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27 November 2014
Tracking the supply of services in the age of apps, smartphones and satellites presents problems for the VAT man. Are you ready for the new regime designed to monitor compliance in the wild world of digital communications?
VAT consultants can be a well travelled bunch - location is a vital aspect of understanding your VAT position and responsibilities. Where you supply your goods and services from and to is as important as the nature of the supplies themselves. This is fairly straightforward when dealing with tangible goods and human delivered services. But what about downloading an app? Who is receiving what, where and when?
In response to these questions, the place of supply rules will be changing on 1 January 2015 in the European Union for some services. The services affected are telecommunications, broadcasting or electronically supplied services provided by businesses to non taxable or private customers in EU Member States, the ‘B2C’ (Business to Consumer) market. Services provided Business to Business (’B2B’) are not affected. Currently, these B2C services are taxed where the business supplier is established. The new rules will mean that businesses will need to charge and account for VAT in the EU country where the customer belongs.
What does this mean in practice? From a business perspective, VAT compliance will obviously change and, depending on your customer base, could get complicated.
In an attempt to ease the pain a “Mini One Stop Shop” (MOSS) will be introduced, giving both EU and non-EU businesses the option of VAT registering in just one Member State, through which they will account for VAT on supplies to their customers in other EU Member States. This will be similar to the current arrangements available to non-EU businesses which provide electronically supplied services to EU customers on a B2C basis.
Given the alternative is for businesses to register and account for VAT (at the appropriate rate of tax) in every Member State in which they have private customers, the MOSS looks likely to be very busy indeed. Add to the mix the fact that MOSS audits can stretch back 10 years and you are looking at increased complexity in processing, reporting and maintaining VAT records. There is no minimum threshold so even micro businesses will be affected.
From a consumer viewpoint prices will probably go up. The zero rated benefits of supplying from say Jersey will evaporate. The cost of VAT will have to be absorbed and it is highly unlikely that businesses will take the full cost to their bottom line. Expect at least some passing on to the customer.
It remains to be seen if this attempt to level the playing field of digital trading will succeed. What is for sure however, is that if you are an affected business you have just under a year to deal with these changes (the first MOSS registrations will be accepted from October 2014) . We can discuss this with you and give you our take on what needs to be done and what can stay the same.
Avoid the inevitable rush as 2015 January looms and think about it at your leisure. The perfect poolside project perhaps?!

Julian Millinchamp - Indirect Tax Director
Julian Millinchamp
Indirect Tax Director Contact details