Implications for the 2015 VAT Changes Customers, Supplies, Place of Consumption VAT Department 3 rd September 2014 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Customers - different categories, different VAT obligations Place of the customer/place of consumption Supplies - state of play, liability for supplies 2 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Customers - different categories, different VAT obligations As of 1 st January 2015, taxation for Telecommunications, Broadcasting and Electronically supplied services shall be, in all circumstances, i.e. for B2B or B2C, both in the EU and outside of the EU, at the place where the customer is located. the customer can be a taxable person (business) or a non taxable person (consumer) - for a taxable person = the place where the business is established or has a fixed establishment to which services are provided - for a non-taxable person it will be: (a) for a legal person the place where that person is established; or (b) for a physical person the place where that person has a permanent address or where he usually resides the supplier can be established within or outside the EU 3 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

EU supplier providing services to: 1. a business located in a different Member State: VAT is not included in the invoice. Customer accounts for the VAT (reverse charge mechanism). Nothing changes, but 2. a non-taxable person located in a different Member State: VAT is to be charged in the Member State of the customer (no longer the VAT of the MS of the supplier). Supplier has to account for VAT. This is the new concept. 3. a business or a non-taxable person who are located outside of the EU, the place of supply will be outside of the EU and therefore no VAT will be charged Exception: if the service is effectively used and enjoyed within the EU, the Member State concerned may decide to tax it. 4 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Non EU supplier providing services to: 1. a business located within the EU: VAT is not included in the invoice. Customer accounts for the VAT (under the reverse charge mechanism). No changes. 2. a non-taxable person located in an EU country: VAT of the Member State of the customer should be included in the invoice. The supplier accounts for VAT. This is the position already existing since 2003 for electronically supplied services but which will also be extended for broadcasting and telecommunications. 5 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

For a Maltese supplier, there will be the following possibilities: Business customer in Malta - charge Malta VAT Non business customer in Malta - charge Malta VAT EU business customer - no VAT. VAT number of customer on the invoice. Report sale in the recapitulative statement – no change; EU non-business customer - charge the VAT of the Member State of the customer – the new concept Non EU business customer - no VAT Non EU non-business customer - no VAT 6 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Who is the customer and where is the place of the customer? Three elements to consider: Status of the customer - Taxable person - Non-taxable person (a) Physical person (private individual) (b) Legal person (e.g. public authority) Capacity of the customer - Business or private use of a taxable person Location of the customer 7 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Customer and VAT identification number Art 18 of the VAT Implementing Regulation provides guidance for the supplier to identify the status of the customer:  Art 18(1): - a customer can be seen, by the supplier, as a taxable person when he has a VAT number or is in the process of getting one provided the supplier has no information to the contrary  Art 18(2) first subparagraph: - a customer can be seen, by the supplier, as a NON-taxable person when the supplier can demonstrate that the customer did not communicate a VAT number provided he has no information to the contrary 8 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Customer does not communicate his VAT identification number – option for the supplier New provision - second subparagraph in Art. 18(2)  irrespective of any information to the contrary, for telecommunications, broadcasting and electronic services the customer may be treated as a non-taxable person when he does not communicate his VAT identification number  Option for the supplier – he does not have to follow, but  More sure and easy for the supplier to apply. Otherwise he might have reporting problems – invoicing / recapitulative statement, etc.  Revenue only for one and the same Member State in any case 9 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Location of the final consumer for a physical person – permanent address or usual place of residence for a legal person – place where established: 1) place where functions of central administration are carried out, or 2) other establishment: sufficiently permanent with a suitable human and technical structure allowing it to receive and use services supplied for its own needs 10 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Customer in more than one place Guidance in NEW Art 24 of the VAT Implementing Regulation  For physical persons priority to the place where the person usually resides unless - there is evidence that services are used at a permanent address  For legal persons priority to the place where its functions of central administration are carried out unless - there is evidence that services are used at other establishment with sufficient permanence and suitable human and technical structure allowing it to receive and use services supplied for its own needs 11 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

How to determine the place of consumption How to determine where the customer is: - Established - Has his permanent address, or - Usually resides? In many situations it is practically impossible to determine with certainty Solution = PRESUMPTIONS 12 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Presumptions Implementing Regulation provides for specific and general presumptions for different situations High volume low value supplies Assist supplier in identifying place of taxation Provide simplicity and legal certainty Presumptions can be rebutted in certain circumstances 13 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Presumptions – supplies at a physical location of supplier Presence of the customer is required  Examples ‐ Telephone booth, internet cafe, hotel, wi ‐ fi spot  Practical issues for the supplier - Business and non ‐ business customer? - Customer address? Presumption = B2C supply + customer resides at location of telephone booth, internet café, hotel, wi ‐ fi spot 14 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Presumptions – services through other specific means Fixed land line - Presumption = where land line is located Mobile networks (Prepaid/Post paid) - Presumption = country code of SIM card Decoder / viewing card - Presumption = where decoder is located or viewing card is sent - Decoder + landline? Landline takes precedence Presumptions above apply for B2C only 15 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Presumptions – other digital supplies Supplies not covered by specific presumptions  General presumption  Supplier decides presumption based on 2 items of non- contradictory evidence  More than 2 items of evidence?  Contradictory evidence? – use 2 most reliable 16 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Evidence Billing address of customer IP address of device used by customer Bank details (location of bank account used for payment) SIM Country code of customer Location of fixed landline Other commercially relevant information  Examples - Unique payment mechanisms - Customer trading history 17 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Rebuttal of presumptions Supplier can rebut presumptions  Usually on approach by customer  3 items of non ‐ contradictory evidence Tax Administration can rebut presumptions  where indications of misuse or abuse 18 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Electronic Services and Telephone Services supplied online – Article 9a (Imp. Reg.) This article applies to situations where electronic services and telephone services, including VOIP, are supplied via a telecommunications network, interface or portal The taxable person providing the services is presumed to act in his own name and on behalf of the electronic service provider and he shall be deemed to have received and supplied those services himself UNLESS  He indicates the provider of the electronic service as the supplier and this is reflected in their contractual arrangements;  He does not sanction the charge to the customer or sanction the delivery of the services or set general terms and conditions of the supply;  He invoices or issues bill or receipt by specifically identifying the electronic service provider as the supplier of those services. These conditions do not apply where a taxable person only provides for processing of payments for electronic services without taking part in the supply of those electronic services. 19 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Transitory Provisions For B2C supplies made by an EU business the following shall apply: (a) Services that are rendered before 1 st January 2015 shall be taxed at the place of the supplier (b) Services that are rendered on or after 1 st January 2015 shall be taxed at the place of the customer (c) Payments made on account before 1 st January 2015 but service rendered on or after 1 st January 2015, taxable at the place of the supplier (as per VAT Committee guidelines almost unanimously agreed) 20 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

For further detailed explanation: Very extensive explanatory notes published by the Commission Not legally binding but enjoying a very wide consensus among the Member States May be accessed at: axation/vat/how_vat_works/telecom/explanatory_notes_2015 _en.pdf 21 Explanatory notes on the EU VAT changes to the place of supply of telecommunications, broadcasting and electronic services that enter into force in 2015 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta

Thank You 22 MINISTRY FOR FINANCE VAT Department, Centre Point Building, 16, Ta’ Paris Road, Birkirkara, Malta