The New EU Place-of-Supply Rules from a ... - empcom.gov.in

From 1 January 2010, new rules apply for the
purpose of determining whether or not services
are subject to VAT in one of the EU Member
States and, if they are, in which Member State
the VAT liability arises; in other words, new rules
will determine where services are deemed to be
supplied for the purposes of the VAT system of
the European Union. This article highlights the
main issues that, based on a technical analysis
and on practical examples, require further
guidance and clarification at an EU level to avoid
risks such as double taxation and non-taxation.
1. Introduction
From 1 January 2010, new rules apply for the purpose of
determining whether or not services are subject to VAT
in one of the EU Member States and, if they are, in which
Member State the VAT liability arises; in other words,
new rules will determine where services are deemed to
be supplied for the purposes of the VAT system of the
European Union. These new rules are based on Directive
2008/8 that forms part of the VAT package 1 which was
adopted by the Council on 12 February 2008.
This article describes how the new place-of-supply rules
will affect companies heavily involved in cross-border
and international transactions in their day-to-day business
and, in particular, the problems that those businesses
may encounter in applying the new place-ofsupply
rules. The focus is on business-to-business (B2B)
supplies and on the new compliance obligations.
Generally, the new place-of-supply rules leave the Member
States considerable room for interpretation and, in
the absence of detailed information on how the individual
Member States will interpret the new rules and to
what extent they will make use of the options available to
them, it must be feared that the new rules are less harmonized
than they should have been.
This article highlights the main issues that, based on a
technical analysis and on practical examples, require further
guidance and clarification at an EU level to avoid
risks such as double taxation and non-taxation.
All references to “articles” relate to articles of the current
VAT Directive, 2 whereas references to “new articles”
relate to articles of the VAT Directive, as amended under
Directive 2008/8.
2. Goods and Services
For the purposes of the EU VAT system, a distinction
must be made between supplies of goods and supplies of
Articles
Ine Lejeune, Silvia Kotanidis,
and Sofie Van Doninck*
The New EU Place-of-Supply Rules from a
Business Perspective
services because both categories of transactions are subject
to different place-of-supply rules. Under Art. 24 of
the current VAT Directive,“supply of services shall mean
any transaction which does not constitute a supply of
goods”.
Since the concept of supply of goods is defined in detail
and the supply of services is a residual concept, which is
not affected by the new place-of-supply rules, the scope
of the rules that will enter into force on 1 January 2010
seems clear at first sight. However, in practice, Member
States have divergent views on whether or not specific
transactions qualify as supplies of goods or must be
treated as supplies of services.
Those divergent interpretations may lead to double or
non-taxation and high compliance costs for businesses
involved in cross-border transactions. Where one Member
State qualifies a cross-border transaction as a supply
of goods, and the other as a supply of services, the intra-
Community supply of goods made by the supplier will
not be followed by an intra-Community acquisition by
the customer or, conversely, the intra-Community acquisition
of goods by the customer will not be preceded by
an intra-Community supply made by the supplier, which
results in a “mismatch” in the exchange of information
between the tax authorities of the Member States
involved.
Example
A leasing company established in Member State 1 provides
goods to a business customer established in Member State 2
under a finance lease contract. The goods are located in Member
State 1.
* Ine Lejeune is Global Indirect Taxes Network Leader, PricewaterhouseCoopers;
Silvia Kotanidis is Indirect Tax Counsel, Pricewaterhouse-
Coopers, LLM, PhD; Sofie Van Doninck is Indirect Tax Consultant, PricewaterhouseCoopers.
The article is based on a Technical Paper submitted to the European Commission
in the framework of the European Indirect Tax Group (EiTG), an
international group of indirect taxation professionals which regularly
meets in Brussels and is supported by PricewaterhouseCoopers.
1. The VAT package consists of:
– Directive 2008/8/EC (“Directive 2008/8”) of 12 February 2008 amending
the VAT Directive (Directive 200 /112) as regards the place of supply
of services;
– Directive 2008/9/EC of 12 February 2008 laying down detailed rules for
the refund of VAT to traders established in another Member State; and
– Regulation (EC) 14 /2008 of 12 February 2008 amending Regulation
(EC) 1798/200 on administrative cooperation and exchange of information
between the Member States accompanying the two new Directives.
The VAT package was published in OJ L 44 of 20 February 2008.
2. Council Directive 200 /112/EC of 28 November 200 on the common
system of value added tax, OJ L 47 of 11 December 200 .
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If Member State 1 treats finance lease as a supply of goods,
the supply is deemed to be made at the place where transport of
the goods begins or where the goods are located at the time of
the supply (Member State 1). If Member State 2 treats the transaction
as a supply of services, that service is deemed to be supplied
at the place where the customer is established (Member
State 2), which results in double taxation.
In the opposite situation, the transaction would not be taxed at
all. Furthermore, the new obligation to also report in the recapitulative
statement cross-border services subject to the reverse
charge, will likely show these mismatches.
In the absence of a harmonized treatment of finance
lease transactions, the problem would be resolved if, in
respect of individual leasing contracts, the tax authorities
of the lessee’s Member State were to adhere to the
qualification applicable in the lessor’s Member State.
A similar issue may arise in respect of repair of movable
goods, which, depending on the relative value of the
work and the spare parts used for the repair, may be
treated as a repair service or as a supply of goods (the
spare parts). This problem would be resolved if all Member
States were to take the position that all goods used in
the framework of repairs of goods are ancillary to the
repair service.
3. Status of the Recipient
To a large extent, the new place-of-supply rules depend
on the fact of whether the customer qualifies as a taxable
person (B2B) or does not qualify as a taxable person
(B2C).
In this framework, the new Art. 4 provides that:
– taxable persons who also carry out activities or
transactions that are not considered to be taxable
supplies of goods or services; and
– non-taxable legal persons who are identified for VAT
purposes
must be considered to be taxable persons in respect of all
services rendered to them.
From a practical perspective, the first question is
whether that provision applies to all customers, regardless
of whether they are established within or outside the
European Union and, if that rule also covers customers
outside the European Union, how the service provider
must determine that his customer is a taxable person or
is to be regarded as such and, consequently, that he
should apply the place-of-supply rules applicable to B2B
services.
As regards customers established within the European
Union, their VAT identification number should play a
crucial role for the purposes of determining their VAT
status. If the customer is able to provide a VAT identification
number to the service provider and the tax authorities
confirm through the VIES4 that that number is
valid, the service provider should have sufficient proof
that he supplied the service to a taxable person and that
the B2B place-of-supply rules apply. In addition, it
should be the responsibility of the customer to decide
when or for which transactions to use his VAT identification
number (private versus business purpose). The
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use of the VAT identification number as a means to verify
the VAT status of a customer is a continuation of the
existing practice applicable to intra-Community supplies
of goods, intra-Community transport of goods and
other “intra-Community services”.
In order to have a useful tool to verify the validity of the
VAT identification numbers of their customers, service
providers should have access to the VIES without any
delays and, without revealing information protected by
legislation on privacy or commercial secrets, the VIES
should contain more detailed information, such as the
business’s name and address, date of issue (and cancellation)
of its VAT identification number, name and address
of its fixed establishment(s), etc. The VIES should also
indicate whether or not an individual company forms
part of a VAT group. Finally, the functionality of the
VIES should be enhanced by allowing “batch validation”
(i.e. validation of large quantities of VAT identification
numbers at the same time).
In respect of services supplied to customers established
outside the European Union, the service provider must
also hold proof that his customer qualifies as a taxable
person as defined in Art. 9 of the VAT Directive. All
Member States should provide uniform and clear guidance
as to how the VAT status of those customers must
be ascertained. The evidence should be flexible and
depend on the circumstances, and not be limited to certain
specific documentation. The evidence could, for
example, consist of an order form, which mentions the
customer’s business address and trade registration number,
a printout of the customer’s website on which it presents
itself as a commercial business, or a printout of the
website of the tax authorities of the customer’s country
(e.g. for countries neighbouring the European Union) or
any other form of evidence provided by those authorities
indicating that the non-EU customer is engaged in economic
activities.
Although most companies qualify as “full” taxable persons
for VAT purposes in respect of all their activities,
there are exceptions to that rule. Depending on the circumstances,
“passive” holding companies generally do
not qualify as taxable persons and even “active” holding
companies may only be considered to be taxable persons
for part of their activities. The same applies to pub-
. This interpretation would be in line with Art. (2) of the VAT Implementing
Regulation (Council Regulation EC 1777/200 of 17 October 200 ),
which provides that, where a taxable person only assembles the different parts
of a machine all of which were provided to him by his customer, that transaction
must be treated as a supply of services. On the basis of the judgment of the
European Court of Justice (ECJ) in Card Protection Plan (judgment of 2 February
1999 in Case C- 49/9 , [1999] ECR I-97 ), it can be argued that the
supply of spare parts is ancillary to the repair service because the supply of
spare parts does not constitute for the customer an “aim in itself ” but a means
of better enjoying the principal (repair) service.
4. VAT Information Exchange System.
. See Arts. 44, 47, 49, 0, , 4, and .
. ECJ judgments of 21 October 2004 in Banque Bruxelles Lambert SA
(BBL) v. Belgian State, Case C-8/0 , [2004] ECR I-101 7; and of 20 June 199
in Wellcome Trust Ltd. v. Commissioners of Customs and Excise, Case C-1 /94,
[199 ] ECR I- 01 .
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lic hospitals, universities, libraries and other public institutions.
In order to ensure administrative simplicity, the
tax authorities should confirm that customers with a
dual VAT status and those that are also performing nontaxable
supplies, such as public authorities, should be
treated as taxable persons for the purposes of the placeof-supply
rules if they hold a valid VAT identification
number, even if that number was assigned to them solely
for the purpose of accounting for VAT on their intra-
Community acquisitions of goods.
The fact that the service provider has received confirmation
of the validity of his customer’s VAT identification
number through the VIES should be considered to mean
that the service provider has applied the B2B place-ofsupply
rules with sufficient due diligence.
4. Place-of-Supply Rules
As regards services supplied to taxable persons, the new
place-of-supply rules consist of a general rule (see 4.1.), a
number of specific rules (see 4.2. to 4.4.), and a broad
override rule (see 4. .).
4.1. General rule
Under the new Art. 44, the place of supply of services to
a taxable person acting as such is the place where that
person has established his business. However, if those
services are provided to a fixed establishment of the taxable
person, the place of supply of those services is the
place where that fixed establishment is located.
Unless specifically provided otherwise, all B2B services
are subject to the new general place-of-supply rule,
which, however, does not take precedence over the specific
rules. Consequently, the general rule only applies if
the service is not covered by one of the specific rules, 7
which may give rise to difficulties if the service consists
of several elements that, considered separately, would be
subject to different place-of-supply rules because the
new Art. 44 does not indicate how bundled services must
be treated and how “separate services” must be distinguished
from “ancillary services”. 8
Example
A service provider established in Member State 1 supplies a bundled
service to a taxable person in Member State 2, which consists
of the repair and maintenance of an immovable property
located in Member State 3, and management and consultancy
services. The price for the bundle consists of a single fee.
If the repair and maintenance services are considered to be the
principal services, the entire supply is deemed to be supplied in
Member State 3, i.e. where the immovable property is located.
On the other hand, if the management and consulting services
are considered to be the principal services, the entire supply is
deemed to be supplied in Member State 2, i.e. where the recipient
of the service has established its business.
Under ECJ case law, there is a single supply, particularly,
where one or more elements are to be regarded as constituting
the principal supply, whilst one or more elements
are to be regarded as ancillary supplies which share the
tax treatment of the principal supply. 9 In the case of a
complex service, the different elements are so closely
linked to each other that they can not be split up in order
to ensure rational taxation. 10
In line with the ECJ’s case law, a supply of services should
be considered to be the principal supply if it is clear that
all components of the service are either so closely linked
that, from an economic perspective, they form a single,
indivisible supply, whose split-up would be artificial, or
one component is predominant and other components
are ancillary thereto. Criteria that can be used for identifying
the principal supply are, inter alia, the wording of
the underlying agreement and the pricing.
