The VAT package
3 Nov 08
VAT in the European Union is set for sweeping reforms over the next six years, under the so-called “VAT package” to be rolled out between 2010 and 2015
VAT in the European Union is set for sweeping reforms over the next six years, under the so-called “VAT package” to be rolled out between 2010 and 2015. The first changes take effect from 1 January 2010, introducing new place of supply rules for services, new reporting requirements and a new procedure for 8th Directive claims.
These changes will affect any businesses that provide or receive services to or from other EU member states. The general rule for the place of supply of services is due to change from the place where the supplier belongs to the place where the supply is consumed. As a consequence, there will be greater use of the reverse charge in accounting for VAT.
For business-to-business supplies, the general place of supply will be where the recipient is established. There will continue to be certain exceptions to the general rule.
For business-to-consumer supplies, the place of supply will continue to be where the supplier is established, with an exception where services are supplied from a fixed establishment in a different member state in which the business is established. In such cases, the place of supply is the member state where the fixed establishment is.
These reforms will have a significant impact on cross-border suppliers/recipients of services. In addition to identifying the effects of the new place of supply rules (taking into account the various exceptions and over-riding rules) there are new reporting requirements.
Businesses supplying services to other businesses established in other EU member states will be required to complete and submit EC sales lists (ESLs) for services. This will be new to businesses that provide services rather than goods.
The requirement to identify and report data on EC sales may necessitate changes to IT systems etc, and businesses would be wise to consider an impact assessment as soon as possible to ensure they are ready for the changes that will come in after the introduction of the new penalty regime.
The final reform under the VAT package is the amendment of the 8th Directive to include details on the timetable, right to receive interest and procedures for submitting and receiving 8th Directive VAT claims (where businesses can recover VAT incurred in other member states).
This should clarify the position regarding these claims and should address recent concerns over the delays in payment, providing some certainty to claimants in the process.