As from 1 January 2015, new VAT place of supply rules will come into effect for EU cross-border business of electronically supplied services to non-taxable consumers (B2C). The new rules will shift the place of supply of e-services from the location of the supplier to the country of consumption or residence of the consumer.
The general rule and the exceptions to the general rule
The general rule for the supply of electronic supplied services to non-taxable persons (B2C) is that the place of supply is the place where the supplier is established for vat purposes. There is however one exception where the services are being supplied by a taxable person who has established his business outside the Community to non-taxable persons who are established in, or who have their permanent address or usually resides in an EU Member State. In this case the place of supply is the place where the non-taxable person is established, or where he has his permanent address or usually resides.
What is the current situation?
The current situation with respect to electronically supplied services to a non-taxable customer (B2C) is as follows:
- If supplied by an EU supplier to an EU customer, the place of supply is the country where the supplier is located i.e. in an EU member state and therefore taxed therein;
- If supplied by a non EU supplier to an EU customer, the place of supply is the country where the customer is located i.e. in the non-EU member state and therefore taxed therein.
- If supplied to a non EU customer, the transaction would be outside the scope of VAT legislation, unless the services are used and enjoyed in the EU, in which case VAT may become due.
What does the changes consist of?
With effect from 1st January 2015, the B2C supplies provided by EU suppliers to non-taxable customers within the EU will be treated as supplied in the EU member state where the recipient of the service is established, has a permanent address or usually resides.
What are electronically supplied services?
Electronically supplied services include services relating to website supply, webhosting, distance maintenance of programmes and equipment, supply of software and updating thereof, supply of images, text and information, and making available of databases, supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events, and the supply of distance teaching.
Electronically supplied services are generally defined as services the supply of which is essentially automated and involving minimal human intervention. Establishing whether the service is an electronically supplied service or otherwise is of paramount importance. Games where the outcome is determined by an automated random number generator require minimal or no human intervention at all, while games involving live events require more human intervention in the setting and amending of the odds, monitoring the event and analysing the statistics. The latter games involve more human intervention and will thus classify them as e-services.
What needs to be done?
Gaming companies established in Malta must therefore establish the jurisdiction in which their players are located so as to apply the correct VAT treatment. Verification of the client's IP address is not sufficient and verification need to be backed up by other evidence of where the player usually resides.
Most EU member states apply an exemption from VAT on betting and gambling transactions, however each MS would have its own rules and conditions of how such an exemption will be applied. Furthermore not all EU MS apply a blanket exemption since some member states restrict the exemption to certain gaming activities such as land-based gaming activities.
In view of the change of supply rules, iGaming operators will as from 1 January 2015 might have to start charging VAT to their players who are located in these jurisdictions. The VAT rate will depend on the applicable rate of the member state concerned. Thus the following matters should be kept in mind:
- The different VAT rates applicable in the different member states;
- Whether supplies are being made to non-taxable customers and how to determine whether a customer is a taxable person or a non-taxable person
- Analysing any applicable exemptions in the different member states in which the players reside
- The effect that this change will have on the current profit margins
- The taxable value on which VAT will have to be charged
- The manner in which invoices will be issued depending on the rules in the different member states
- Record keeping and other VAT compliance obligations in the different member states
- Legal considerations in the different member states.
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