The new Art. 4 broadens the scope of the concept of
taxable person in the framework of the place-of-supply
rules; however, the use of the phrase “taxable person acting
as such” in the new Art. 44 gives rise to the question of
whether the general B2B place-of-supply rule only
applies where the customer uses the service for the purposes
of his economic activities, and not for his non-economic
activities, if any. 11 If the words “acting as such”
must be interpreted as meaning that the general B2B
place-of-supply rule only applies where the customer
uses the service for the purposes of his economic activities,
that provision would put a disproportionate burden
on the service provider. This is contrary to the aim of
Directive 2008/8 of contributing to the realization of the
internal market by taking away the hindrances for businesses
making cross-border supplies 12 . In particular,
even though common sense should be followed, there
would be a number of cases where the purpose for which
services are purchased could prima facie be either for a
taxable or a non-taxable purpose, putting the supplier
into the difficult position of having to decide whether or
not to take the risk of applying the reverse charge.
7. ECJ judgments of 2 September 199 in Jürgen Dudda v. Finanzamt Bergisch
Gladbach, Case C- 27/94, [199 ] ECR I-4 9 ; and of 12 May 200 in
RAL (Channel Islands) Ltd, RAL Ltd, RAL Services Ltd, RAL Machines Ltd v.
Commissioners of Customs and Excise, Case C-4 2/0 , [200 ] ECR I- 947.
8. ECJ judgments of 2 January 2001 in Commission of the European Communities
v. French Republic, Case C-429/97, [2001] ECR I- 7;
of 2 May 199 in Faaborg-Gelting Linien A/S v. Finanzamt Flensburg, Case
C-2 1/94, [199 ] ECR I-2 9 ; of 2 February 1999 in Card Protection Plan
Ltd. v. Commissioners of Customs and Excise, Case C- 49/9 , [1999] ECR
I-97 ; and of 27 October 200 in Levob Verzekeringen BV, OV Bank NV v.
Staatssecretaris van Financiën, Case C-41/04, [200 ] ECR I-94 .
9. See ECJ judgments in Faaborg-Gelting Linien, Card Protection Plan and
Levob, see note 8.
10. See Commission v. France (note 8).
11. In its judgment of November 2008 in Kollektivavtalsstiftelsen TRR
Trygghetsrådet v. Skatteverket, Case C-291/07, which has not yet officially been
published, the ECJ declared that Art. 9(2)(e) of the former Sixth Directive and
Art. (1)(c) of Directive 200 /112 must be interpreted as meaning that,
where the customer for consultancy services supplied by a taxable person
established in another Member State carries out both an economic activity
and an activity which falls outside the scope of those Directives, that customer
is to be regarded as a taxable person, even where the supply is used solely for
the purposes of the latter activity. The ECJ’s decision in that case was, however,
based on the fact that the phrase “acting as such” was not included in the placeof-supply
rules. By contrast, that phrase is included in the new Art. 44 which
raises the issue of how to interpret it.
12. Recitals (1) and (2) of the preamble to Directive 2008/8.
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Literal interpretation of the new Art. 44 is also contrary
to the principle that services supplied to taxable persons
should be subject to VAT in the Member States of consumption.
1 For those reasons, the phrase “acting as such”
in the new Art. 44 should be ignored or interpreted so
that, as long as the customer uses his VAT identification
number, he is deemed to act in his capacity as a taxable
person. In that respect, the supplier should not be held
responsible for the application of VAT.
Example
A company, established and registered for VAT purposes in
Member State 1, carries out both taxable (manufacturing of
goods) and non-taxable (passive holding of shares) activities. It
purchases consultancy services from a consultant established in
Member State 2 for the purposes of its non-economic activity.
If, contrary to the wording of the new Art. 44, it is immaterial
whether the customer will use the consultancy services for its
economic or non-economic activities, the services are deemed
to be supplied in Member State 1. If the new general B2B placeof-supply
rule only applies where the customer“acts as a taxable
person”, the consultancy services are deemed to be supplied in
Member State 2.
In the first case, the customer will account for VAT under the
reverse charge mechanism but deduct VAT according to the proportion
of his turnover subject to VAT. In the second case the
recipient will be obliged to recover input VAT through the
amended 8th VAT Directive. Clearly, each approach leads to a different
result.
The new Art. 44 provides that services rendered to a taxable
person’s “fixed establishment” are deemed to be supplied
at the place where the fixed establishment is
located. For the issues surrounding the concept of fixed
establishment, see .2.
In this respect, special attention should be given to the
person mentioned on the order form, the person to
whom the invoice is sent and the person who will actually
pay for the service. In principle, the “bill-to” entity
should be considered the recipient of the service. However,
it often occurs in practice that invoices are sent to a
commercial group’s central “billing point”, which, subsequently,
recharges the costs to various entities of the
commercial group; this may make it difficult for the
service provider to determine who actually benefits from
the service. Such an attribution would impose a high
administrative burden on service providers, which
would not be in line with the aim of Directive 2008/8. 14
Example
A management company, established and registered for VAT
purposes in Member State 1, sends an invoice to the head office
of a commercial group established in Member State 2 for management
services. The head office recharges these costs to its
fixed establishment, which is established in Member State 1.
If the head office is considered to be the recipient of the services,
the management services are deemed to be supplied in Member
State 2. On the other hand, if the fixed establishment is considered
to be the actual recipient of the services, the management
services are deemed to be supplied in Member State 1.
In Syndicat des Producteurs Independents, 1 the ECJ has
ruled that the charging on of a supply consists of two dis-
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tinct supplies of services and that the only relevant criterion
is the nature of the service provided. On the basis of
that decision, it could be argued that, for practical reasons,
the actual recipient of a service is the person who
fulfils two of the following three criteria: he ordered the
service, receives the related invoice and pays the service
provider. In addition, where that recipient has multiple
fixed establishments in the European Union, the service
provider should not be required to determine whether
the services are effectively recharged to those establishments.
4.2. Services connected with immovable property
Under the new Art. 47, services connected with immovable
property, including:
– the services of experts and estate agents;
– the provision of accommodation in the hotel sector
or in sectors with a similar function, such as holiday
camps or sites developed for use as camping sites;
– the granting of rights to use immovable property;
and
– services for the preparation and coordination of
construction work, such as the services of architects
and of firms providing on-site supervision
are deemed to be supplied at the place where the immovable
property is located. That rule is basically the same as
that laid down by the current Art. 4 .
