Brussels, 22/07/2005 (Agence Europe) - On Wednesday, the European Commission adopted a proposal which aims to change the rules on the VAT applicable to certain services provided for individuals. These changes aim to rule out competition distortions between companies of the EU on the one hand, and on the other, between EU companies and those of third countries, which provide long-distance services to individuals. This should also reduce the burden on companies in terms of the VAT formalities to be carried out, by harmonising the rules currently applicable to services provided to operators and those provided to individuals. The changes come under the prolongation of modifications the Commission proposed to make in December 2003 to the rules governing service provision when the service taker is a company. Currently, when an operator provides a service to an individual, he or she is obliged to apply VAT at the rate of the country in which the operator is established. However, with increasing provision of services across borders, this rule no longer guarantees, in all circumstances, that the tax will revert to the Member State of consumption. It may also give rise to competition distortions. It is tempting for companies to set up their activities in Member States which practise lower VAT rates in order to be able to apply these rates to their clients. For services destined for individuals, suppliers of digital products established in third countries must apply VAT at the rate in force in the Member State in which the client resides, but this rule does not apply currently when non-EU suppliers are established in the EU. Nor does it apply to the EU or non-EU suppliers of other services which may be provided from a distance (such as distance learning). Furthermore, as the Council is very close to agreement on the modifications to be brought to rules governing service provision when the user is an operator, on the basis of a Commission proposal, there would be practical difficulties for businesses once no corresponding modification is made to the rules governing the place for the provision of services rendered to individuals.
The proposal aims to bring in the following exceptions to the principal rule governing the place of taxation of services rendered to individuals: -for certain services which may be supplied from a distance, such as electronic services and distance learning, the place of taxation will be the place where the client is established; -restaurant and catering services will be taxable where the service is provided materially, with the exception of services rendered on board a means of transport, which will be taxable at the place of departure of the transport service; -the short-term hire of means of transport would the taxable where the means of transport was effectively made available to the client; -long-term mortgage loans would be taxable where the client is established; -all services provided by intermediaries would be taxable in the place where the principal transaction in which they were involved took place.
With these changes, operators providing services of this kind to private clients in other Member States than their own would be obliged to respect the VAT obligations of these other Member States. These VAT obligations could, nonetheless, be greatly simplified if the Council adopted the proposal of the Commission of 29 October 2004 on a one-stop office system, among other measures to simplify VAT obligations.
"The economic potential of telecommunication, radio and broadcasting services and electronic services is such that we must ensure that the VAT revenue generated by these services reverts to the Member State in which the services were consumed. This proposal must both ensure that the Member States are better able to charge VAT on services consumed by their residents and make it easier and fairer for operators to apply VAT to their services", said the Commissioner for Taxation, Laszlo Kovacs.
For further information, please see: http: //europa.eu.int/comm/taxation_customs/index_fr.htm