Brussels, 12 February 2008
VAT package: Commission welcomes adoption by the ECOFIN Council of new rules on the place of supply of services and a new procedure for VAT refunds
The European Commission welcomes the adoption by the Council of legislation implementing new rules on the place of supply of services. The legal texts adopted today are a follow-up to the political agreement on the so-called VAT package reached on 4 December 2007 (see PRES/07/281). They will ensure that VAT on services will accrue to the country of consumption, and will establish a new procedure for claiming VAT refunds to ensure quicker processing.
László Kovács, Commissioner responsible for Taxation and Customs said: "I am content that the change in the rules on the place of supply of services will ensure a more even playing field for businesses supplying services throughout the Community. This is particularly true of services which can be supplied at a distance where, as a result of current rules, businesses have been locating in countries with lower VAT rates. As a result, Member States have seen their revenues eroded. I am particularly proud of the new procedure to allow businesses to electronically claim VAT refunds from other Member States in which they are not registered but have paid VAT. This change from a paper-based to an electronic system means that refunds for businesses will be faster and easier.”
Place of supply of services
From 1 January 2010, the new rules on the place of supply of services will mean that business-to-business supplies of services will be taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established.
However, in certain circumstances, the general rules for supplies both to businesses and to consumers will not be applicable and specific rules will apply to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers.
Also from 1 January 2010, the current procedure for reimbursement of VAT incurred by EU businesses in Member States where they are not established will be replaced by a new fully electronic procedure, thereby ensuring a quicker refund to claimants. The current paper-based procedure is slow, cumbersome, and costly. It also lacks in legal certainty. The new procedure will better facilitate businesses and improve the functioning of the internal market. A new feature is that businesses will be paid interest if Member States are late making refunds.
Supplies of telecoms, broadcasting and electronic services to consumers
With regard to telecoms, broadcasting and electronic services, the introduction of the new rules on the place of business to consumer supplies will be delayed until 1 January 2015.
From that date, these services will be taxed in the country where the consumer is established. Suppliers will be permitted to discharge their VAT obligations using a “one stop” scheme which will enable them to fulfil their VAT obligations in their home Member State, including for services provided in other Member States where they are not established. These obligations are registration, declaration and payment.
The VAT revenue from these services will be transferred from the country where the supplier is located to that where the customer is situated. It will be the country of the customer’s VAT rates which will be applicable. In order to ensure a smooth transition, the Member State of establishment will retain a proportion of the VAT collected until 31st December 2018. This proportion will amount to 30% from 1 January 2015 until 31 December 2016, 15% from 1 January 2017 until 31 December 2018 and 0% from 1 January 2019 onwards.
On 4 December 2007, the Council reached political agreement on two draft Directives and a draft Regulation aimed at changing the rules on VAT so as to ensure that VAT on services accrues to the country where consumption occurs, and to prevent distortions of competition between Member States operating different VAT rates.
At the ECOFIN Council today, ministers agreed the legal texts relating to this political agreement on the so-called VAT package.
The "VAT package" contains:
The legislative texts, as adopted by the Council, but not yet published in the Official Journal of the European Union can be seen at: