Understanding EU VAT Framework and Compliance Issues for Businesses

1. Member’s logo European VAT Issues Douglas Gordon – VAT Partner

2. EU VAT Framework • EU VAT directive sets out rules which must be applied in 27 Member States • National legislation must reflect overriding EU VAT directives and regulations • Local rules differ between EU Member States to the extent permitted under EU rules • Transitional VAT system: mixture of origin based and destination based rules. • Moves towards harmonisation: European Commission v Member States • Role of European Court of Justice

3. VAT rates • Standard rate varies between 15% (minimum) and 25% • One or two reduced rates of not less than 5% apply to restricted list of services • Reduced rate for labour intensive services • Range of historic rates retained by some countries e.g. UK zero rating provisions. • Intention to simplify and harmonise rates: a long battle. • Scope for ‘rate shopping’ for supplies to private individuals e.g. from Luxembourg.

4. Supply of Goods • Transfer of right to dispose of tangible property as owner. • Electricity, gas, heat, refrigeration. • Property transactions. • Hire purchase contracts. • Disposal/private use of business assets (excludes small value gifts).

5. Goods: Nature of Transactions • Based on location of goods when supplied. • Domestic delivery of goods. • Intra EU dispatches. • Intra EU acquisitions. • Exports from the EU. • Imports into the EU. • Distance selling rules.

6. Supply of Services • Any supply that is not a supply of goods. • Use of goods for non business purposes is supply of services. • Rules on place of supply of services. • Origin rule: supply to local customer or non taxable persons in other Member States. • Destination rule: supply to taxable persons in other Member States or anyone outside EU.

7. Supply of services: special rules • Immovable property • Transport • Services supplied where performed • Services supplied where received • Effective use and enjoyment rules

8. Local VAT Compliance • Standard condition for EU VAT invoicing. • Monthly / quarterly and annual VAT returns. • Instrastats and European Sales Listing / European Purchase Listing. • Varying penalty regimes. • Varying rules on registration of non resident businesses: e.g. exhibition organisers, supply and install project, property transactions. • Tax shift or local VAT registration. • Claims on national VAT authorities (Eighth and Thirteenth Directive).

9. Recovery VAT on Costs • VAT is not recoverable on costs of non business activities. • VAT is not recoverable on costs of exempt activities • VAT is recoverable on costs of taxable activities. • VAT not directly relating to the above can be partially recovered under a partial exemption method.

10. Categories of Exempt Supplies in the UK • Betting gaming and lotteries Investment gold • Burial and cremation Land • Cultural Services Postal Services • Education Sport • Professional Subscription Finance • Health and Welfare Insurance • Fund raising events by charities • Note: Each category has a more specific detailed description to confirm what transactions are covered.

11. Other Taxes • Insurance premium tax • Stamp duty land tax • Green taxes: climate change levy • land fill tax • airport passenger duty • Customs duties • Excise duties • Betting duties

12. Issues for Inbound Businesses: VAT awareness • Best EU location • Intra EU trade: reporting requirements • Import and export facilities: warehousing and import VAT reliefs • Local VAT registration and compliance requirements • VAT liability of supplies • VAT invoicing rules • Place of supply of services rules

13. Issues for Inbound Businesses: Specific businesses • Use and enjoyment rules for ISP’s and Telcos already supplying services to EU private individuals • Best VAT location for ISP’s/Telcos moving to EU • Business organising exhibitions, conferences or other events in EU • Supply and installation projects • Land transactions • Distance selling