We attended the joint tax authority and EU seminar on Monday on the new rules relating to VAT accounting for telecoms, broadcasting and e-services (BT&E). The new rules impact businesses that sell to private individuals and other non-business customer (referred to as B2C). We have already commented on the general rules and HMRC’s guidance in previous blogs – see links (http://tinyurl.com/melzzot & http://tinyurl.com/mzot6fw).
We’ll be commenting further over the next few weeks and below we have set out some of the key issues from Monday’s discussions. One of the over-arching comments from the EU Commission was that there is a will to extend the “one stop shop” method of compliance to other areas, if the mini one-stop shop (MOSS) is successful. This includes the online sale of goods (distance selling), other B2C services and, perhaps more surprisingly, the low value importation of goods from outside of the EU.
MOSS – Key issues
How do I know if the new rules affect my business?
The new rules will apply to any business that is supplying BT&E services to private/non-business customers (for example, downloads, on demand TV/film, internet connections, pay per view TV, etc.). However, the key point to establish is where in the supply chain your business is. The point was strenuously made that the presumption is that each party is acting as principal in the supply chain and therefore it is only the final party (for example a web store/market place) that is making the B2C supply and is affected by MOSS. This is on the understanding the final party typically authorises the charge, delivery of the product and sets the general ts&cs. The point here is that this may be obvious for initial downloads from a third party web store but the question of what then happens with further paid for content within the app needs to be fully understood.
Action: if you are selling a consumer product it is vital you determine whether you are selling directly to the customer and need to use the MOSS or whether a marketplace further down the chain has this role. Clearly both parties need to agree, otherwise there is a risk of something falling through the gap.
What if there is a doubt whether my supply falls into the definition of BT&E?
Again, there is an assumption that if it is unclear, the supply does fall under these new rules. It is therefore important to understand whether your product is a genuine e-service or is merely something delivered using electronic means. This will be particularly important for businesses in sectors such as education as differing VAT treatment/rates will apply depending on which member state the customer is located in.
The key question, certainly for e-services, is the amount of human intervention required. If this is significant then the service may not fall under the rules. HMRC’s rules are not clear on this point and it is something we are clarifying with them.
Action: Understand what is being supplied and whether within the definitions. Summary guidance has been published by the EU on various topics, including what they view as falling within the three sectors (http://tinyurl.com/p9ynewk).
As I register with my local tax authority I assume their rules apply, is this correct?
No. One of the key messages was that MOSS is a simplification measure (there is an alternative to register directly with each tax authority). This unfortunately means that the business needs to comply with the regulations in each member state where it has customers. This will include invoicing to meet local requirements, being subject to local VAT audit rules (although there is an agreement that the first point of contact and VAT audits will be managed through a business’s local tax authority), and being subject to local penalties regulations for any errors on MOSS returns.
In theory this means that there are potentially 28 sets of rules to consider.
Action: As the new rules take effect from 1 January 2015 then it is important for businesses to ensure that their systems and processes will be MOSS ready by 1 January. The view of the tax authorities and the EU Commission was that a light touch will be adopted in the early stages but there is no guarantee that all tax authorities will adhere to this and therefore being compliant from 1 January 2015 is important.
We will be posting another blog on MOSS readiness later this week which will cover the data and process issues.
I’m a business with EU business customers only (no B2C). MOSS doesn’t apply to me does it?
On the face of it the answer to this question should be no. However, what became apparent was that some member states will take the strict view that, if a supplier has not received a VAT number from a business customer, the supply should be treated as a B2C supply and therefore subject to VAT where the customer is located. It is debatable as to whether this is a correct analysis of the legislation but this is the clear stance being taken.
Action: Businesses need to ensure that they are capturing VAT numbers as far as is possible – the indication was that this would apply to EU as well as non-EU businesses. It remains to be seen how a tax authority requiring the VAT number of the supplier will enforce this rule if the supplier has issued a valid B2B invoice. This will especially be the case in relation to non-EU businesses
I’m a non-EU business with no establishment in the EU, but I do have an EU VAT registration as I supply goods from an EU location. Which MOSS scheme should I use if I also supply e-services?
Surprisingly, the answer from the Commission was that neither scheme is appropriate and that suppliers in this situation are technically required to register in each member state that they make supplies in. Whilst this seems completely irrational, and does not seem to fit with the encouragement to get non-businesses to comply, it was advised that this is unfortunately created by a function of wider VAT law and will remain the case.
From a systems perspective I want to have a control that clearly identifies whether a customer is a business or a consumer, can I treat all services as B2C where I don’t receive a VAT number from a customer?
Yes. The regulations enable suppliers to assume that their customers are consumers rather than businesses if no VAT number is provided.
Action: Businesses need to decide whether the VAT number test is a fixed test that if not met means the transaction is treated as B2C. Many businesses already apply this logic in their system.
We hope the above is useful, and as indicated will continue to post more comment over the coming weeks. The key message is that businesses should start to consider their MOSS readiness with less than 6 months to implement the systems process and reporting. Should you wish to discuss how we can assist with the preparation for MOSS please contact Sean McGinness or your usual TVC contact on +44(0)1962735350.