 January 2015, it is probable the system will be expanded on an incremental basis in the coming years. The next step is likely to be to propose expanding the scope of the system to cover other B2C supplies of goods and services.
Q25 Is there any MOSS accounting software that has been accredited to deal with the preparation of MOSS returns and payments?
A25 Not that we are aware of, but we understand that several software companies are looking to develop packages in the near future.
Q26 At the moment we have agent online authority to submit VAT returns for our clients. Will we need a separate agent authorisation for MOSS submissions, or will we be able to add MOSS to our existing authorisation?
A26 In the UK, if you are already using HMRC online services, you can easily add VAT Mini One Stop Shop Agents to your online portfolio. You do this in the ‘Services you can add’ section of ‘Your HMRC services’. You can then request authorisation to act on behalf of your client
Q27 Can you use MOSS for supplies other than broadcasting, telecommunications and e-Services (BTE)?
Q28 How will it work for input tax recovery where a company is registered in a local country for VAT, but also registered on the union scheme?
A28 It is not possible to recover VAT input tax under the MOSS scheme. For the VAT registered business input tax recovery will either involve the local VAT registration or the submission of an electronic cross-border VAT refund claim.
Q29 If a non-VAT registered UK business buys electronic services from another country with VAT rate of, say 25%, how can it ensure that it will be charged UK VAT at 20% and not the overseas VAT at 25%, as it will be unable to supply a VAT registration number?
A29 The place of supply of a digital service is the place where the customer belongs, for B2B and B2C supplies, between Member States of the EU or in relations with third countries. Therefore, the supplier should never be charging his local VAT to customers established elsewhere. Within the EU, the supplier may regard a customer as a non taxable person (B2C) as long as that customer has not communicated to him his VAT number.
Q30 If a UK VAT registered trader has multiple VAT registrations throughout Europe currently being used for digital and non-digital supplies, will they be prevented from keeping those registrations for non-digital supplies and handling all digital supplies through a MOSS registered in the UK?
A30 No, the business will be able to register and use MOSS for digital service supplies in all the Member States where it is not established, and continue to use its other local VAT registrations for digital supplies where it is established and for its non-digital supplies.
Q31 If all supplies are made through MOSS with no UK revenue, will there be a UK VAT registration needed to ensure deduction of attributable input tax?
A31 To be eligible to register for MOSS in the UK, a business will have to have a UK VAT registration, regardless of UK revenue.
Q32 Can you confirm that the Union MOSS VAT number and the normal VAT number are different and the VAT returns will be different?
A32 The Union MOSS VAT number will be the same as the local VAT number, but the Union MOSS VAT return will be different to the standard VAT return.
Q33 If all my overseas customers are only businesses, can you confirm that no changes will be required to my existing procedures as the Reverse Charge regime will continue to apply?
A33 That will be the case. MOSS is a simplified accounting system for B2C supplies of digital services.
Q34 Is the MOSS scheme only available on an invoice basis and not a cash basis?
A34 Rules relating to the tax point are those laid down in each Member State of consumption, although for this type of B2C supplies, the rules will mostly be “invoice based”. Detailed information on national rules will be on the EU MOSS Web Portal by October this year.
Q35 What happens if you have a business who is not registered for UK VAT, but has a single ‘adventure’ in trading with EU consumers?
A35 They will need to register for VAT in the Member State(s) concerned, or register for MOSS.
Q36 When does the MOSS payment need to be made? Is that within the same 20 days as the VAT MOSS Return?
Q37 20 days is not enough time to prepare and to submit quarterly MOSS VAT Returns. Why can’t the return period be the same as for domestic VAT returns?
A37 Member States agreed that there had to be a single EU wide MOSS VAT return period. 20 days was considered to be a reasonable compromise period between those Member states who wanted to allow a longer period and those who wanted a shorter period.
Session 4 MOSS taxpayer compliance, including audit
Q38 Given that one of the key objectives of the new 2015 VAT rules is to ensure a level playing field between EU and non-EU suppliers of digital services, is it known what level of compliance currently exists for non-EU suppliers of B2C e-services under the existing VAT on E-services legislation, and are any additional measures planned or considered necessary in 2015 and beyond so as to promote a high level of compliance and thereby achieve the level playing field desired?
A38 There is a good level of taxpayer compliance in respect of those businesses who have voluntarily registered under the VAT on E-Services (VoES) Scheme. However, EU tax authorities recognise that quite a few non-EU businesses making e-commerce supplies to EU consumers are not yet fully aware of their VAT reporting and payment obligations, which is why a significant amount of effort is now being devoted to raising the awareness of businesses in these jurisdictions ahead of the implementation of the MOSS schemes on 1 January 2015. In the medium term, the Commission will promote the creation of a network of agreements on exchanges of information /enforcement with third countries, at a bilateral or multilateral level.
Q39 Where would any audit take place, in the Member State of Consumption or the Member State of Identification?
A39 The proposed approach is that audits will take place in the Member State where the business is established, which will be the MSI. The Commission has published the names of Member States that will follow this approach on its EU MOSS Web portal.