New Value Added Tax Rules for Digital Services Provided to EU Customers

Beginning January 1, 2015, the European Union’s new value added tax (VAT) rules apply to organizations in broadcasting, telecommunications (such as telephone and text), and e-services—that is, software downloads, Web site supply and maintenance, cloud computing, music or video downloads, computer game downloads, and certain types of Internet-based instruction.

Why should US companies be concerned about these changes? These new rules impact any company that sells these types of products or services to consumers in the European Union. If VAT isn’t collected on these transactions, the merchant is still liable for the tax. Significant liabilities may impact financial statements, disclosures, or even exit prices. These companies will need to understand the impact of these changes on their operations and may need to consider systems or process changes.

Changes

Beginning in 2015 businesses that supply digital services to private customers or consumers in another EU country will be responsible for VAT in the country where the 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 the VAT of that country (see below for an exception), creating a significant amount of extra work on their part.

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 stringent in enforcing these laws than they have been until now. The changes may be a wake up-call for non-EU businesses that have not registered for VAT and may have had 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 are able to register with MOSS beginning October 1, 2014.

The MOSS system, which took effect January 1, 2015, allows a business selling digital business-to-consumer services to non–VAT-registered customers to declare VAT due for these services through a Web portal in the member state where it is itself registered. Non-EU businesses (who typically have not registered before) can register in the country of their choice. VAT returns and related VAT payments are then sent by the country of registration to the relevant member states of consumption.

The MOSS system is optional—a business may choose to submit VAT returns in each country separately. However, businesses opting to make use of the MOSS system must use it in all the member states concerned. Note that 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 and would like more information, or if you have any questions about how to register for the MOSS system, please contact:

Christine Ballard
International Tax Partner
Moss Adams
(408) 558-4338
christine.ballard@mossadams.com

Bert Laman
Leader, Global Indirect Tax Group
Mazars
+31 88 27 71 261
bert.laman@mazars.nl