EU suppliers of business to consumer ‘B2C’ telecommunications, broadcasting and electronic services to customers in the EU are currently treated as supplied where the supplier is established, regardless of where the customer is located. This means that an Irish-established supplier accounts for Irish VAT on all B2C sales regardless of the location of the customer.

Many of the leading suppliers of such services have established businesses in Luxembourg to avail of the lowest EU VAT rates e.g. 3% on broadcasting and eBooks’ and 15% on other electronically delivered services. It is expected that the proposed changes (which will remove the advantage that Luxembourg currently has) will result in the vast majority of those companies relocating their B2C business to the member state where their HQs are established. In many cases this will be Ireland.

2015 VAT changes

From January 2015, B2C supplies of telecoms, broadcasting and other electronically supplied services provided by suppliers in Ireland to non-taxable customers within the EU will be treated as supplied in the member state where the customer is resident.

Irish suppliers of such services will need to determine where their customers are established or usually reside and will be required to account for VAT at the applicable rate in that member state. This could result in suppliers having to register for VAT in all EU member states where they have customers.

As an alternative to multiple VAT registrations in member states where a supplier has a customer, affected suppliers may be able to opt to account for VAT across the EU via a single electronic declaration. This return can be filed with the tax authority where the supplier is established (the “member state of identification”). This system is known as the Mini One-Stop Shop (MOSS) scheme. The MOSS scheme will allow for the value of B2C supplies made in all 28 EU member states to be reported on a single electronic return. The Irish Revenue is working closely with all interested parties to ensure that the parties to ensure that the transition to the new system is as smooth as possible.

To prepare for the changes coming into effect, Irish businesses will need to consider a variety of issues, some of which include do they make B2C cross-border supplies of telecommunications, broadcasting and other electronically supplied services, how to determine where B2C customers are located, their IT capabilities to collate relevant information and their pricing policy.

Identifying the location of the consumer

The key issue for suppliers will be to properly identify the location of their customers in order to apply the correct rate of VAT. Legislation has been introduced which will assist suppliers to determine where the customer is located. This includes a number of presumptions which will have legal effect in each member state – for example where a supplier of affected services provides these services at a physical location such as an internet cafe, where the physical presence of the customer at that location is necessary for him/her to receive that service from the supplier, it is presumed that the customers place of belonging and where VAT should be applied is at that location.

Similarly if the supply is made via a fixed line or through a mobile network the place where the fixed line is installed or the country identified via the sim card of the mobile network is used to determine where the customer belongs. In all other circumstances the customer’s place of belonging is presumed to be at the place identified by the supplier on the basis of two items of non-contradictory evidence from criteria, including the customer’s billing address, the Internet Protocol (IP) address of the device used by the customer, bank details such as the place where the bank account used for payment is, the billing address of the customer held by that bank, and the location of the customer’s fixed landline through which the service is supplied to him.

Alternative Mini One-Stop Shop Scheme (MOSS)

A business which is registered for MOSS will need to submit quarterly VAT returns detailing its sales of telecommunications, broadcasting and electronic services to non-taxable persons in other member states, along with the VAT due. The returns will be filed in the company’s member state of identification (typically the member state in which the business has its business establishment). These returns and the VAT payable will then be transmitted to the relevant member state of consumption via a secure communications network.

The MOSS VAT returns are additional to the “normal” VAT returns a business renders to its member state under its domestic VAT obligations. Hence, if it signs up for MOSS it will incur additional administrative burdens. It will also need to be able to separate from its accounting system the different types of supplies it makes.

A taxable person who opts to use MOSS can as of 1 October 2014 register in the country where it has its business establishment or head office. The taxable person will be identified for MOSS with the same VAT identification number with which it is identified for its domestic VAT returns. VAT groups can be registered under MOSS as one taxable person.

Record-Keeping and MOSS Audits

The record keeping requirements for MOSS are set out in Article 63c of Council Implementing Regulation no. 967/2012. The European Commission is currently developing a Standard Audit File for MOSS. The preferred format for the receipt of the data is XML and the records must contain the following information:

• the member state of consumption to which the service is supplied,
• the type of service supplied,
• the date of the supply,
• the taxable amount indication the currency used,
• any subsequent increase or reduction of the taxable amount,
• the vat rate applied,
• the amount of vat payable indicating the currency used,
• the date and amount of payments received,
• any payments on account received before the supply of the service
• where an invoice is issued, the information contained on the invoice
• the name of the customer where known to the taxable person, and
• the information used to determine the place where the customer is established has his permanent address or usually resides.

All records relating to MOSS returns must be retained for a period of ten years from the end of the year in which the supply was made. Article 369 and 369k of the Directive provides that the tax authorities of the member state of identification may request the taxable person’s MOSS records. It also allows the member state of consumption to request the taxable person’s MOSS records relating to supplies made in that particular Member State.

Guidelines have been agreed by the vast majority of Member States (including Ireland) in relation to audit and control in MOSS at the SCAC (Standing Committee on Administrative Cooperation). The guidelines recommend procedures to be used by tax administrations in relation to contacting businesses to obtain records, how the records should be presented, the frequency of requests for information and the co-ordination of audits. The aim of the guideline procedures is to ease the administrative burden for businesses and avoid businesses having to deal with repeat information requests from up to 28 Member States. Where Ireland as the member state of identification carries out an audit, it will be required to notify the other Member States to allow each Member State an opportunity to ask for records relating to supplies in its jurisdiction to be examined during the course of the audit.

Payments

Any VAT is due to the tax authority in the country for which it has registered for MOSS. It pays one amount, for the total of the MOSS VAT return (i.e. in respect of every country where it has made supplies). The money is then distributed to other member states by the tax authority. Ireland is seen by the World Bank as the easiest country in the EU to pay business taxes and the Revenue has been diligent in updating its IT systems to ensure it can implement the new regime from 1 January 2015.

This could result in a windfall for Revenue due to the fact that it is entitled to an administration fee to cover its costs in respect to the management of MOSS. Revenue will be entitled to retain 30% of the VAT collected on B2C sales from Irish established companies on all sales in the EU for 2015/2016 and 15% for 2017/2018. If those companies that are already established in Ireland relocate their B2C business here it will result in a very significant windfall which could amount to hundreds of millions of euro.

Jarlath O’Keefe is Head of Indirect Tax with Grant Thornton.

Email: jaralth.okeefe@ie.gt.com
T (direct) + 353 (0)1 680 5817

Lorcan O’Rourke is a VAT consultant with Grant Thornton.

Email: lorcan.orourke@ie.gt.com
T (direct) + 353 (0)1 436 6477

Please see the October issue of tax.point for a feature article on the VAT Moss from a UK VAT perspective.