Starting 1 January 2015, supplies of telecommunications, broadcasting and electronically supplied services made by EU suppliers to private individuals and non-business customers will be taxable in the member state of the customer. Current rules stipulate that the place of taxation is the supplier’s location, but starting 1 January 2015, this will change to the place of consumption (i.e. the customer’s location).
Suppliers of such services will therefore need to determine where their customers are established and to account for VAT at the applicable rate in that member state. This is a requirement irrespective of where the supplier itself is established or registered for VAT.
If your organization is located in the EU and you are using the Advantage taxation feature, this means you will need to create tax rates for each country rather than using a Euro-zone tax record.
Your procedures for paying the VAT to the governing authorities will also need to change. It is now due to each of the countries. The regulation provides a new service (MOSS) to facilitate this. It will take your single payment and allocate it for you to the different countries. Contact your tax professionals for assistance with that.
Publishers are typically not involved with telecommunications and broadcasting services, but the definition of electronically supplied services is fairly broad and includes digital products, which could be:
- an online subscription that the customer views on a website,
- downloaded content (e.g. PPV),
- pushed content (e.g. via apps), or
- services (e.g. copy-editing).
Digital products are to be taxed using the rate at the consuming customer's location, instead of using local tax rates (where the publisher is located). Some interpretations of the rule change say that you need to use the bill-to customer as the consuming customer— primarily I believe, because a customer’s bank account is used as one way of verifying the customer’s location.
Currently, taxation of access item transactions (AMB module) is based on the location of the bill-to customer, because amounts are not tracked by participant. (Alternate treatment to use the ordered-by customer is activated by system option.) Advantage functionality for AMB transactions is in compliance with the interpretation that the bill-to customer is the consuming customer.
However, other products are taxed using the location of the ship-to customer. This rule change then could affect how tax is to be calculated for digital products sold in Europe where the bill-to and ship-to customers on an order are in different European countries. (That is the only type of transaction that could result in the incorrect tax, assuming you interpret the consuming customer to be the bill-to customer.)
For example, the ship-to customer for the order below is located in England, but the bill-to customer is located in France.
Lines 1 and 3 are for digital products. The default treatment taxes all three lines of this order based on the rates in England—the ship-to customer’s location. If you interpret the rule that the consuming customer for digital products is the bill-to customer, then lines 1 and 3 should be taxed based on the rate in France.
Most likely, you only have a small number of such transactions. However, that sometimes doesn’t matter to tax auditors!
Advantage is being modified to support the interpretation that the consuming customer with digital product transactions is the bill-to customer. Contact your ACS representative to arrange for this to be installed in your system.