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EU VAT place of supply rules
From 1 January 2015, the rules around the European Union (EU) VAT place of supply of services changed. This affects the sales of digital services (broadcasting, telecommunications and e-services) from a business to a consumer (private individuals and non-business entities, for example, public authorities or charitable bodies). The place of taxation depends on the location of the consumer.
Where digital services are supplied on a business-to-consumer basis, the supplier is responsible for accounting for VAT on the supply:
- to the tax authority
- at the VAT rate applicable VAT Notice 741A: place of supply of services in the consumer’s EU member state
The rules create a level playing field for UK businesses by removing the current competitive advantage of EU member states with lower rates of VAT.
Digital services affected by the rules
The rules only apply where a UK business meets all of the following criteria:
- supplies digital services from the UK to another EU member state (goods and non-digital services sold over the internet aren’t within scope)
- supplies those services to a private consumer in another EU member state
- charges for that supply (digital services provided free of charge are outside the scope of VAT)
Businesses outside the EU (for example, the USA) that supply digital services to consumers in one or more EU member state are also affected by the changes.
Businesses that aren’t affected don’t need to take further action.
You can use the VAT Mini One Stop Shop (VAT MOSS) flowchart to check if the rule changes apply to you.
How to determine the place of supply and taxation
Normal place of supply rules
For VAT purposes the place of supply rules set a common framework for deciding in which country a transaction should be subject to tax – details can be found in VAT Notice 741A.
The rules for supplies of digital services to non-business consumers is a specific rule. You should approach the issue as follows:
- Determine whether it’s a digital service (because if it isn’t, the general place of supply of services rules will apply).
- Determine the status of your customer that is, business or non-business.
- Determine the place of supply (that is, the member state).
- Determine whether the supply must be taxed at the member state’s standard or reduced VAT rate, or whether it’s eligible for any VAT exemptions (for example, most member states exempt betting and gaming).
You need to identify the place where your consumer is based, has their permanent address, or usually resides. This will be the member state where VAT on the digital services supply is due. For example, a UK citizen is an ‘expat’ who works or lives most of their time in Spain, then you, as the person supplying digital services to that consumer, should charge Spanish VAT on those services and not UK VAT.
Defining digital services
Radio and television broadcasting services
- the supply of audio and audio-visual content for simultaneous listening or viewing by the general public on the basis of a programme schedule by a person that has editorial responsibility
- live streaming via the internet if broadcast at the same time as transmission via radio or television
This means transmission of signals of any nature by wire, optical, electromagnetic or other system and includes:
- fixed and mobile telephone services for the transmission and switching of voice, data and video, including telephone services with an imaging component, otherwise known as videophone services
- telephone services provided through the internet, including Voice over Internet Protocol (VoIP)
- voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services
- paging services
- access to the internet
It doesn’t cover services simply provided over the telephone, such as call centre helpdesk services.
Electronically supplied services
The rule change only applies to ‘e-services’ that are ‘electronically supplied’ and includes things like:
- supplies of images or text, such as photos, screensavers, e-books and other digitised documents, for example, PDF files
- supplies of music, films and games, including games of chance and gambling games, and programmes on demand
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
Sales not affected by the change
Using the internet, or some electronic means of communication, just to communicate or facilitate trading doesn’t always mean that a business is supplying e-services. Using the internet for the following doesn’t count:
- supplies of goods, where the order and processing is done electronically
- supplies of physical books, newsletters, newspapers or journals
- services of lawyers and financial consultants who advise clients through email
- booking services or tickets to entertainment events, hotel accommodation or car hire
- educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link)
- offline physical repair services of computer equipment
- advertising services in newspapers, on posters and on television
Defining ‘electronically supplied’
This covers e-services which are automatically delivered over the internet, or an electronic network, where there’s minimal or no human intervention. In practice, this can be either:
- where the sale of the digital content is entirely automatic, for example, a consumer clicks the ‘Buy Now’ button on a website and either:
- the content downloads onto the consumer’s device
- the consumer receives an automated email containing the content
- where the sale of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an e-service
All ‘e-services’ that are ‘electronically supplied’ in the ways outlined above are ‘digital services’ and are covered by the rule changes.
Examples of electronic supplies and whether or not they’re ‘digital services’
|Covered by the rules|
|PDF document manually emailed by seller||Yes||No||No|
|PDF document automatically emailed by seller’s system||Yes||Yes||Yes|
|PDF document automatically downloaded from site||Yes||Yes||Yes|
|Stock photographs available for automatic download||Yes||Yes||Yes|
|Online course consisting of pre-recorded videos and downloadable PDFs||Yes||Yes||Yes|
|Online course consisting of pre-recorded videos and downloadable PDFs plus support from a live tutor||Yes||No||No|
|Individually commissioned content sent in digital form, for example, photographs, reports, medical results||Yes||No||No|
|Link to online content or download sent by manual email||Yes||Yes||Yes|
To find out more about what is and isn’t a ‘digital service’ go to the European Commission’s website and in the Annex, page 86, the explanatory notes provides a list of digital services.
