Brussels, 01/07/2003 (Agence Europe) - On 1 July, the new Community regime (a directive and a regulation) applicable to certain services provided by electronic means as well as to radio and TV broadcasting provided on the basis of a subscription or à-la-carte, came into force. The new rules stipulate that, when services of this kind are supplied for consumption within the European Union, they will be subject to EU VAT, and that, when they are supplied for consumption outside the EU, they will be exempt from VAT. These changes modernise the existing VAT rules to accommodate the emerging electronic business environment and to provide a clear and certain regulatory environment for all suppliers, located within or outside the EU. The rules also contain a number of facilitation and simplification measures aimed at easing the compliance burden for business. According to the Commission, all Member States have done what was needed so that the provisions of the directive may be enforced within the time set.
The new rules apply to the supply over electronic networks (i.e. digital delivery) of software and computer services generally, plus information and cultural, artistic, sporting, scientific, educational, entertainment or similar services as well as to broadcasting services. They ensure that EU suppliers will no longer be obliged to levy VAT on sales of these products on markets outside the EU. Current VAT rules, drawn up before e-commerce existed, subject electronically delivered services originating within the EU to VAT irrespective of the place of consumption, whilst those from outside the EU are not subject to VAT even when delivered to consumers within the EU. The elimination of these competitive distortions, by subjecting non-EU suppliers to the same VAT rules as EU suppliers, is something which EU businesses have been actively seeking. Under these new rules, no additional obligations will be imposed on non-EU suppliers selling to business customers in the Union (that is, business to business, B2B, sales which constitute at least 90% of the market), since the VAT will be paid by the importing company under self-assessment arrangements, as at present.
The changes will, however, require suppliers of digital products from outside the EU for the first time to charge VAT on sales to private consumers (so-called B2C), just like EU suppliers. Non-EU suppliers will be able to register, using special simplified arrangements, with a VAT authority in any one Member State of their choice, and to levy VAT at the rate applicable in the Member State where the customer is resident. The country of registration will re-allocate the VAT revenue to the country of the customer. This simplified system for non-EU suppliers and for revenue re-allocation will be applied for three years following implementation of the proposal and may then be extended or replaced. As it stands, it is, therefore, a temporary regime.
The VAT obligations for non-EU suppliers making B2C sales into the EU will be broadly similar to those for EU suppliers and will meet in full non-discrimination obligations under the World Trade Organisation (WTO). Non-EU e-commerce suppliers will be subject to simpler and lighter administrative requirements than those applied to EU traders and other non-EU businesses carrying on activities in the EU.