Brussels, 13/06/2003 (Agence Europe) - At the present time, as far as the supply of services is concerned, it is the supplier who must pay VAT on services provided and not the customer. This rule worked well at the time when the VAT regime was introduced. However, the European Commission notes, because of the increasing number of services supplied across borders, it is now likely that this rule will "lead to administrative complexities, distortions of competition and double or non-taxation of international supplies of services". On the basis of this, the Commission's Directorate General on Taxation and Customs is drafting a document in which it considers the idea of shifting taxation from the place where the supplier is established or has a fixed place of business to the place where the customer is located, when the customer is a trader. The paper is to be the starting point for broad public consultation that the Commission launched on 12 June for the benefit of economic circles. The results of such consultation, to end late June, will be taken into consideration by the Commission, which has revealed its intention to present a legislative proposal this autumn aimed at improving the existing provisions relating to the place where supplies of services are taxed.
The Commission's idea is therefore to amend the rules on VAT so that it is now the customer (if he is a trader) rather than the supplier who is responsible for paying the VAT on services supplied to him. In other words, the rules for applying VAT to services supplied to a business customer in another EU country would be modelled on the current rules for VAT on goods sold to a business in another Member State. The paper presented on Thursday suggests that this change in the place of taxation would be appropriate given the increasingly international nature of the services industry. According to the Commission, it would reduce administrative burdens since it would mean that suppliers would not, as is often the case at present, have to register for VAT purposes when providing services in a Member State other than that in which they are established. Furthermore, as the changes would bring the VAT rules more into line concerning the taxation of supplies of services in many non-EU jurisdictions that apply consumption taxes, there would be less risk of double or non-taxation in the case of international supplies of services.
Given that such a change would mean a service provided to a business in another country would be exempted from VAT in the Member State of the supplier, information exchange between Member States' tax administrations would be important to ensure that the VAT is actually paid by the receiving trader. Therefore, the report also considers the possibility of extending to supplies of services the system of electronic information exchange used between tax authorities, known as the "VAT Information Exchange System" or VIES. The paper specifies that, even if the basic rule for the place of supply of services rules were to be altered in this way, it would still be necessary to exclude certain supplies from this general rule for administrative and policy reasons. (For more information on the paper and consultation: http: /europa.eu.int/comm/taxation_customs/taxation/consultations_en.htm).