This is a fast-changing area. The above examples are illustrative and don’t provide a comprehensive and definitive list of what is considered to be a digital service. If, after reading the detailed guidance that is available you’re still unsure whether your supplies are ‘digital services’, email Vat2015.email@example.com
Bundled or multiple supplies
Where a business supplies a consumer with a package of services, or goods and services, the business will have to decide whether the complete package should be considered and taxed as a single (bundled) supply, or multiple separate supplies, each element of which should be separately taxed. Examples of a bundled supply include:
- a technical journal with supplementary online content
- a DVD with access to online streaming of content
- a music CD with digital download
A digital supplier must apply the normal approach to bundled or packaged supplied. See guidance in VAT Supply and Consideration VATSC80000.
How to determine whether the customer is in business (a taxable person) or is a private consumer
If you supply digital services and your customer doesn’t provide you with a VAT registration number (VRN) then you should treat it as a business-to-consumer supply and charge the VAT due in the customer’s member state.
If a customer is unable to supply a VRN but claims they’re ‘in business’ but not VAT registered because, for example, they’re below their member state’s VAT registration threshold, you can accept other evidence of your customer’s business status, for example, a link to the customer’s business website or other commercial documents.
It’s your decision whether to accept alternative evidence that the customer is ‘in business’ and your customer can’t require you to treat a supply as business-to-business if they haven’t provided a valid VRN.
If you accept that your customer is in business, the supply doesn’t come within the scope of these business-to-consumer arrangements. With a cross-border business-to-business supply the customer will be responsible for accounting for any VAT due to the tax authorities in their member state.
You must complete and submit a quarterly European Community Sales List declaration to HM Revenue and Customs (HMRC). This allows other EU member state tax authorities to request details from the database where these declarations are securely stored for taxpayer compliance and audit purposes.
How to determine the place of supply and taxation
The place of supply of cross-border digital services is the place where the consumer of that service is normally resident.
Place of supply ‘presumptions’
To try to simplify the rules for some supplies of digital services the supplier can make a ‘presumption’ about the place where the supply is to be taxed. Where the presumptions apply, the business doesn’t need to know in which country the consumer of the digital service resides. This in turn means that where a digital services supply is made through one of the locations below, the business supplying the service doesn’t need to obtain any further evidence to justify in which member state the VAT is due.
Types of supplies covered by the presumption rule include where the digital service is supplied:
- through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby (VAT will be due in the member state where those places are actually located - if a German tourist makes a call from a telephone box in France, VAT will be due in France)
- on board transport travelling between different countries in the EU (VAT will be due in the member state of departure, for example, if a ferry operator provides a wi-fi hotspot on board ship which is available to passengers for a fee, VAT will be due in the member state of departure and won’t depend on a passenger’s place of residence)
- through a consumer’s telephone landline (VAT is due in the member state where the consumer’s landline is located)
- through a mobile phone (the consumer location will be the member state country code of the SIM card - if a French resident downloads an app to their smartphone while on holiday in Italy, VAT will be due in France)
- in the member state for the postal address where the decoder is located or the viewing card is sent (if a UK resident has a satellite television system in their Spanish holiday home, VAT will be due in Spain)
Circumstances where the presumptions don’t apply
Where the digital services are supplied other than in the circumstances listed above, the business making the supply must obtain and keep 2 pieces of non-contradictory evidence to show which member state the customer is normally located in.
Examples of the type of supporting evidence that tax authorities will accept include:
- the billing address of the customer
- the Internet Protocol address of the device used by the customer
- customer’s bank details
- the country code of SIM card used by the customer
- the location of the customer’s fixed land line through which the service is supplied
- other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)
Businesses using payment service providers
A business which makes cross-border digital service supplies must obtain and keep 2 pieces of information to evidence where a consumer normally lives. This shows that the correct rate of VAT has been charged and will be accounted for to the correct member state tax jurisdiction.
For many micro and small businesses this requirement may be challenging. For micro and small businesses that use payment service providers, we suggest the following approach:
- At the point of sale, ask the consumer to provide details of either their:
- billing address, including the member state
- telephone number, including the member state dialling code
- When the consumer pays for the digital service, obtain from the payment service provider a notification advice containing the 2-digit country code of the consumer’s member state of residence as listed in their records.
If the 2 pieces of information tally, that will be enough to define the consumer’s location and you can record the details in your accounting records. However, if the information doesn’t tally, you must contact the consumer and ask them to reconcile the discrepancy between the 2 pieces of information.
