Asesoria & Asesores Fiscales

VAT on services to the EU is changing. If your business sells electronic or digital services to final consumers (B2C transactions) established in other member states of the European Union, then you’ll probably have heard that there are some changes coming into effect in January 2015.

You’ll probably also know that the changes relate to VAT and that the rule determining the place of supply is to change from the current rule, which taxes supplies in your own country, to a new rule, which taxes supplies in the customer’s country.

It’s good that you know this on the horizon. However, this is only the icing on the cake or the tip of the iceberg, depending upon which metaphor you prefer. Many businesses are not yet alert to the host of commercial implications to take account of and plan for – even with the changes more than a year away.

To help finance directors and CFOs of affected businesses consider the impacts in good time, here are our top five questions you need to answer.

1. Are your supplies caught by the rules?

The new rules will apply to supplies of: telecommunications services (telecoms), television and radio broadcasting services; and other electronically supplied services, such as:

the supply of websites and website hostingsupplies of downloaded softwaredownloaded images, text or informationaccess to electronic databasesdownloaded music, films or gamesthe supply of digitised books and electronic publicationsaccess to the internet.

This list is by no means exhaustive but if what you are supplying is similar to those listed supplies, the chances are that you may be caught by the new rules

2. Where is your customer based for VAT purposes – and how will you prove this?

There are various ways of determining where your customer belongs. A drop-down box on your website, registered address, credit card address or, if you’re really up to date, geo-locational software are all ways of obtaining customers’ addresses. The simple questions here are which will you choose and – given the additional complexities laid out here – can your existing accounting and data handling systems cope?

3. What price will you charge?

Businesses involved with sales to other member states will need to take account of both the different VAT rates in each country and also the different currencies. Will you sell at the same price around the EU – and will that be a VAT-inclusive price or a VAT-exclusive price? The choice is likely to have an impact on profitability.

4. To MOSS or not to MOSS – that is the question

Affected businesses have a choice to make. Do you register with the Mini One Stop Shop (MOSS) – see HMRC’s guide (PDF) for more information – whereby VAT can be accounted for in each member state by the submission of a single VAT return in the country of registration? Or do you register separately for VAT in each member state? The use of the MOSS is not compulsory and, in some cases, where the business only operates in a handful of member states, it may be more cost-effective and less onerous to register for VAT in separate member states.

5. Do you have a budget?

The changes outlined above and the decisions taken in relation to any or all of the questions are likely to have a cost implication. Implementing any of the changes will require time, resource and, more than likely, an agreed budget.

If you don’t have an answer to one or all of these questions, we suggest that you start to turn your attention to them sooner rather than later. Don’t get caught short – start planning for these changes now.

Karen Robb
Socia de Fiscal de Grant Thornton