According to the present VAT regime in the EU, the VAT rate depends upon the place of business from which the service provider operates its business (country-of-origin principle).  As a result, jurisdictions with a low VAT rate are presently very favourable for providers of electronically-supplied services.  In order to achieve a more balanced approach to the VAT treatment of electronically-supplied services, the EU has agreed that electronically-supplied services will be subject to VAT in the place/country where the consumer resides.

As of 1 January 2015, the treatment of electronically-supplied services for VAT purposes will be governed by the law of the state in which the consumer resides (destination principle).  The implementation of the destination principle will bring up to 28 different VAT regimes and various VAT rates (between 3% and 27%) imposed on electronically-supplied services in to play, depending on the consumer's residence.  This new VAT rule may give rise to various commercial implications for businesses, e.g. VAT benefits resulting from the choice of a country with a low VAT rate cease to exist and the margin may considerably decrease in the future.

In addition, the administrative burden for businesses may increase as the amount of VAT that will have to be deducted from the gross sales price will need to be determined on a client-by-client basis and the competent tax authorities must be provided with comprehensive information.  As a starting point, providers of electronically-supplied services in the EU will be required to file VAT returns in all EU jurisdictions where the customers of such services are located.  In order to simplify the filing procedure, the service provider may take advantage of the Mini One Stop Shop (MOSS) procedure, which allows the service provider to file only one VAT return for all EU member states.