Support for VAT MOSS registered micro-businesses
UK micro-businesses, that are below the current UK VAT registration threshold and are registered for the VAT Mini One Stop Shop (VAT MOSS), may use best judgement and base their ‘customer location’ VAT taxation and accounting decisions on a single piece of information. They can be the billing address given by the customer or information given to them by their payment service provider.
Place of supply of educational services
Applying the place of supply rules to educational services can sometimes be confusing. The following examples are provided so that UK businesses can determine how they’re to be considered and taxed.
Services provided by a person
Education, training, or a similar service delivered by a person over the internet or an electronic network (such as a webinar), isn’t considered to be an electronically supplied service because an actual person is involved in the delivery. These services aren’t within the scope of the VAT rule change.
Services provided through automated learning
Automated learning doesn’t have human involvement and is therefore a digital service.
Educational examination services
The place of supply for educational examination services, for example, marking or assessing completed examination papers, will depend on whether or not the service requires or involves any human intervention. For example, where a student is required to complete and submit an online examination paper which is automatically checked and scored by computer, this is a digital service. However, if the service involves the completed examination paper being marked by an assessor, it won’t be a ‘digital service’ covered by the rules. The place of taxation will be the place where the service is performed.
The table below shows examples of typical supplies of business-to-consumer (B2C) education or examination services, and the place where the supply is to be taxed.
|Type of examination service||B2C rules from 1 January 2015|
|Admission to event (not an e-service)||Where event takes place|
|Distance learning using webinars/remote tutors (not an e-service)||Supplier’s place of establishment|
|Automated learning (no human involvement) (e-service)||Customer’s address or residence|
|Examination services - human involvement||Education where performed|
|Examination services - automated||Customer’s address or residence|
VAT rates and obligations in other EU member states (EU VAT Web Portal)
For information about the VAT rates that apply to supplies of digital services in other EU member states, as well as any other obligations (for example, VAT invoice requirements), businesses should refer to the tables in the European Commission’s EU VAT Web Portal. Member state tax authorities are required to notify the Commission about any changes to their VAT rates or other obligations so businesses can rely on the accuracy of this published information.
All businesses will need to consider how charging for the foreign rate of VAT will affect their prices. For example, the business will need to decide whether to charge a single price and to absorb the variable VAT rates. Alternatively, a business may decide to vary the price of its digital service products to reflect the different amounts of other member states’ VAT due.
VAT accounting options for businesses supplying digital services to consumers
Apart from those businesses who sell digital services entirely through digital platforms or marketplaces who take on responsibility for accounting for the VAT due businesses must consider how they intend to account for the VAT on those supplies. Businesses will have to make one of the following choices and either register:
- to use the UK VAT Mini One Stop Shop (VAT MOSS)
- for VAT in every EU member state where you make digital supplies to consumers, and file returns and make payments to the tax authorities in each of those member states
HMRC strongly recommends that you register for and use UK VAT MOSS. It makes accounting for VAT due in all the EU member states much easier.
If you’re below the UK VAT registration threshold you can register for UK VAT to use the UK VAT MOSS. You can charge and account for VAT on your EU cross-border B2C supplies but won’t have to charge and account for VAT on your UK domestic supplies. You’ll also be able to reclaim any VAT charged on business expenses directly related to your cross-border digital service supplies.
Digital portals, platforms, gateways and marketplaces
If you supply e-services to consumers through an internet portal, gateway or marketplace, you need to determine whether you’re making the supply to the consumer, or to the platform operator.
If the platform operator identifies you as the seller but:
- sets the general terms and conditions
- authorises payment
- handles delivery or download of the digital service
then the platform operator is supplying the consumer.
They’re therefore responsible for accounting for the VAT payment that is charged to the consumer.
Digital platforms and accounting for VAT
If you operate a digital platform through which third parties sell e-services you’re liable to account for the VAT on those sales unless every one of the following conditions are met:
- digital platform and everyone else involved in the supply must identify who the supplier is in their contractual arrangements
- invoice, bill or sales receipt must identify that supplier and the service supplied
- digital platform mustn’t authorise the charge to the consumer
- digital platform mustn’t authorise the delivery
- digital platform mustn’t set the general terms and conditions of the sale
If you don’t meet all of these conditions, you must treat the sales of third party e-services as if they were your own and declare the VAT due.
If you do meet these conditions, the responsibility for accounting for the VAT moves back to the person who supplied you and you’re providing intermediary services to that person.
How to contact HMRC to clarify your status
Because of these conditions the vast majority of digital platforms will be liable to account for the VAT on the third party sales. However, if you remain unsure about your responsibility, contact HMRC’s Non-Statutory Clearance Team for full guidance on non-statutory clearances.
Role of payment services
If your only role in the supply is to provide for the processing of payments you’re not regarded as a digital platform and you don’t have to account for the VAT.
The legislation for this is Article 9A of Council Implementing Regulation 1042/2013 which, along with explanatory notes offer additional guidance on interpretation.