In order to apply this article correctly, the term “services
connected with immovable property” should clearly be
distinguished from services which fall within the scope
of the general B2B place-of-supply rule laid down by the
new Art. 44.
Example
A consultancy firm, established and registered for VAT purposes
in Member State 1, provides tax and legal advice to a landlord,
established and registered for VAT purposes in Member State 2,
in respect of the letting of a building located in Member State 3.
If these services are considered to be connected with the
immovable property, the consultancy services are deemed to be
supplied in Member State 3, i.e. where the immovable property
is located. If they are not considered to be connected with the
immovable property, the consultancy services are deemed to be
supplied in Member State 2, i.e. where the recipient of the services
is established.
Questions of whether services are connected with
immovable property can also arise in respect of, inter
alia, construction of a scale model of a building to be
constructed, an unsuccessful attempt of a taxable person
to find a suitable building or building site for another
taxable person, removal and disposal of waste produced
at an immovable property, design of a standard concept
for retail outlets which never reach the stage of construction,
security and surveillance services, etc.
1 . Recital (4) of the preamble to Directive 2008/8.
14. Id.
1 . ECJ judgment of 1 March 2001 in Syndicat des Producteurs Indépendants
(SPI) v. Ministère de l’économie, des finances et de l’industrie (France), Case
C-108/00, [2001] ECR I-2 1.
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It could be argued that, for practical reasons and in
accordance with ECJ case law on the interpretation of
exceptions in the VAT Directives, the phrase “services
connected with immovable property” should be interpreted
in a very narrow manner, i.e. limited to those services
which are physically linked to an immovable property.
This interpretation results in a broader application
of the general B2B place-of-supply rule laid down by the
new Art. 44.
4.3. Services relating to events
The current Art. 2(a) provides that cultural, artistic,
sporting, scientific, educational, entertainment or similar
activities, including the activities of the organizers of
such activities and, where appropriate, ancillary services
are deemed to be supplied at the place where the services
are physically carried out.
4.3.1. Events taking place in 2010
The new Art. that applies from 1 January until 1
December 2010 is basically identical to the current Art.
2(a), albeit that the new provision specifically indicates
that it also covers fairs and exhibitions.
In order to apply this article correctly, the term “educational
services” should be distinguished more clearly
from, for example,“advertising services” which should be
covered by the general B2B place-of-supply rule laid
down by the new Art. 44.
Example
A taxable person, established and registered for VAT purposes in
Member State 2, receives information from various businesses
located in Member State 1, in order to have better knowledge of
the qualities of their products for the purpose of promoting
them to the public. The taxable person’s promotional activities
take place in Member State 3 and consist of the sale of goods at
reduced prices, free distribution of goods, organization of cocktail
parties or banquets for potential customers, which are all
aimed at conveying a message intended to inform the public of
the existence and qualities of the products which are the subject-matter
of that activity, with a view to increasing the sales of
those products.
If they are considered to be educational activities, the services
supplied by the businesses in Member State 1 are deemed to be
supplied in Member State 3, i.e. where the services are physically
carried out.
If they are not considered to be educational activities but advertising
or marketing activities, the services are deemed to be supplied
in Member State 2, i.e. where the recipient of the services is
established.
Although it no longer exists as such in the context of B2B
services, the concept of advertising and promotional
services should be applied uniformly in all Member
States. When activities are aimed at promoting the sale of
goods or services, the promotional elements of the
activity should be given precedence over possible educational
elements. It is settled ECJ case law that advertising
services must clearly have a promotional aspect. 1 By
contrast, educational services are aimed at acquiring
knowledge.
The scope of the concept of “organizers” within the
meaning of the new Art. should also be clarified. It
should be made clear whether the organizer is the person,
who:
– sends invitations to the event to potential participants
or visitors;
– pays the costs of the event and charges an entrance
fee to the participants or visitors;
– subcontracts activities to other service providers,
etc.
As regards the services of organizers, the new Art.
provides that the place of supply is deemed to be where
“those activities” are carried out, which gives rise to the
question of whether “those activities” also cover services
of the organizer or are limited to the educational, artistic,
sporting, etc. activities.
Example
A business established and VAT registered in Member State 2,
commissions a service provider located in Member State 1 for
the purposes of organizing a conference in Member State 3. The
organizer sends invitations for the event to the attendees and
does all preparatory work in Member State 1.
If the preparatory activities are considered to be supplied at the
place where the organizer physically carries out his organizational
activities, the services are deemed to be supplied in Member
State 1. If, on the other hand, they are considered to be supplied
at the place where the conference is held, the services are
deemed to be supplied in Member State 3.
The concept of “services of organizers” should be clarified
in order to ensure that, at least until the rule changes
again with effect from 1 January 2011, the place of supply
is clear. In this respect, the most obvious position is to
determine the place of taxation at the place where the
educational, artistic, sporting, etc. activities are carried
out. That interpretation prevents different rules from
applying to the event that is being organized, and to
organizational services.
4.3.2. Admission to events from 2011
From 1 January 2011, the new Art. provides that the
place of supply of services in respect of admission to cultural,
artistic, sporting, scientific, educational, entertainment
or similar events, such as fairs and exhibitions, and
of ancillary services related to the admission, supplied to
a taxable person, is the place where those events actually
take place.
It should be noted that, at the turn of the year 2010, the
words “where the activities are physically carried out”
change into “where those events actually take place”,
which gives rise to the question of to what extent the latter
events differ from the former activities.
From 1 January 2011, admission to certain events is
deemed to be provided at the place where the events take
place, which means that all other services relating to
1 . See ECJ judgment of 17 November 199 in Commission of the European
Communities v. French Republic, Case C- 8/92, [199 ] ECR I- 881.
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the events, such as organization, or pure educational
services become subject to the general B2B place-ofsupply
rule laid down by the new Art. 44. It will therefore
be necessary to distinguish admission to an event from
all other services which qualify as educational, cultural,
artistic, etc. activities.
Admission is generally defined as the right to enter or
access something, which suggests that the place-related
services are limited to physical attendance of events and
must be related to the point of entry.
It is understood that the intention of the new Art. is to
provide certainty as to the VAT regime applicable to providing
admission to events. It would be impractical to
make that service dependent on the VAT status of every
participant or visitor.
