The Mini One Stop Shop (MOSS) VAT service starts from 1 January 2015 for businesses supplying what are collectively known as ‘digital services’ in the EU. The effect of the measures is that a business will have the option not to have to account and pay VAT separately in each country where they do business which would otherwise be the case following the change in the place of supply rule outlined below.

Change of place of supply

On 1 January 2015, changes will be made to the EU VAT place of supply of services rules involving business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (‘digital services’).

Currently, the place of supply for intra EU digital supplies is determined by the location of the supplier of the services. However, from 1 January 2015, the place of supply will be determined by the location of the consumer, and digital services will be taxed at the VAT rate applicable in the consumer’s Member State.

These changes will affect all businesses that supply digital services to consumers, whether or not they are registered for VAT. This is because there are no registration limits for digital service supplies made to consumers located in another member state. Any business supplying digital services to a consumer in another Member State therefore has to charge VAT on the supply at the rate applicable in that Member State.

In order that businesses supplying B2C digital services do not have to register for VAT in every Member State in which they do business, an optional VAT ‘Mini One Stop Shop’ (MOSS) online service has been set up to facilitate EU VAT compliance.

Businesses that supply digital services to other businesses only (B2B) are not affected by the new place of supply rules. Businesses that supply digital services to a mix of business and consumers are only affected as far as the supplies to consumers are concerned.

Where a customer does not provide a VAT Registration Number, and can provide no other information that suggests they are VAT registered, the supply should be treated as B2C.

Definitions of ‘digital services’

HM Revenue and Customs’ guidance highlights the rapidly evolving nature of the sector and the consequent difficulty of producing an exhaustive list of digital services. Their ‘high level’ definition is as follows:

• Broadcasting includes the supply of television or radio programmes to a schedule by the person that has editorial control of those programmes;
• Telecommunications includes the service of sending or receiving signals by wire, radio, optical or other systems. It includes fixed and mobile telephony, fax and connection to the internet; and
• E-services includes: video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and on-line auctions.

Who is making the supply?

It is only the business that is considered to be supplying the consumer that is responsible for declaring and paying any VAT due under the new rules. If, for example, a business supplies consumers through an online store or gateway which is acting in its own name, then it is the online store or gateway that will normally be considered to be supplying the consumer.

Where is the place of supply?

When providing digital services in the circumstances below, a business can presume that the location of the consumer, and therefore the place of supply, is as follows:

• if the service is provided through a telephone box, a telephone kiosk, a wifi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided;
• if the service is supplied on board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the journey;
• if the service is supplied through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located;
• if the service is supplied through a mobile phone, the consumer location will be the country code of the SIM card; and
• if a broadcasting service is supplied through a decoder, the consumer location will be the postal address where the decoder is sent or installed.

If a business considers that the above bullet points do not properly determine where the consumer is located, it can select the correct location, keeping three pieces of non-contradictory commercial evidence to support the decision (for example, billing address, IP address or bank details).

If a business is providing digital services in circumstances not listed above, the decision on the location of the consumer should be supported by obtaining and keeping two pieces of non-contradictory commercial evidence.

VAT MOSS – practicalities

MOSS will save businesses the administrative burden of needing to register in every EU Member State in which they supply B2C digital services. The online service will be available from 1 January 2015, but it was possible to register from 1 October 2014.

EU businesses should register in the Member State in which they have their business establishment. For example, if a business registers for the VAT MOSS online service in the UK, it will be able to account for the VAT due on its B2C digital service sales in any other Member States where it does not have an establishment by submitting a single VAT MOSS return and any related payment to HM Revenue and Customs. HM Revenue and Customs will then send an electronic copy of the appropriate part of the MOSS return, and the related VAT payment, to each relevant Member State’s tax authority on its behalf.

The VAT rate used will be that of each Member State of consumption at the time the service was supplied. Note therefore, that assuming a business is charging uniform gross amounts for the same service to consumers throughout the EU there will be a loss of margin on sales in Member States with higher VAT rates (for example, Sweden at 25%), but an increased margin on sales in Member States with lower VAT rates (for example, Luxembourg at 15%, rising to 17% from 1 January 2015).

Non-EU businesses with fixed establishments in the EU which need to register for MOSS, can choose a Member State in which they have a fixed establishment to register. Non-EU businesses with no fixed establishment making B2C digital service supplies to EU consumers will need to register for ‘Non-Union’ MOSS which will be a slightly modified version of the current EU VAT on E-Services Scheme.

Returns will be on a calendar quarter basis and must be submitted and the relevant payment made within 20 days of the end of the calendar quarter return period.

Additional Points

HM Revenue and Customs have confirmed that to be able to register for MOSS, a business must have a UK VAT registration. This could impact a small business which has no current requirement to register for VAT because taxable turnover is below the registration threshold. From 1 January 2015, accounting for any VAT due on B2C supplies of digital services in other Member States using MOSS would entail having to register for UK VAT, charge UK VAT on all supplies within the UK and suffer a consequent loss of margin. The alternative would be to register for VAT in all the Member States in which the B2C supplies of digital services are consumed, which would avoid the obligation to register in the UK assuming turnover remains below the threshold, but would place a significant compliance burden on the business. Small businesses with minimal B2C supplies of digital services in other Member States may therefore wish to consider whether it would be advantageous to restrict the availability of their services to UK consumers only.

Businesses should also consider the potential impact of late submissions of MOSS returns and payments. Default surcharges and penalties would be due subject to the rules of the Member State in which the taxable sales are made. If a single MOSS return included sales made in multiple Member States, late submission and/or payment could therefore result in multiple fines arising in the relevant jurisdictions.

Conclusion

Businesses making B2C supplies of digital services in other Member States will need to ensure that their systems are able to capture the relevant details of the consumer and charge VAT at the appropriate rate. Now is a good time to review the scope of the services covered by the new rules, to consider whether any clients will be affected and, if so, to determine whether registering for MOSS is the best option to account for any VAT due in other Member States.

Richard Blakeman is a Tax Manager with ASM Chartered Accountants, Belfast

email: Richard.Blakeman@asmbelfast.com
tele: +442890249222