2015 EU VAT changes to electronic B2C services

On 1 January 2015, the supply of EU cross-border digital services to consumers changed.  There are now two important parts to the new regime:

  • Change in place-of-supply VAT rates: EU-based providers of electronic, broadcast and telecoms services will have to charge the VAT rate of where their customer are based.
  • Mini One-Stop-Shop VAT returns portal: So that the above place-of-supply change does not require all providers to VAT register in each EU country, new reporting portals, Mini One-Stop-Shop (MOSS) were launched in each of the 27 member states.  Providers can now register on their local MOSS portal, and make a single, quarterly VAT declaration to report sales and VAT collected in each EU country.  The tax authorities of each country will then distribute the VAT to the appropriate countries.

US and other non-EU providers of digital services have been charging VAT based on the residency of their customer since 2003.  The only change they faced from the start of 2015 is reporting through MOSS instead of the the old VoES portal.

Which sectors were affected by 2015 VAT changes

The new rules apply to telecoms, broadcast and electronic services supplied within the EU to consumers.

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)
  • Broadcast television and radio

You can read a more detailed definition of electronic services for 2015 VAT MOSS here.

How the Place of Supply rules changed

Previously, the place of supply (taxation) of electronic, broadcast and telecoms services to consumers by EU-based businesses was the location of the provider.  The provider should therefore have charged consumers the VAT rate of the country the provider was resident in irrespective of where the consumer was living.

This was out of step with a key tenet of consumption taxes like VAT that the place of supply or taxation should be where the consumer is based / where the consumption takes place.  This general rule was introduced for B2B services under the 2010 VAT Package.  These new reforms brought electronic B2C services into line with B2B.

The change mean that online digital services retailers now have to track where their buyers are, and then charge the appropriate VAT rate of the country of the consumer.  This VAT may be paid to the country through a special VAT return filed through MOSS.