However, it needs to be clarified whether supplies made
prior to the point of entry to the event are to be regarded
as “admission”, and whether, for the purposes of the concept
of “admission”, it is required that the participants or
visitors physically attend an event and, if that is not the
case, how the place where the event takes place is to be
determined. It is also not entirely clear how closely a supply
must be connected to the actual admission to an
event in order to be regarded as a “service in respect of
admission”, rather than simply “a service relating to” the
event itself.
Finally, some guidance would be required to enable businesses
to correctly determine the VAT treatment of supplies
relating to events, and to ensure that, as it is an
exception to the general rule, the expression “admission”
is interpreted by the Member States in a harmonized
manner and is restricted to physical attendance.
Example
In 2011, a taxable person orders and pays for cinema tickets,
which give him the right to watch a movie.
If the sale of the tickets is considered to be “in respect of admission”
to the cinema, the service is deemed to be supplied at the
place where the cinema is located. If the sale of the tickets is considered
to be related to the organization of the event, the service
is deemed to be supplied at the place where the recipient of
the services is established.
Example
Company A, established and VAT registered in Member State 1,
organizes training events (including events of a general commercial
nature) for company B established and VAT registered in
Member State 2. The event takes place in Member State 3. Prior
to the event, company A organizes an online registration procedure
enabling participants to register and download reading
materials.
If the nature of company A’s services is considered to be services
related to admission to an event, the services are deemed to be
supplied in Member State 3, i.e. where the event takes place. If
company A’s services are considered to be related to the organization
of the educational event, the services are deemed to be
supplied at the place where company B is established.
It could be argued that the term “admission” must be
interpreted restrictively to the effect that it only encompasses
situations where the customer has to pay an
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entrance fee for participating in an event that is predominantly
of an entertainment nature. In this respect, the
existence of an entry point open to the public (regardless
of the means of payment adopted (on-line or cash))
could be the relevant factor. The term “admission” should
not include those types of services of a predominantly
educational or promotional nature, even if they are provided
against payment of a fee, because those services
should fall under the definition of educational activities
or marketing services that are subject to the general B2B
place-of-supply rule, for example, company trainings,
events of a general commercial character and events
organized by a company for its employees.
4.4. Hiring of means of transport
From 1 January 2010, the new Art. provides that the
place of short-term hiring of a means of transport is the
place where the means of transport is actually put at the
disposal of the customer. In that context, “short-term”
means the continuous possession or use of the means of
transport throughout a period of not more than 0 days
or, in the case of vessels, 90 days.
Firstly, due to the fact that Member States currently
define “means of transport” differently, a uniform definition
of that concept would be required in order to avoid
double and non-taxation.
Secondly, clarification of the concept “short-term” would
be required in order to avoid VAT planning schemes or
an unintended change of the place of supply. For example,
taxable persons may initially rent a motor vehicle for
less than 0 days and, subsequently, extend the rental
period. Although the motor vehicle has been in the customer’s
continuous possession or use for more than 0
days, the new Art. does not apply, at least not to the
initial contract. In practice, the reverse situation may
arise: taxable persons may enter into a rental agreement
for more than 0 days in order to ensure that the place of
supply shifts to the Member State where they are established
and, subsequently, terminate the agreement within
the 0-day period, when they no longer need the vehicle.
Thirdly, as regards the question of whether or not ancillary
supplies, such as insurance, roadside assistance, fuel,
etc., must or may be included in the hiring of the means
of transport, the issues are the same as those discussed
in 4.1.
Finally, a common interpretation of the phrase “put at
the disposal” would be required in order to avoid double
taxation, non-taxation and other difficulties in the practical
application of the rule. For example, is a vehicle put
at the disposal of the customer at the place where the car
keys and registration licence are handed over to him or at
the place where the customer physically takes place
behind the wheel?
The divergent interpretation of the concept of leasing of
means of transport in the Member States is commonly
based on national accounting and other legislation (civil
or commercial law) of the respective Member States,
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which differ substantially. For example, depending on
the Member State:
– finance lease may be treated as a supply of goods or
services (see 2.);
– sale-and-lease-back transactions may be treated as
two separate transactions that are each subject to
VAT, or as a single service consisting of the exempt
granting of credit;
– bundled contracts may be considered to constitute a
single supply or several separate supplies (see 4.1.);
and
– the finance element of a hire purchase contract may
be considered a separate consideration for the
exempt granting of credit or form part of the consideration
for the taxable supply of the goods.
It is clear that, in order to prevent tax avoidance schemes,
the VAT treatment of the concepts listed above should be
harmonized.
Shifting the place of long-term B2B hiring of means of
transport from the place where the lessor is established
under the current Art. 4 to the place where the lessee is
established under the general B2B place-of-supply rule
laid down by the new Art. 44 has a positive effect, as it
will prevent distortion of competition and cross-border
VAT avoidance schemes and refunds of VAT.
However, it does not resolve the problem that the nonresident
lessor who, at the end of the lease period, supplies
the leased goods to a business customer in the
Member State where he initially put the goods at the disposal
of the lessee, must register for VAT purposes there.
Furthermore, finance companies, whose activities essentially
consist of financing the purchase of means of
transport are still required to report cross-border movements
of means of transport in the framework of finance
lease contracts through their recapitulative statements. It
could be argued that both obligations should be abolished,
at least in respect of lease periods shorter than 24
months.
It is not entirely clear how the phrase “… is actually put at
the disposal of the customer” must be interpreted, which
may lead to double or non-taxation. From the perspective
of legal certainty, the service provider must be able
to determine in practice where the goods are actually put
at the disposal of the customer.
Furthermore, since the new Arts. and 9a (see 4. .)
use different criteria (“put at disposal of ” and “effective
use and enjoyment”), the question may arise of whether
this different terminology could lead to conflicting
interpretations.
4.5. Prevention of double taxation, non-taxation or
distortion of competition
The new Art. 9a provides that, in order to prevent
double taxation, non-taxation or distortion of competition,
Member States may, with regard to services the
place of supply of which is governed by the new Arts. 44,
4 , and 9:
(a) consider the place of supply of any or all of those
services, if situated within their territory, as being
situated outside the Community if the effective use
and enjoyment of the services takes place outside the
Community;
(b) consider the place of supply of any or all of those
services, if situated outside the Community, as being
situated within their territory if the effective use and
enjoyment of the services takes place within their
territory.
