On 1 January 2015, new rules will take effect to determine where intra-EU supplies of “digital services” to consumers will be deemed to take place for VAT purposes. This is a major change which will affect any person who makes supplies of digital services within the EU to consumers in other EU member states. The current VAT place of supply rules for business to business supplies will remain unaffected.
What are “digital services”?
“Digital services” means broadcasting, telecommunications and e-services. “E-services” include (among other things) the supply of digitised products (such as software, images, music, films and games), services supporting a business or personal presence on an electronic network (such as website supply or web hosting) and services automatically generated from a computer, via the Internet or an electronic network, in response to specific data input by the recipient (such as supplies of databases or automated distance teaching).
What is the change?
Under current rules, intra-EU supplies of digital services to consumers take place in the supplier's country of residence. For example, a supply of e-services by a UK based supplier to consumers in Ireland is currently treated as taking place in the UK and is therefore subject to UK VAT (at 20%).
From 1 January 2015, supplies of digital services to consumers will be treated as taking place in the country where the consumer is established, has his permanent address or usually resides. So, from that date, the supply in the above example will be treated as taking place in Ireland and be subject to Irish VAT (at currently 23%).
VAT registration requirement and new “Mini One Stop Shop” (MOSS)
As a consequence of this change to the VAT place of supply rules, suppliers of digital services to consumers in other EU member states will need to be in a position to charge VAT in each member state where their consumers are based. This could be done by obtaining a VAT registration in each relevant member state. However, as this would be onerous for suppliers, the MOSS Scheme will be introduced as an alternative, in time for the rule change on 1 January 2015.
The MOSS Scheme is a voluntary system which will allow suppliers of digital services to consumers to account for VAT in each relevant member state through a single registration. This means that a single electronic return (showing the VAT payable in each member state) will be submitted quarterly and a single payment of VAT will be made in the member state of the supplier’s MOSS registration. The member state of registration must be the member state where the supplier has established its business (i.e. where a company has its head office). If the supplier does not have its business establishment in the EU, it may obtain a MOSS registration in a member state where it has a fixed establishment or, if it does not have an establishment in the EU, in a member state of its choice.
Non-EU suppliers of electronic services who currently make supplies into the EU through the VAT on E-Services Scheme (which similarly allows supplies of e-services from outside the EU to be made through a single registration, but has no application to intra-EU supplies) will be moved to the MOSS Scheme from January 2015. However, the UK will continue to operate the VAT on E-Services Scheme for a limited period of time after 1 January 2015 to allow registered businesses to make amendments to declarations submitted under that Scheme.
Applications for a MOSS registration can be made from 1 October 2014.
HM Revenue & Customs have published the following information on the forthcoming changes to the VAT place of supply rules and the introduction of the MOSS: