BTW op diensten aan consumenten: veelgestelde vragen (en)

(see also IP/05/997)

How does the proposal that the Commission is now making interact with its 2003 proposal concerning the taxation of services provided to traders?

The aim of both the Commission's proposal of December 2003 (see IP/03/1808) and the present proposal is to modernise and further harmonise the rules governing the place of taxation of services as well as to ensure that taxation accrues to the Member State where consumption takes place.

In the case of the services provided to traders who are liable for VAT, those aims can best be achieved by transferring liability for VAT on services received from the supplier to the receiving trader, as proposed in December 2003.

However, in the case of services provided to private consumers who are not registered for VAT, making the consumer liable to pay the VAT is not an option. Instead, therefore, the present proposal would ensure that a trader supplying services to private consumers would in most cases continue to be responsible for applying the VAT in the Member State where he is established. But the proposal would also provide for certain exceptions to this general rule in order to ensure the correct allocation of VAT revenues to the Member State of consumption as well as to prevent distortions of competition.

Would this proposal not create increased administrative burdens for traders?

It is true that the proposal would require suppliers of certain services to charge VAT at rates other than that of the Member States in which they are established and that this would mean that the traders would have compliance obligations in Member States where they are not established. However, the Commission believes that these additional administrative burdens would be addressed by the "one-stop" proposal that the Commission made in 2004 and that is currently being discussed by Member States in the Council of Ministers (see IP/04/1331). That proposal would allow a trader to fulfil all his VAT obligations for EU-wide activities in the Member State in which he is established. Traders would be able to use a single VAT number for all supplies made throughout the EU and to make VAT declarations to a single electronic portal that would then be submitted automatically to the different Member States into which the trader supplies goods or services. The trader would pay the VAT directly to each Member State where VAT is due. The Commission believes that the two proposals when combined would balance the need to avoid imposing increased administrative burdens upon business with the need to avoid distortions of competition and the need to guarantee proper allocation of VAT revenues.

Why is the Commission proposing to change the place of taxation of certain services capable of being supplied at a distance, including e-services and distance teaching?

Because the current rules whereby the place of taxation is the place of establishment of the supplier no longer always guarantee, in the case of such distance services, that tax accrues to the country of consumption. The country of consumption is the place where taxation should occur given that VAT is a consumption tax. Because of the ease with which these services can be supplied, there is a very real risk that the supplier's decision on where to locate his business can be influenced by the rate of VAT to be applied. There is evidence that, with the adoption of new rules for electronic services, suppliers of electronic services established outside the EU have been setting up fixed establishments in the Member States with the lowest VAT rates, from which they supply all their customers throughout the EU. Equally, EU companies are changing their places of establishment in order to benefit from this competitive advantage.

Therefore, the Commission believes that for these types of services provided to private consumers, the place of taxation should be changed to that of the Member State of the customer receiving the service.

How would this proposed rule for certain distance services impact on non-EU service providers?

The proposed rule that the place of taxation of certain services provided at a distance would be the Member State of the customer receiving the service would apply to all suppliers, irrespective of whether they are established inside or outside the EU.

The one-stop mechanism (see above) is also designed to apply both to EU and to non-EU suppliers of services to EU consumers.

The effect of the combination of the two proposals would be that a non-EU provider of the relevant services would be able to fulfil all his compliance obligations in the Member State of consumption which he chooses to contact when his activity as a taxable person within the Community commences. That Member State would allocate him a VAT number which he would be allowed to use for all supplies made of these services throughout the EU and he could then make VAT declarations to a single electronic portal that would be submitted automatically to the different Member States into which he supplies services.

Non-EU suppliers would thus be on a level playing field with, and would benefit from the same advantageous system as, EU established suppliers.

Why is the Commission proposing a change to the taxation rules for restaurant and catering services?

The Commission is proposing that restaurant and catering services should become taxable at the place where the service is physically provided, rather than at the place where the supplier is established. While the two locations are often the same, this is not always the case, especially in the case of catering services. Where this is not the case, the rule that the place of supply is the place where the service is physically provided better reflects the reality of where such services are consumed.

However, this rule should not apply to the supply of restaurant or catering services on board ships, aircraft or trains during a passenger transport service, as it would be very difficult to determine where the service is physically provided. Therefore, in such cases, the Commission proposes that the services should be taxed at the place of departure of the passenger transport service.

Why propose to change the place of taxation of short term and long term hiring of means of transport and why are two different rules necessary?

The current rule that hiring of means of transport is taxed at the place where the supplier has established his business does not properly ensure that VAT accrues to the Member State of consumption, since means of transport can easily cross frontiers. It leads to a relocation of car rental companies to Member States which apply low VAT rates to car leasing or which, in the case of business customers, allow more favourable deduction rules.

The Commission is therefore proposing that long term leasing would become taxable at the place where the customer is established.

This would mean that the tax would have to be accounted for by the suppliers in every Member State where they have private customers, but the Commission's proposal for a one-stop mechanism (see above) would allow them to centralise their compliance obligations in one place.

For short term hiring only, the Commission proposes that the place of supply would be the place where the means of transport is actually put at the disposal of the customer. Contrary to long-term leasing arrangements, the short-term renting of a means of transport is mostly supplied locally and not cross-border. Therefore taxing this service at the place where the person renting the means of transport takes possession of the car best reflects taxation at the place of consumption. It also ensures that the supplier is not confronted with additional administrative burdens as it eliminates the need for the rental company to verify whether the customer is a private individual or a trader.

Why propose that all services rendered by intermediaries would become taxable where the transaction in which they intervene takes place?

The Commission believes that the only solution for the taxation of intermediary services is to tax them at the place where the principal transaction in which the intermediary intervenes is carried out. Any other rule, such as that services provided by intermediaries would be taxed at the place where the intermediary is established, could encourage some intermediaries to move to countries that apply lower VAT rates. This risk is especially high for this type of services as they need little equipment, office space etc. Intermediaries would include, for example, agents in the transport and travel sectors.

Why did the Commission not modify the rules governing the taxation of passenger transport services?

The comments received from the trade sector during the public consultation on this proposal were that it was not advisable to tackle the problems related to the application of VAT to passenger transport services in a piecemeal way. The passenger transport problems are in particular the discrimination in VAT treatment between different means of transport - air transport, for example, is exempt from VAT while bus and rail transport is not - and the practical difficulties of applying the current rules under which proportionate amounts of the VAT rates of different Member States must be applied depending on the countries through which the bus or train passes. The view was that it would not be appropriate to tackle only the issue of the place of supply of passenger transport services without also addressing the current distortions of competition between the different means of transport and the exemptions currently applied by some Member States in this sector.

The existing rule of taxing passenger transport services ensures that tax accrues to the Member State of consumption. Moreover the burden of having to split up the VAT according to the distances covered in each Member State would be diminished with the one-stop mechanism that the Commission has also proposed (see above).

Therefore the Commission has decided to leave the existing passenger transport rules unchanged for the present.

When would the proposal for a Directive concerning the place of taxation of supplies of services to private consumers enter into force?

The Commission has proposed that the Directive would enter into force on 1 July 2006 at the latest. The temporary rule under which non-EU suppliers of e-services are required to apply the rate of taxation of the country of the consumer is due to expire on 30 June 2006. The entry into force of this Directive on 1 July 2006 would ensure that non-EU traders would continue to be required to pay VAT in the EU on e-services to EU customers, and thus ensure the continuation of a level playing field for EU e-service providers. The proposal would have to be adopted unanimously by Member States following consultation of the European Parliament and the Economic and Social Committee.