The new Art. 9a gives Member States the option to
apply the effective-use-and-enjoyment criterion to
almost all B2B services, i.e. those falling under the new
Arts. 44 and , which will lead to practical problems if
not all Member States apply that criterion in the same
way.
Example
A company, established and VAT registered in Member State 1,
designs and builds a stand to be used by a business customer
established outside the European Union at an international fair
taking place in Member State 2. The company exhibits at the fair
for the purpose of promoting a new product.
Based on the new Art. 44, the place of supply is outside the European
Union. However, if Member State 2 applies the effectiveuse-and-enjoyment
criterion to the design and construction of
the stand, and interprets that criterion as meaning that the service
is effectively used and enjoyed at the place where the customer
physically uses the goods resulting from the services, the
services are deemed to be supplied in Member State 2. If, on the
other hand, Member State 2 interprets the effective-use-andenjoyment
criterion as meaning that the services are effectively
used and enjoyed at the place where consumption takes place
of the goods for the purposes of which the services were ultimately
intended, the services are deemed to be supplied outside
the European Union, because the exhibitor’s products are
(predominantly) consumed there.
In order to facilitate businesses in not losing orientation
in this complex field, it would be advisable that a complete
overview of the extent to which the individual
Member States apply the effective-use-and-enjoyment
criterion and the manner in which they interpret that
criterion, is made available by the EU Commission at the
beginning of 2010.
In practice, Member States may interpret the effectiveuse-and-enjoyment
criterion as meaning that the services
are effectively used and enjoyed at the place where:
– the services are used and enjoyed by the ultimate
recipient of the services (“look-through approach”);
– the recipient of the services generates turnover by
means of the services;
– the services are physically rendered.
Member States may also apply a percentage, reflecting
physical use of the services or their turnover-generating
effect within and outside the European Union.
In this respect, specific attention should be given to services
that can easily be used and enjoyed in a number of
different Member States, for example, international
transport and advertising services.
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Example
A transport company, established and VAT registered in Member
State 1, transports goods for a business customer established
outside the European Union. The transport begins in Member
State 1 and ends in Member State 2.
Based on the new Art. 44, the transport service is deemed to be
supplied outside the European Union. However, if the intra-
Community transport of the goods passes through several other
Member States and if all those Member States apply the effective-use-and-enjoyment
criterion in the sense that transport
service are effectively used and enjoyed at the place where
transport of the goods physically takes place, 17 part of the transport
service is deemed to be supplied in all the Member States
concerned. However, if Member State 1 (Member State of departure)
applies the effective-use-and-enjoyment criterion and
interprets it as meaning that transport services are effectively
used and enjoyed at the place where the transport begins, the
entire service is subject to VAT in Member State 1. If Member
State 2 (Member State of arrival) applies the effective-use-andenjoyment
criterion and interprets it as meaning that transport
services are effectively used and enjoyed at the place where the
transport ends, the entire service is subject to VAT in Member
State 2.
In order to avoid double taxation and additional compliance
costs for businesses, the effective-use-andenjoyment
criterion should be defined clearly and
unambiguously at EU level. In that respect, the following
interpretations would not lead to satisfactory results and
should therefore be avoided:
– the place where the ultimate recipient of the service
effectively uses and enjoys the service should not be
decisive, because the service provider may not even
be aware of the identity of the ultimate recipient(s);
– the place where the recipient of the service generates
turnover from the use of the service should not be
decisive, because, in respect of customers established
outside the European Union, it would automatically
shift the place of supply of the services to the place
outside the European Union where the recipient of
the services is established;
– percentage use of the services by the customer or
percentage turnover derived by the customer from
the use of the services within and outside the European
Union would not be workable in practice,
because the interpretation is based on information
that is normally not available to the service provider;
– actual physical use of the service by the recipient
would give rise to high compliance costs for both the
service provider and the customer, in particular if
actual use of the services cannot be established. In
this respect, it should be noted that some services are
not physically used.
The place of effective use and enjoyment of a service
should be determined in such a way as to eliminate risks
of double taxation and divergent interpretation between
Member States. In this respect, common binding rules
would seem to be key in order to achieve the simplification
the new rules are aimed to achieve.
Furthermore, it should be emphasized that the principle
of proportionality will play an important role in preventing
that Member States in which only a minor part of a
transaction is effectively used or enjoyed, are able to
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claim that the entire supply was made within their territory.
18
5. Administrative Obligations
The most important arrangements accompanying the
new place-of-supply rules are the application of the
reverse charge mechanism, including the scenario in
which the service provider has a fixed establishment in
his customer’s Member State, and the obligation for service
providers to include cross-border B2B services in
their periodic recapitulative statements.
5.1. Reverse charge mechanism
Under the new Art. 19 , Member States must apply the
reverse charge mechanism to the services falling under
the new Art. 44 rendered by non-resident service
providers, which means that that mechanism is not compulsory
in respect of services that are excluded from the
general B2B place-of-supply rule even if the place of
supply is where the customer is located, for example,
services connected with immovable property. However,
Member States are entitled to apply the reverse charge
mechanism on a voluntary basis to the latter services.
For practical reasons, it would have been better if the
scope of the new Art. 19 had been extended to all categories
of services supplied by non-resident service
providers to taxable persons located where the supply
takes place, including supplies of goods with assembly
and installation. Alternatively, the place of supply of
services connected with immovable property should
have shifted from the place where the property is located
to the place where the recipient is established or registered
(a mechanism comparable to the “safety net” provision
currently applicable to intra-Community acquisitions
of goods under Art. 41). Finally, a simplification
measure could have been introduced in order to avoid
registration of taxable persons involved in rendering
services connected with an immovable property located
in a Member State where they are not established. 19 Such
a simplification could be applicable in respect of all services
that are deemed to be supplied at a place different
from that where the customer is established.
The services referred to in the new Art. 44 are generally
deemed to be supplied at the place where the customer is
established. However, as a consequence of the application
of the effective-use-and-enjoyment criterion laid
down by the new Art. 9a, those services may also be
deemed to be supplied at a place where the customer is
not established. Since the new Art. 19 provides that the
reverse charge mechanism applies to services, if the service
provider is not established at the place where the
service is deemed to be supplied, literal interpretation of
17. As, for example, in the new Arts. 48 and 49.
18. ECJ judgment of 18 December 1997 in Garage Molenheide BVBA and
others v. Belgian State, Cases C-28 /94, C- 40/9 , C-401/9 and C-47/9 ,
[1997] ECR I-7281.
