1. WHAT THE FIRST MOSS VAT AUDIT MAY LOOK LIKE paying 28 VATs via a single portal

2. Background  On 1 January 2015 the Place of Supply Rules for TBE services have been amended for B2C business towards the destination principle.  The change came along with  Rules for how to determine the PoS,  Rules for VAT treatment of intermediaries,  A new (voluntary) collection scheme for VAT (MOSS),  Much additional guidance (which is not binding for MS),  Slight changes of concept of scope (TBE services) and rules if respective services are carried out by suppliers established outside the EC.

3. What I will talk about today EC-Supplier of E-Services Customer Money E-service Payment processor Intermediary / plattform E-service Money Telecommunication service provider MOSS tax office

4. What I will talk about today (1) New PoS rules and MOSS are complex – How to feed the MOSS return correctly! (2) Where a breach of the rules is likely to occur! (3) The audit of MOSS returns!  Practical execution of MOSS audits  Effects on VAT MOSS liabilities  Repercussions (on VAT position outside MOSS) (4) My Conclusion – Should MOSS declarants worry?

5. What MOSS is and how to feed it Section1

6. What MOSS is  MOSS is (not more and not less than) a letter box  Which registers the VAT return, and  Which collects the money (but does not refund it in case of a correction).  The idea of MOSS is to make life easier for tax payers (avoid multi-country VAT registrations) and administrations (less tax declarants).

7. How to feed MOSS  Only:  B2C business (not: supply of content via intermediaries that are caught by Art. 9a IR, as this is B2B business),  VAT liabilities in MS in which the business is not established (legal seat / permanent establishment).  PoS to be determined (in most cases) by two different elements (IP-address, bank data, …).  VAT to be declared when service is (deemed) to be supplied (receipt of money does not matter).

8. How to feed MOSS  Revenues in other currencies to be converted on the basis of the ECB rate issue for the last day of the filing quarter.  Why: If non-harmonized rates would be used a cross check of the VAT revenues would be difficult.

9. How to feed MOSS  (Retrospective) Correction of tax base and tax in the MOSS return in which the underlying transaction was declared.  Why? It shall not be possible to file negative figures: Q1: Sales 100 Q2: Sales 200 Q3: Sales 50 less 70 refund for Q3 would be -20 in total.  Thus (as an example): Refund / default in January 2016 Sale in Oct 15 Submit Q4/2015 correction

10. Documentation  The records kept by the taxable person shall contain the following information:  (a) The Member State of consumption;  (b) The type of service supplied;  (c) The date of the supply of service;  (d) The taxable amount indicating the currency used;  (e) Any subsequent increase or reduction of the taxable amount;  (f) The VAT rate applied;  (g) The amount of VAT payable indicating the currency used;  (h) The date and amount of payments received;

11. Documentation ……  (i) Any payments on account received before the supply of service;  (j) Where an invoice is issued, the information contained on the invoice;  (k) The name of the customer, where known to the taxable person;  (l) The information used to determine the place where the customer is established or has his permanent address or usually resides.  The information shall be recorded by the taxable person in such a way that it can be made available by electronic means without delay and for each single service supplied. Source: Art. 63c Council Regulation 967/2012

12. Where a breach of the rules is likely to occur Section 2

13. Rules may be broken (1) The Place of Supply …  … Has to be documented by two items: There may be only one item! There may be two items which indicate different PoS! There may be no evidence at all! (My proposal: As there is no default place of supply rule it may be reasonable to allocate such revenues according to the revenues for which a PoS can be determined.)

14. Rules may be broken (1) The Place of Supply …  … May even change! Example: A company offers an anti-virus software on a subscription basis with upfront payment. A customer who is identified as a French logs on and pays the fee in February 2015. For the purpose of prolongation the customer returns in February 2016 and is now identified as a German customer (i.e. via IP-address, new bank details, …). As the tax point for the first subscription year is in Feb 2015 whereas the time of supply is in Jan 2016 (end of service period, Art. 64 EC VAT Directive) it is necessary to turn French into German VAT via MOSS correction.

15. (2) Documentation requirements are very detailed + potential conflict with data protection issues  Will it be possible to document all the information required by Art. 63c Council Regulation 967/2012 for ten years?  Will it be possible to present the documentation to the MSI and the MSC in a readable format without delay and for each single service supplied? Rules may be broken

16. (3) Conversion of revenues in other currencies  Booking of revenues is generally based on documentation received from payment processors. It will always be delayed. It may be in other currency.  (There is generally a mismatch between such documentation and real time revenue recognition.)  It is difficult / impossible: To book revenues in original currency and wait with conversion till end of the quarter, To book revenues in local currency and reconvert on the basis of the rate of the last day of the quarter. Rules may be broken

17. (3) Conversion of revenues in other currencies Example:  A German supplier of E-services has made a sale to a Hungarian customer on 10 October 2015.  The customer pays in Forint via (a) credit card or (b) paypal or (c) direct carrier billing.  The supplier receives the money in Euro / on his German Euro bank account on 13 October 2015, 20 October or 31 January 2016.  Due date of MOSS return is 20 Jan 2016. Rules may be broken

18. (4) Correction of tax base (bad debt, (partial) refund):  Technically difficult to make a link between the original sale and the correction (i.e. when payment is processed via third parties).  Contradicts accounting and general VAT rules (correc- tion in the period when the event of correction occurs).  Is it possible to do a collective correction (for a longer period)?  How long can a correction wait? (Interest payments to be taken into account!) Rules may be broken

19. (5) Other corrections (i.e. filing errors / new information on PoS and tax base):  MOSS declarants won’t like correction procedure because Additional payment to be made to the MSI, Repayment is made by MSC,  Thus likely, that corrections are considered in the actual MOSS return for practical reasons. Rules may be broken

