Member Article

Several legislative instruments on VAT issues were published in the Official Journal of the European Union on 20 February, amending the rules for determining the place where services are supplied for the purposes of VAT: - the general rule will be reversed and services will now be taxed in the place of consumption  as  opposed  to  where  the  supplier  has  its establishment . and addressing the procedure for refunding VAT paid in a Member State other than that of the taxable person, which will be simplified (dematerialised) and the corresponding time limit shortened.  

These amendments will only come into force in 2010. Indeed, given the significance that amending the rule for determining the place where services are supplied will have on the intra- community VAT system, it is only to be expected that the process of adapting business structures and models to the new rules will require a considerable length of time, which the stipulated time limit provides.

i) The place where services are supplied for VAT purposes

Council Directive 2008/8/EC comes about in the wake of recent guidelines set down by the European  commission regarding the modernisation and simplification of the way the common VAT regime operates, providing that as a rule the place of taxation of the services supplied to VAT taxable persons will be the place where the services were actually consumed, to wit, the place where the recipient is established rather than where the supplier is located.  It thus extends the rule of taxation in the place of consumption, which already applies to the transfer of goods and supplies of services between taxable persons, adopting the general rule  for  assessing  tax  which,  in  such  cases,  is  the  self assessment (.reverse charge.) mechanism, which at present applies only to the supplies of certain services. There is an exception for services supplied to persons who are not considered VAT taxable persons, who will continue to be governed by the rule under which the place of the supply of services is that where the activity of the actual supplier is based (taxation in the place of establishment of the supplier) unless  such  services  have  been  supplied  from  a  fixed establishment situated elsewhere.

It also provides the following specific amendments for certain types of services such as the supply of electronic services to non-taxable persons in a Member State by a taxable person based outside the Community or supplying the service via a fixed establishment located outside the Community, in which case the services will be deemed to have been supplied at  the  place  of  domicile  or  permanent  address  of  the acquirer/beneficiary of the services, or such as the supply of telecommunication, radio and television broadcasting services, or electronic services, among others, to non-VAT taxable persons where the actual place of taxation will be the country where those acquiring the services are established, as is the case at present in respect of acquirers of such services when these are VAT taxable persons.

The Directive will come into force gradually and progressively between 1 January 2010 and 1 January 2015, and the Member States will need to adjust their internal legislation in line with the above-mentioned amendments.

ii)  The refund of VAT to taxable persons not established in the refunding Member State

Council Directive 2008/9/EC will amend the regime for refunding VAT to taxable persons who are established in a Member State other than the Member State making the refund in respect of the notification period for the decision to grant the refund and the simplification and dematerialization of the refund procedure. Consequently, applications for refunds by taxable persons that are not established in the refunding Member State (that is, the Member State where the VAT was charged), as from 1 January 2010, will be made via an electronic  gateway  to  be  set  up  by the Member States. The decision to grant or reject the refund application will now be communicated to the taxable person within a four- month period. If approved, the refund must be paid within ten business days of the date of decision, as opposed to the current six months provided for the refund. It also provides that once this period has elapsed, the applicant will be entitled to receive interest on the refundable amount at the rate set by each Member State.

iii)  New types of administrative cooperation and exchange of information

Finally, EC Regulation 1798/2003 of 12 February was also published.  It  introduces  new  types  of  administrative cooperation and exchanges of information regarding the rules for determining the place of supply of services, special regimes and the VAT refund procedure.

The Regulation will come into force on 1 January 2010 and provides that  each Member State must have  an  electronic database for storing and processing the information gathered, with a view to preventing infringements of VAT laws as part of the control of intra-community acquisitions of goods or intra- community supplies of services. Thus, when the competent authority of the Member State where the taxable person is established receives a VAT refund application, under the terms of the abovementioned directive, it must transmit this application electronically  to  the  competent  authorities  of  each  of  the refunding Member States in question within fifteen days of receipt, confirming that the applicant is a VAT taxable person and that the identification or registration number supplied by the  person  in  question  is  valid  for  the  refund  period.