VAT reform – what eServices are actually affected? (Guest Post)
As the deadline for the introduction of the EU’s new VAT on eServices nears it is about time businesses realize whether or not they are actually affected.
First, the nitty gritty. The rules change how the VAT on eServices will be charged in the EU. To define eServices is a difficult job but essentially if internet access is required to enjoy the service then it will more than likely be affected. As of from January 1, 2015, VAT will revert back to a consumption tax for eServices. The current rules demand the VAT is charged based on where the supplier of the service is located. From January 2015 onwards VAT will be charged based on where the consumer is located. In addition only B2C sales of eServices will be affected.
But what eServices are actually affected?
Again, if internet access is required to enjoy and consumer a service then that service will most likely come under the scope of the new EU VAT on eServices.
We are using ‘eServices’ as a catch-all phrase. The new rules technically concern the cross-border supply of broadcasting, telecommunications and electronic services. Examples of these services include the download, or streaming, of films and music (therefore Netflix will be affected); the download of images and downloads of anti-virus software.
Other examples include website hosting, remote systems administration, eBooks, automated virtual classrooms, and online gaming.Any broadcast via the internet that is not simultaneously ‘live’ via traditional means via radio or television.
The scope is vast. It is a burgeoning sector and the new VAT on eServices covers a lot of ground.
What services are not affected?
The new rules are careful not to be all encompassing. There are services offered via the internet – such as helpdesk services – that are not affected by the new rules.
Other examples include interactive teaching services where the class is provided by a teacher via a remote link (i.e. not automated).
Telephone services facilitated via the internet are not affected, nor is actual access to the internet.
It is crucial for all businesses involved in providing a service via the internet to understand the new VAT on eServices. If affected then business models will have to change. The above examples are just a sample of the type of services that the new rules cover. The list is not exhaustive.
The new rules – which come into effect on January 1, 2015 – will change the landscape of eCommerce in the EU. By defining what is affected the European Commission is ensuring that businesses involved have no ‘get-out-of-jail’ card. There is also a communication plan underway ahead of the January 1, 2015, rule change. Thus far there have been conferences in Luxembourg and London with further events planned for Warsaw and San Francisco. This is the EU’s charm offensive, the new VAT on eServices is in place and they are engaging with stakeholders to ensure a smooth transition.
Businesses must now prepare for the changes as they will have an impact on the bottom line.