19. For example, an approach similar to that which may apply to supplies of
non-imported goods, see Art. 1 7.
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that provision has the effect that, where neither the service
provider nor the customer is established in the Member
State where the supply is made, the customer must
register there in order to account for VAT on the value of
the received services, even if the customer is established
outside the European Union.
Example
A transport company established in the United States transports
goods from one Member State to another on behalf of another
company established in the United States. The Member States
involved in the transport service apply the effective-use-andenjoyment
criterion to the effect that the service is effectively
used and enjoyed at the place where the transport actually takes
place.
Under the general system of VAT (Art. 193), the US transport
company would be liable for VAT and thus would have to register
for VAT purposes in the Member State(s) where the transport
actually takes place. However, under the new Art. 196, the US
customer could also be held liable and therefore obliged to register
for VAT purposes in those Member State(s) and account for
VAT under the reverse charge mechanism on the value of the
received transport service.
In view of the seventh recital of the preamble to Directive
2008/8, the new Art. 19 should only apply if the
recipient of the services is established in the Member
State where the services are deemed to be supplied. That
recital states that the reverse charge mechanism is obligatory
“where a taxable person receives services from a
person not established in the same Member State”. The
words “in the same Member State” clearly refer to the
Member State where the recipient of the service is established.
Under teleological interpretation, the new Art.
19 should not apply to services that are deemed to be
supplied in a Member State where the customer is not
established. The reverse charge mechanism is a simplification
measure aimed at preventing the situation that the
service provider must register in the Member State of the
supply. It would be contrary to the nature of the simplification
measure if, instead of the non-resident service
provider, the non-resident customer would be required
to register in another Member State.
5.2. Fixed establishments
The new Art. 192a provides that, for the purposes of the
liability to remit the tax to the authorities, a taxable person
who has a fixed establishment within the territory of
the Member State where the tax is due is to be regarded
as not being established there, if:
(a) he makes a taxable supply of goods or services
within the territory of that Member State; and
(b) his establishment within the territory of that Member
State does not intervene in the supply.
This legal provision contains two elements that are not
entirely clear, i.e. “fixed establishment” and “intervention
in the supply”. Although the ECJ has interpreted the concept
of fixed establishment on several occasions, 20 its
judgments leave the Member States too much room for
their own interpretation of that concept in practice. 21 On
the basis of the ECJ’s case law, a taxable person’s ware-
house or representative office in another Member State
should not qualify as a fixed establishment.
Example
A management company established and VAT registered in
Member State 1 supplies management services to a taxable person
established in Member State 2. The management company
has a representative office in Member State 2.
If the representative office does not qualify as a fixed establishment,
the management services will be subject to the reverse
charge mechanism. However, if the representative office constitutes
a fixed establishment, which intervenes in the supply,
there is a good chance that the authorities of Member State 2
will take the view that the management company’s fixed establishment
must issue the invoice relating to the management
services and charge the VAT of Member State 2 to the recipient
of the services.
As regards the question of whether or not the non-resident
service provider’s fixed establishment in the customer’s
Member State intervenes in the supply made by
the non-resident service provider, several different positions
are possible. Member States may take the view that
the fixed establishment “intervenes” if it:
– acts as a subcontractor of the service provider’s nonresident
head office;
– carries out specific pre-sales activities, for example
advertising, or provision of product information to
potential customers;
– acts as the non-resident service provider’s invoicing
agent;
– is merely registered in the Member State where the
service is deemed to be supplied.
The service provider’s fixed establishment in the customer’s
Member State should be considered to intervene
in the supply if the invoice mentions the fixed establishment’s
address and VAT identification number, or the
contract expressly mentions the fixed establishment as a
“contracting party”. This approach has the advantage that
the recipient can easily check whether the conditions for
his or his supplier’s VAT liability are fulfilled.
In addition to the lack of clarity of the concept of fixed
establishment, it is unclear what actions the customers of
non-resident service providers can be expected to
undertake to ensure that the invoices they receive from
those service providers are correct. If the invoices mention
an amount of VAT, must the customer, in order to
avoid possibly being held jointly and severally liable for
payment of that VAT, check whether:
– the service provider rendered the service under the
correct VAT identification number?
20. ECJ judgments of 4 July 198 in Günther Berkholz v. Finanzamt Hamburg-Mitte-Altstadt,
Case 1 8/84, [198 ] ECR 22 1; of 17 July 1997 in ARO
Lease BV v. Inspecteur der Belastingdienst Grote Ondernemingen, Amsterdam,
Case C-190/9 , [1997] ECR I-4 8 ; and of 7 May 1998 in Lease Plan Luxembourg
SA v. Belgian State, Case C- 90/9 , [1998] ECR I-2 .
21. Under ECJ case law, a fixed establishment is an establishment with a
minimum degree of stability derived from the permanent presence of both the
human and technical resources necessary for the provision of the services on
an independent basis.
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– the service provider’s presence in the customer’s
Member State constitutes a “fixed establishment”? or
– all conditions for the service provider’s VAT liability
are fulfilled?
In view of the objective of Directive 2008/8 to simplify
the VAT system and reduce the compliance costs for
businesses, taxable persons should not be expected to
check the validity of the VAT aspects of invoices received
in respect of services supplied to them by non-resident
service providers. Correctness of those VAT aspects
should be the sole responsibility of the service provider.
Where, on the basis of the criteria mentioned above, a
non-resident service provider takes the view that his
fixed establishment intervenes in the supply and, consequently,
charges VAT to his customer, but the tax authorities
take the view that the non-resident service
provider’s presence does not constitute a fixed establishment
or that it has not intervened in the supply, 22 the
customer should nonetheless be allowed to deduct the
VAT that was (erroneously) charged to him because he
has only limited ability to check whether or not the
invoice correctly mentioned VAT.
5.3. Recapitulative statements
The new Arts. 2 2 to 2 4 provide further details of the
recapitulative statement through which service
providers must report the business customers to whom
they have supplied services in the reporting period,
which are subject to the reverse charge mechanism, and
the value of those cross-border services supplied to each
customer.
