In order to simply & modernize the refund procedure several big changes will be made by secondary legislation to the current EU VAT Directive regarding cross-border supplies of services and to the recovery of VAT on purchases made in other EU countries. Most of the changes will be effective as of 1 January 2010. All the changes together form the ‘VAT Package'.
The VAT Package introduces a significant change in the default rule on the three major topics:
- Place of supply of services
- Administrative cooperation
- The refund of foreign VAT procedure
With these VAT changes distortions of competition between member states regarding different VAT rates can be prevented. It will also improve exchange of information between member states to fight against Vat fraud.
Changes will affect the following areas :-
- Businesses supplying services to overseas businesses.
- Businesses receiving services from overseas businesses.
- Businesses supplying goods to other EC countries.
- Businesses that want to reclaim VAT incurred in another EC country.
Place of supply/taxation:
The VAT package brings in an important change in the default rule on the place of supply of services.
In business-to-business transactions the basic rule will be changed and now from 1 January 2010 the place of supply of services will be the country where the customer purchasing the services instead the country where the supplier is established. The business customer will be liable for VAT under the reverse charge procedure and recover tax subject to the normal rule. The reverse charge rule will be applied even though the supplier got a permanent establishment in the country where the VAT is charged keeping in mind that the permanent establishment does not intervene in the supply of services. In the case of business-to-customer transactions the general rule will not be changed and the place of supply of services will still be the country where the supplier is established.
There also exist some exceptions to these rules regarding cultural services, sporting, restaurant & catering services, scientific and educational services, the hiring of means of transport services connected to immovable property and telecommunications, broadcasting and electronic services supplied to consumers.
The changes will be phased in on 1 January 2010, 1 January 2011, 1 January 2013 and 1 January 2015.
However, from 1 January 2015, the place of supply of intra-EU B2C supplies of telecoms, electronically supplied services and broadcasting will be where the customer is established or usually resides.
Time of supply
From 1 January 2010 the changes will also be made to the time of supply (or tax point) i.e when VAT has to be accounted for. For single supplies (the time of supply for imported services with a definite completion date), this means that the tax point will occur when the service is completed or when it is paid for, whichever is the earlier or 31 December, where the supplies do not have billing or payment periods. Any payments received before these dates will create an earlier tax point. For instance, if leasing charges are calculated monthly or the customer is asked for monthly payment, the tax point must be the end of the month in which bill or payment is occurred. Again, if a payment is happened to be incurred before the closing of the concerned period or before the end of the billing period then the tax point will be treated on that payment date.
Continuous supplies that are not subject to billing or payment periods will have a tax point occur at the end of each billing or payment period or on 31 December each year unless a payment has been made beforehand. In that case the payment will create a tax point.
The Refund of foreign VAT procedure
In 2010 the foreign VAT refund process to recover foreign VAT incurred in other member states has been changed. Now each member state should not maintain a VAT form and VAT can be get back through Member State in which recipient is established or incurred the claimed VAT. For this purpose, each Member State will have an electronic portal, providing details of the VAT paid in other Member States.
New ESLs (EC Sales Lists) for goods & services
In order to verify for tax authorities that VAT is being accounted for correctly by the business receiving intra-EU supplies of services, UK VAT-registered businesses which supply services to EU businesses, where the place of supply is the customer's country, will have to complete ESLs for each calendar quarter and submit these within 14 days for paper returns and 21 days for electronic returns.
New ESLs (EC Sales Lists) for goods & services is introduced for UK VAT-registered businesses that supply goods to other EU countries. The VAT package includes proposals to extend the EC Sales List to cover supplies of services (currently the EC Sales List covers only supplies of goods). The proposals also suggest an invoice-level detail for all suppliers instead of summary data. The new rule reduces the time available to submit ESLs in line with the limits above. As an anti-fraud measure, require the monthly submission of ESLs where the value of the supplies of intra-Community goods (excluding VAT) exceeds £70,000 in the current quarter, or any of the previous four quarters. This threshold will be reduced to £35,000 (excluding VAT) with effect from 1 January 2012.
8th Directive Claims – going electronic
From 1st January 2010 the old paper based refund system will be changed and replaced with a fully electronic procedure for submission and processing of 8th Directive refund claims. The modified provisions will include a detailed timetable for processing and paying claims. The new system will also allow businesses to receive interest on overdue refunds. Within this revised procedures the applicant should put forward an electronic application for reimbursement via a portal set up in the Member State in which the applicant is established. So a UK business making a claim to France, Germany and Poland will at first make the claim via the UK portal. The applications are then forwarded to the Member States of refund.
The application will carry the information presently essential for an 8th Directive claim, with further codes making out the type of expenditure. Primarily it is not mandatory to attach invoices to the claim if not an invoice value exceeds Euro 1000 (or Euro 250 for fuel). An electronic copy of the invoice must be submitted in case of requirement.