20. (5) Invoicing requirements  There is  An obligation to raise a VAT invoice in: CR, CY, DK, GR, HU, IT, LT, RO.  An obligation to raise an invoice upon request of the customer in: BG, ES, LV, PL.  No obligation to raise a B2C invoice in AT, BE, CZ, FI, FR, DE, IE, LU, MT, NL, PT, SL, SE, UK.  Unlikely that E-commerce traders will make such differentiation in their invoicing policy (for practical reasons). Rules may be broken

21. MOSS audit Section 3

22. MOSS audit (1) Practical execution  Only by Member State of Identification (Establishment)?  Only By Member State of Consumption? Direct contact or indirect contact via member state of Identification? Will there be some kind of coordination between tax authorities (in terms of timing / content)?

23. (1) Practical execution  How will the business be contacted? Via MSI in first instance (18 MS, DE + MT not included). MSI use their normal procedures (EC businesses) and email (non EC businesses) (21 MS, including DE and MT). MSC contact business via email (21, including DE + MT).  How should businesses present information / data? SAF-MOSS (21 MS, MT included, DE not included). (source: TAXUD June 2014 “Additional guidelines - auditing under the MOSS”) MOSS audit

24. (2) Effects on VAT MOSS liabilities  A Reallocation of tax liabilities between Member States (i.e. change of PoS) is rather tame: Average VAT rate in EC is 21,6%. Average weighted VAT rate in EC is 21,2%.  A Reallocation of tax liabilities between EC and non EC may be a windfall or a disaster.  Note: There is no default place of supply rule! (What happens if there is no evidence of PoS?)  What happens if two (or even more) MS want to tax one and the same transaction?

25. MOSS audit (2) VAT related payments  If tax base is shifted: Into other filing periods / years, this triggers interest payments at local rates applied in the respective MS. Between different MS, additional payments and refund will be subject to different interest rates.  Penalties: local rules apply.

26. MOSS audit (3) Repercussions  B2B vs. B2C business: A German supplier of E-services has reported B2C sales via MOSS to UK customers. In the audit it turns out that a German established intermediary is involved in the supply chain. UK VAT payments (MOSS) need to be refunded (will HMRC agree?) and additional DE VAT needs to be paid. DE EC-Supplier of E-Services UK Customer DE Intermediary

27. MOSS audit (3) Repercussions  B2B vs. B2C business A German supplier of E-services has reported B2C sales to DE customers as B2B sales to Lux intermediary. In the audit / via control notice it turns out that the intermediary is not involved (requirements to apply Art. 9a IR not fulfilled or rebutted). Sales to German consumers now subject to DE VAT, Intermediary needs to ask for MOSS refund. DE EC-Supplier of E-Services DE Customer Lux Intermediary

28. MOSS audit (3) Repercussions  Local input VAT is deductible “in so far as the goods and services are used for the purposes of … transactions relating to the activities carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State” (Art. 169 EC VAT Directive).

29. MOSS audit (3) Repercussions  Local input VAT Example: A Maltese / UK company sells gambling / betting services to customers in Germany which would be exempt if carried out in MT / UK (to customers from there). If the service is Exempt from German VAT the company should not be entitled to deduct input VAT in MT / UK - which is ok from a neutrality perspective. Taxable in Germany the company should be entitled to deduct input VAT in MT / UK to avoid double taxation. What is the view of the Maltese / UK tax authority ? Could also be relevant for online education

30. MOSS audit (3) Repercussions  Potential VAT obligations outside the EC may also be affected: A shift in PoS from EC to non EC, A shift in PoS from non EC to EC.  Comparable VAT procedures for sale of e-services to customers by non-established businesses: Already apply in CH, NO, South Africa, Have recently been improved / implemented in South Korea and Japan, Will shortly be introduced in Australia, New Zealand, Are already discussed in USA, Canada, and other states.

31. My Conclusions Section 4

32. My key messages for today  The EC VAT system has its own difficulties in dealing with e-commerce!  It is difficult to be fully compliant since Place of Supply rules and MOSS are rather complex!  Not being compliant may indeed cost money!  Nevertheless I think / it is my hope that there is no need to worry (since MOSS is also an experiment for the tax authorities)!  The world outside the EC is bigger than the EC! - thanks for listening -

33. Who we are

34. 34 Dr. Hans-Martin Grambeck Diploma in economics Qualified German tax advisor nesemann & grambeck umsatz | steuer | beratung Gutenbergring 63 22848 Norderstedt Tel: 040 / 41 62 26 450 Fax: 040 / 41 62 26 459 Mobil: 0151 / 235 14 970 E-Mail: grambeck@umsatz-steuer-beratung.de www.umsatz-steuer-beratung.de German VAT experts

35. o The International VAT Association (IVA), formed in Brussels in 1994, is the world’s leading independent body on international VAT/GST issues, representing the interests of businesses and advisers involved in VAT/GST or equivalent turnover taxes around the globe. o In Europe, the IVA’s membership is represented in almost all EU Member States. o Globally, the Association covers 32 countries with 103 members.  The members of the Association are of varying sizes from major international law and accounting firms to smaller businesses, but all being highly specialised in their chosen field of indirect taxation.

36. Benefits:  Lobbying: IVA interacts on behalf of its members with local Tax Authorities and EC.  Education: presentations and workshops organized during the conferences.  Networking: an excellent forum for IVA members to find partners and to develop new opportunities.  Operational support: assisting its members with different technical and tax issues. Additionally:  LinkedIn group  Monthly newsletters  Spring and autumn conferences and much more…

37. Thank you for your attention!