The new Art. 2 2 provides that every taxable person
identified for VAT purposes must submit a recapitulative
statement of:
(a) the acquirers identified for VAT purposes to whom
he has supplied goods under the conditions specified
in Art. 1 8(1) and (2)(c); 2
(b) the persons identified for VAT purposes to whom he
has supplied goods which were supplied to him by
way of intra-Community acquisitions referred to in
Art. 42; 24
(c) the taxable persons, and the non-taxable legal persons
identified for VAT purposes, to whom he has
supplied services, other than services that are
exempt from VAT, in the Member State where the
transaction is taxable, and for which the recipient is
liable to pay the tax pursuant to Art. 19 .
In general, the requirements for filing recapitulative
statements should apply uniformly in all 27 Member
States. At this stage, less than a year before they must be
complied with, details of those requirements have not
yet been published, which makes it difficult for businesses
to ensure that their administrative systems are
adapted on time. In view of the untimely information, it
would only be fair if, on the basis of the principle of proportionality,
Member States would not impose any
penalties on mistakes made by businesses in filing their
recapitulative statements in a transitional period.
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It appears from the new Art. 2 2 that the cross-border
services must be reported through the same recapitulative
statement that is also used for reporting zero-rated
intra-Community supplies of goods. Art. 2 4(1)(d) in
fact only states that recapitulative statements should
show separate values for supplies of goods and services.
As regards cross-border services, the obligation to file a
recapitulative statement exists where the service
provider is a “taxable person registered for VAT purposes”
and the recipient of the services is also a taxable
person or a non-taxable legal person identified for VAT
purposes. At first sight, the wording of that provision
seems to suggest that non-registered service providers
escape from the reporting obligation. However, that initial
impression is not correct because, under the
amended Art. 214, Member States must take the measures
necessary to ensure that every taxable person who
receives services for which he is liable to pay VAT under
the reverse charge mechanism, and every taxable person
who supplies services for which the customer must
account for VAT under the reverse charge mechanism,
are identified by means of an individual number. The
obligation for Member States to register all taxable persons
receiving cross-border services should have the
effect that, for the purposes of filing recapitulative statements,
service providers may rely on their customers’
VAT identification numbers.
The reporting obligation does not apply to services that
are exempt from VAT in the Member State where the
transaction’s tax liability would normally arise. In view of
the transitional exemptions that are still applicable in the
nine Member States that adopted the Sixth Directive in
1977, that provision requires service providers to know
what special exemptions still apply in the Member State
where their customers are established. Service providers
must also keep track of the extent to which the Member
States where their customers are located enable those
customers to opt for taxation of financial services and
insurance transactions. In practice, when they are in
doubt as regards the VAT regime applicable to services
rendered to customers located in another Member State,
service providers will be inclined to treat the services as
being taxable and include their value in the recapitulative
statement, which may lead to over-declaration of the
services. Under the principle of proportionality, Member
States should not impose penalties in the case of such
overdeclarations.
The new Art. 2 2(c) provides that only services“for which
the recipient is liable to pay the tax pursuant to Art. 19 ”
are to be included in the recapitulative statement, and the
new Art. 19 provides that VAT is payable by any taxable
22. A taxable person’s presence in another Member State, which does not
fulfil the conditions for a fixed establishment as laid down by the ECJ.
2 . The zero rate applicable to intra-Community supplies of goods.
24. Art. 42 of the VAT Directive refers to the intra-Community acquisition
made by the intermediate customer under the simplification measure for
intra-Community triangular transactions. Consequently, the new Art. 2 2(b)
refers to the final customer of the goods supplied under the simplification
measure for intra-Community triangulation.
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person or non-taxable legal person identified for VAT
purposes, to whom the services referred to in the new Art.
44 are supplied, if the supply is made by a non-resident
service provider. Although Art. 44 also covers services
supplied to taxable persons established outside the European
Union, it must nonetheless be assumed that the
reporting obligation is limited to services that are
deemed to be supplied in one of the Member States.
Currently, recapitulative statements have a standard format
throughout the European Union. It has not yet been
confirmed that a standard form will be used after the
recapitulative statement has been extended to include
services. In addition, it has not been confirmed that the
6. Conclusion
This article provides an overview of some practical
VAT aspects of the new place-of-supply rules
applicable to B2B services, which require further
clarification before they come into effect on 1 January
2010. In view of the importance of the place-of-supply
rules for the functioning of the EU VAT system, it is
essential that all elements of the new rules are clear
and will be interpreted uniformly in all Member
States. The most efficient method of ensuring uniform
interpretation is to include all concepts and
arrangements that lack clarity in a new Implementing
Regulation. Divergent interpretation of the
amendments made to the VAT Directive under
Directive 2008/8 may not only lead to the risk of
VAT return forms will not have a separate box for
reporting cross-border services that must be included in
the recapitulative statement. Such an additional box
would enable the tax authorities to quickly compare the
information included in the recapitulative statement
with that included in the VAT return, just like they can
compare the value of the intra-Community supplies of
goods between the suppliers’ recapitulative statements
and VAT returns. The proposed amendments to that
effect 2 of Art. 2 1 were not included in the resulting
Directive that the Council adopted on 1 December
2008 2 but cannot be excluded as a result of the multiple
implementations of new rules by the Member States.
double or non-taxation of cross-border services and
VAT avoidance schemes, but will also give rise to
unnecessary compliance costs for businesses and may
even lead to the imposition of penalties on businesses
for non-compliance with the rules, as interpreted by
the individual Member States. Finally, the lack of
harmonization of the place-of-supply rules will also
lead to higher administration costs for the tax
authorities of the EU Member States. It is clear that
Directive 2008/8 was adopted with the aim of
avoiding all those negative consequences, which will
nonetheless result from less than perfect
harmonization.
2 . Proposal of 17 March 2008 for a Council Directive amending Directive
200 /112/EC on the common system of value added tax to combat tax evasion
connected with intra-Community transactions, COM(2008) 147 final.
2 . Council Directive 2008/117/EC of 1 December 2008 amending Directive
200 /112/EC on the common system of value added tax to combat tax
evasion connected with intra-Community transactions, OJ L 14 of 20 January
2009.
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