In our regular Q&A series, Croner Taxwise, senior VAT consultant, Hilary Budd, explores how Brexit will affect digital service providers using VAT Mini One Stop Shop (VAT MOSS) to account for VAT on sales to EU consumers
Q. I have a number of clients supplying various kinds of digital /electronically supplied services to businesses and consumers in the EU. Their activities include the supply of downloadable software and Apps, and access to information, photo or videos held online. They currently use the VAT Mini One Stop Shop (VAT MOSS) via their UK VAT registration, to account for VAT on the sales to EU Consumers. How is this going to change after we leave the EU on 1 January 2021?
A. The VAT MOSS simplified system has been in place since 2015 for taxable persons to declare and pay VAT on business-to-consumer (B2C) supplies of telecommunications, broadcasting and electronic (TBE) services in the EU. There are two MOSS Schemes. The Union Scheme for EU based suppliers and the Non-Union Scheme for Suppliers based outside the EU.
From 1 January 2021, when the transitional period ends for UK leaving the EU, most UK businesses will be required use the Non-Union scheme to account for VAT on TBE supplies to EU consumers.
Taxable persons who do not have a business establishment or a fixed establishment in the EU will be required to register in an EU Member State of their choice, and will be allocated an EU VAT Number (in the format EUxxxyyyyyz).
Those UK Businesses/taxable persons who do have a fixed establishment in the EU will be able to use an existing VAT registration, or apply for a new VAT registration, in the Member State in which they are established to account for VAT on supplies to EU consumers via the Union Scheme.
Their MOSS Identification VAT Number will be the same as the associated domestic VAT number.
If they have fixed establishments in more than one Member State, a taxable person can choose the one in which they wish to be identified for Union MOSS. Once that choice has been made, they are bound by that decision for the calendar year in which the decision is made, and the following two calendar years.
Information on the Union and Non-Union MOSS Schemes can be found on the European Commission Europa Website.
From 1 July 2021, as part of their drive to modernise VAT for cross border e-commerce the Non Union scheme is being extended to apply to all cross- border B2C supplies of services which are deemed to take place in a member state under the current place of supply rules.
The place of supply rules themselves are not changing, this is a simplification. If a supplier opts to use the Non-Union scheme, they must use the scheme to declare and pay VAT for all their B2C supplies of services in the EU, these supplies should not be declared through separate local registrations.
An explanatory guidance note provides the following non exhaustive list of examples of B2C services which will fall to be reported under the Non-Union Scheme:
- accommodation services carried out by non-established taxable persons;
- admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions;
- transport services;
- services of valuation and work on movable tangible property;
- ancillary transport activities such as loading, unloading, handling or similar activities;
- services connected to immovable property;
- hiring of means of transport; and
- supply of restaurant and catering services for consumption on board ships, aircraft or trains etc.
Two helpful examples are also provided in the explanatory note as follows:
A supplier not established in the EU is carrying out services connected with immovable property (eg, renovation works) located in Germany, in France and in Hungary to customers in those Member States. The same supplier is registered for VAT in Germany for other types of supplies (eg, B2B supplies of goods).
The supplier chooses to use the non-Union scheme in France (Member State of identification). He therefore has to declare and pay VAT on all supplies of services falling under the special scheme via the OSS in France.
He cannot choose to declare the supplies of these services related to immovable property in Germany via the German VAT return. Other supplies (the B2B supplies of goods) in Germany, which do not fall under the special scheme will have to be declared via the German domestic VAT return.
He can deduct any German VAT incurred by him through the German domestic VAT return. For any French or Hungarian VAT incurred by him, he will need to make a VAT refund request under the 13th Directive to the respective Member State tax authority.
If the same supplier chooses to register for OSS in Germany, he has to declare and pay VAT on all the supplies of services falling under the special scheme via the OSS in Germany. Other supplies in Germany (eg, B2B supplies of goods), which do not fall under the OSS will have to be declared via the German domestic VAT return.
He can deduct any German VAT incurred by him through that domestic VAT return. For any French or Hungarian VAT incurred by him, he will need to make a VAT refund request under the 13th Directive to the respective Member State tax authority.
From 1 July 2021 the Union Scheme will also be extended to apply to all types of B2C Services and distance sales of goods, and the distance sales thresholds will be abolished.
Full information on these changes is provided on the Europa Website.
A summary of the changes and the implementation calendar can be found in Modernising VAT for cross-border e-commerce.