The European Commission on Wednesday presented a proposal to change the Value Added Tax (VAT) rules that apply when certain services are supplied to private consumers.
The changes are designed to eliminate distortions of competition between EU businesses, and between EU and non-EU businesses that supply services at a distance to private consumers. They should also ease the VAT burden for businesses by streamlining the current rules as between services provided to traders and those provided to private consumers.
The changes would build on the amendments that the Commission proposed in December 2003 to the rules governing the supply of services where the customer is a trader.
Under the VAT rules as they currently stand, when a trader supplies a service to a private consumer, the trader is responsible for applying the VAT at the rate of the country where he has his place of establishment. However, with the increasing supply of services across borders, this rule no longer always ensures that the tax accrues to the Member State of consumption.
It can also cause problems of distortions of competition, as companies have an incentive to locate their activities in Member States with low VAT rates in order to be able to charge that rate to their customers.
Additionally, suppliers of digital products from outside the EU are required to charge VAT on sales to private consumers at the rate applicable in the Member State where the customer is resident (see IP/02/673) but this rule does not currently apply where the non-EU suppliers establish themselves within the EU. Nor does it apply to EU or non-EU suppliers of other services capable of being supplied at a distance (such as distance teaching).
"The economic potential of telecom services, broadcasting, and e-services makes it imperative to ensure that the VAT revenues from such services accrue to the Member State where those services are consumed" commented L?szl? Kov?cs, European Commissioner for Taxation, adding that:
"This proposal is designed both to ensure that Member States are better able to collect VAT on services consumed by their residents and to make the application of VAT to services simpler and fairer for traders."
