On 1 January 2015 the place of supply for digital services provided to consumers in the EU changed from being the state in which the supplier is resident to now being the state in which the consumer is resident. This change affects supplies of telecommunications services (such as VOIP), radio/television broadcasting and ‘electronically supplied services’ (including the provision of digital content, ad space and software).
As a result of this change, businesses now have a duty to register and account for VAT on the supplies of digital services in each and every member state where they make supplies to consumers (no matter how low in financial value the sales are in any member state).
However, businesses can discharge this duty by simply registering for a VAT mini one stop shop scheme (‘MOSS’) in any member state in which they have an establishment. Essentially, this means that the business will make a single VAT return via MOSS for supplies in the member states in which they do not have an establishment, and the tax authority of the state in which the business has registered for MOSS will take responsibility for distributing the VAT collected to the other relevant member states. This will significantly reduce the administrative burden on the business.
For example, if A has an establishment in the UK but provides digital services to consumers in Ireland, France, Germany and Italy, A can register for the MOSS scheme in the UK and account for the Irish, French, German and Italian VAT in a single MOSS return. (Note that A would nevertheless have to account for VAT on its UK supplies as before.)
By way of further example, if B has establishment in both UK and France and also provides digital services to consumers in other member states, B can register for the MOSS scheme in either the UK or France to account for the VAT on its supplies to these other member states in a single return. (Note that B would nevertheless have to account for VAT on its UK and French supplies as before.)
It is also possible for VAT groups to register for the MOSS scheme. If any of the VAT Group members are established in other member states, the VAT group representative member must notify them that, for the purposes of VAT MOSS, the cross-border VAT Group membership links are disregarded. This means they will not be able to account for the VAT due on any cross-border digital service supplies they make on the group’s VAT MOSS returns. However, any digital service supplies that it, or other VAT Group members, make into that member state can be accounted for through VAT MOSS.
If there are members of the group in other member states they must account for any cross border supplies of digital services to consumers, including to UK consumers, separately from the group. They can do this by registering for MOSS in the member state where they are established.
The MOSS scheme only enables a business to pay the VAT on it digital supplies, not recover any input VAT. Therefore, if a business incurs input VAT on its cross border supplies to member states in which it is not VAT registered, it must reclaim it using the electronic cross-border scheme.
There is also a non-Union scheme for businesses (be it a company, partnership or a sole proprietor) which is not established in the EU, nor has a fixed establishment there, and it is not registered or otherwise required to be identified for VAT purposes in the EU. For the non-Union scheme the taxable person can choose any Member State to be the Member State of identification.
Although the scheme is optional – the alternative to register for VAT in every member state in which the business has consumers – once a Member State has been identified and a taxable person has opted to use the scheme, that taxable person must declare all supplies of telecommunications, broadcasting, and electronically supplied services to non-taxable persons in a Member State in which it is not established via the MOSS.
This is a welcome simplification measure, although it is not without its complexities. The EU Commission has set out useful guidance (which is not legally binding) but is a practical guide to the application of the scheme.