New VAT Rules for Digital Services
Authors: Rob Wagner & Bert Laman, Partner and Shareholder, Mazars Global Indirect Tax Group
Beginning January 1, 2015, new value-added tax (VAT) rules apply to organizations in broadcasting, telecommunications (such as telephone and text) and e-services, e.g., software downloads, website supply and maintenance, cloud computing, music or video downloads, computer game downloads and certain types of Internet-based instruction.
Beginning in 2015, businesses that supply digital services to private customers or consumers in another country of the European Union (EU) will be responsible for VAT in the country where customers are located at the VAT rate of that country. Until January 1, 2015, EU businesses had to charge VAT from the country where the supplier was based. The new rules create a disadvantage for businesses with private customers in several countries, since those businesses will be liable for VAT in all those countries. In principle, these businesses will have to register for VAT in each of the countries concerned and charge their customers that country’s VAT (see below for an exception), creating a significant amount of extra work for affected businesses.
The rules are new to EU businesses but have been in place for some time for non-EU businesses. The tax authorities in the EU countries are expected to be more strict in enforcing these laws than they have been. The changes may be a wake-up call for non-EU businesses that have not registered for VAT and may have VAT exposure in prior years.
Mini One Stop Shop
To save businesses having to register for VAT purposes with the tax authorities in many different countries, businesses will be permitted in certain circumstances to declare VAT in one country through the Mini One Stop Shop (MOSS). Businesses were able to register with MOSS beginning October 1, 2014.
The MOSS system took effect January 1, 2015, allowing businesses selling digital business to consumer (B2C) services to non-VAT-registered customers to declare VAT due for these services through a Web portal in the member state where it is registered for VAT. VAT returns and related VAT payments then are sent by the country of registration to the relevant member states of consumption.
The MOSS system is optional—a business can choose to separately submit VAT returns in each country. However, businesses opting to make use of the MOSS system must use it in all the member states concerned.
Note: VAT returns in the MOSS system are separate from the regular VAT returns a business must submit.
If your organization is affected by these rule changes, or if you have any questions about how to register for the MOSS system, contact your BKD or Mazars advisor.