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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- © IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 Articles 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. 10
Articles 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. 104 INTERNATIONAL VAT MONITOR MARCH/APRIL 2009 © IBFD
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