Kajtár Takács Hegymegi-Barakonyi Baker & McKenzie Ügyvédi Iroda is a member of Baker & McKenzie International, a Swiss
VAT laws are changing - creating a difficult situation for service providers
As a result of the amendment of the VAT Act, as of 1 January 2015, the place of performance of certain services provided within the European Union shall change. Although several simplifying provisions have already been passed, the new regulations will create a difficult situation for service providers. As per the relevant EU Directive, as of 1 January 2015, VAT must be paid pursuant to the laws of the member state being the resident of the person receiving the telecommunication services, radio and television programs, as well as services provided by way of electronic means; thus, VAT must be paid in the member state of consumption. This change affects those companies that perform the following business activities with in the European Union, including but not limited to, selling software, ensuring the provision of web site services or providing telephonic services and those that are involved in providing consumer access to movies, programs or music and it also applies to distance learning programs provided via electronic means.
Service providers, in relation to the performance of their VAT payment obligation, must determine whether their services provided within the European Union are being provided to taxable or non-taxable persons; they must also determine according to the rules of which member state are the services provided to a non-taxable consumer are taxable. As of 1 October 2014 the single window consolidated administration service provides an opportunity to taxable persons to simultaneously perform their tax obligations arising from consumption in different member states; thus, such companies are not required to register separately in each country where they provide their services.
The utilization of the system is not automatic; concerned companies are required to notify the tax authority of the country in which the companies are domiciled/incorporated that the company intends to file its taxes pursuant to the simplified regulations. Taxable persons must file a single electronic tax return on a quarterly basis relating to the services used by consumers in other member states such as telecommunication services, radio and television programs, as well as services provided by way of electronic means. Companies, by referencing the here mentioned tax return, are required to pay via wire transfer to the Hungarian Tax Authority the outstanding amount of the VAT in one lump sum. Subsequently the Hungarian Tax Authority must forward the here mentioned amount to the European Central Bank at the exchange rate valid on the last day of the subject quarter.
The single window consolidated administration service, in relation to the performance of the tax obligation, only translates to administrative relief; the regulations of the country of consumption remain applicable to the companies providing the services in question. The concerned companies may be required to establish new internal procedures, which may require a complex solution.
dr. Gergely Riszter, partner at Kajtár Takács Hegymegi-Barakonyi Baker & McKenzie Ügyvédi Iroda.