2015 EU VAT changes to electronic B2C services
On the 1 January 2015 the EU implemented major changes to the VAT rules on the sale of digital services to EU consumers by EU businesses. The changes included a shift in the place of supply rules from the country of the supplier to the country of the consumer – which may mean using different countries’ VAT rates and rules. There was also be a new, simplified procedure (‘MOSS’) for reporting VAT through a single web portal for all countries they are selling into.
These changes reflect the existing regime for digital B2C consumer sales by non-EU businesses, and the treatment of B2B services by all companies, which changed in 2010. The rules for B2B digital services supplied to EU consumers by non-EU sellers have already been changed, and you can read more here about the so-called non-Union Scheme.
The European Union includes the following services within this definition:
- Download and online games
- e-Books (e.g. Amazon Kindle)
- Download and streaming music and videos
- Cloud computing, including software provided as a service (‘SaaS’)
- Mobile phone services
- Internet telephony (e.g. Skype)
- Streaming television (e.g. Netflix)
The business should therefore charge consumers the VAT rate of the country the business is resident in irrespective of where the consumer is based.
This was out of step with the key tenant of consumption taxes like VAT that the place of supply or taxation should be where the consumer is based. This general rule was introduced for B2B services under the 2010 VAT Package. These new reforms bring electronic B2C services into line with B2B.
The change means that online digital services retailers will have to track where their buyers are, and then charge the appropriate VAT rate of the country of the consumer. This VAT has to be paid to the country through the VAT return (see below).
Mini One Stop Shop (MOSS) VAT compliance
To help simplify the VAT compliance requirements, and to alleviate the need under these VAT changes for businesses to VAT register wherever their customers are, a single VAT reporting internet portal has being introduced. Called the ‘Mini One-Stop-Shop’ (MOSS), it will enable quarterly filings by services providers covering all countries.
EU companies can register with the portal in the EU country they are resident it. If the application is successful, they will be granted access to the online portal on the first day of the quarter following the granting of the portal registration. VAT Groups may apply for registration under a single VAT number, too.
They will submit a single quarterly online return, under their domestic VAT number, declaring the sales to consumers across the EU, and make a single payment of VAT covering all the countries through the portal. Returns are due by the 20th of the month following the quarter end. It is then the responsibility of the receiving tax authority to divide up the VAT received and transfer it to the relevant member states of the consumers.
This system already operates for non-EU companies who can register in any convenient country, and file for all of Europe through that return. It is known as the non-Union Scheme.
Do you know where your consumer is?
The EU has provided some guidance on how companies should identify the country of residence of their customers, and so allocate the correct VAT rate. Typically, businesses can use either the IP address and location of the consumer’s computer, or the address of their credit card.
- Distance selling EU VAT thresholds
- 2015 EU VAT changes to electronic B2C services
- Fulfilment by Amazon - EU VAT
- Internet and ecommerce VAT
- Non-EU companies VAT on electronic services, books, video, App's and software