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