New Intra-Community VAT Rules on Place of Supply for Services

1 Introduction

European Communities (Value-Added Tax) Regulations (S.I. No. 520 of 2009) amending the VAT Act 1972 give effect to significant new EU legislation on VAT. These changes will come into operation on 1 January 2010. The Regulations cover changes to the place of supply of services (the subject of this leaflet), a new regime for the intra-Community refunds of VAT, the requirement for recapitulative (VIES) statements for intra-Community supplies of services and the requirement for monthly VIES statements for goods.

The changes to the place of supply rules are being implemented over a period of 5 years. Most changes will come into effect on 1 January 2010. There will be changes to the place of supply rules for cultural, artistic, sporting, scientific, educational and entertainment services in 2011, further changes to the rules for hiring out of means of transport in 2013 and a significant change in 2015 to the place of supply for Business to Consumer services which will shift the place of taxation from the place of the supplier to the place of the customer.

This leaflet is concerned with the place of supply rules to apply from 1 January 2010.

2 Changes to the Place of Supply Rules for Services

2.1 General Rules

The existing general rule for the place of taxation of intra-Community supplies of services is that services are taxable in the Member State where the supplier is established.

From 1 January 2010, there are two general place of supply rules, depending on whether the recipient is a business or a consumer:

• For supplies of Business to Business (B2B) services, the place of taxation is the place where the recipient is established (reverse charge).
• For supplies of Business to Consumer (B2C) services, the place of taxation is where the supplier is established.

Unless covered by an exception (see Paragraph 2.2 Exceptions to the General Rules), the position is as follows:

• Service suppliers in the State must not charge VAT when supplying services to a business customer established outside Ireland.
• Service suppliers in the State continue to charge VAT to non-business customers outside Ireland. However, many services (see Paragraph 3.5 B2C supplies to customers outside the EU) supplied from Ireland to non-business customers outside the EU will not be subject to Irish VAT.
• Businesses that receive services from a supplier outside Ireland will not be charged VAT by the supplier of those services, but the recipient will be required to account for Irish VAT unless the services concerned are exempt in Ireland (and the business has notified its supplier that such services are exempt from Irish VAT).

The new place of supply rules will result in little change for many suppliers and recipients of intra-Community services since most of the significant B2B services are already taxed where received on a reverse charge basis i.e. the current Fourth Schedule services (see list in Appendix 1).

Table 2.1

2.2 Exceptions to the General Rules

There are a number of exceptions to the general rules in 2.1 that more closely link the place of supply to where the service is performed. Unless covered by a reverse charge arrangement, the supplier will be required to register and account for VAT in the Member State of supply.

The following table summarises the exceptions and sets out the current place of supply rule and the rule that will apply from 1 January 2010 onwards.

Table 2.2

2.3 Restaurant and Catering Services

The new place of supply rules for restaurant and catering services is that the place of supply is in the Member State where the services are physically carried out. The place of supply rule applies to supplies to both business and non-business customers.

For example, a catering supplier from another Member State who supplies catering services in this State will be required to register and account for Irish VAT on those catering services in the State. Similarly, a catering supplier in the State, who provides catering services in another Member State will be required to register and account for those services in that State.

2.4 Restaurant and catering services for consumption on board ships, planes and trains

The place of supply of restaurant and catering services for consumption on board ships, planes and trains during part of a transport within the EU will be the place of departure. This mirrors the rules for supplies of goods for consumption on board.

2.5 Hiring-out of means of transport

The place of supply for the short-term hiring of a means of transport is where the means of transport is actually put at the disposal of the customer. Short-term hire means up to 30 days for means of transport such as cars, vans etc. and up to 90 days for vessels. A means of transport will be considered as “actually put at the disposal of the customer” at the place where the means of transport is situated when the customer actually takes physical possession of it. Legal control (signature of contract, taking possession of the keys) is not in itself sufficient to determine the place where the means of transport was put at the disposal of the customer.

The place of supply of long-term hiring out of a means of transport for both B2B and B2C supplies are covered by the general rules.

There are circumstances where short-term hiring can become long-term hiring resulting in a change in taxable status. These are set out in Appendix 2.

Further changes to the place of supply rules for the hiring of a means of transport come into effect from 1 January 2013.

2.6 Intra-Community Transport of Goods

The general rule will apply to B2B intra-Community transport of goods i.e. the place of supply is where the customer is established. There is no change to B2C intra-Community transport of goods. The place of supply is the place of departure.

2.7 Intermediary Services

The place of supply of services to non-taxable persons by an intermediary acting in the name and on behalf of another person is the place where the underlying transaction is supplied. There is no change to this rule.

The place of supply of services to taxable persons by an intermediary acting in the name and on behalf of another person is the place where that taxable person is established. This rule has changed the place of supply from where the underlying transaction is supplied to where the taxable person, who is in receipt of that supply, is established. For further information on intermediary services for travel agents see Travel Agent’s Margin Scheme.

2.8 Supply of services connected with immovable goods

The place of supply for services connected with immovable goods is the place where the goods are located. For the purposes of the Regulations, a supply of services connected with immovable goods includes the following:

1. a supply of services by experts or estate agents;
2. a provision of accommodation in a hotel or guesthouse or in an establishment having a similar function, or in a holiday camp or a site developed for use as a camping site;
3. a supply of services involving the preparation and co-ordination of construction work (including a supply of services of architects and of persons who provide on-site supervision).

Specific arrangements for a reverse charge have been put in place in regard to theses services, with the exception of holiday accommodation and construction services (i.e. (b) and (c) above). From 1 January 2010, where a customer established in the State receives such services in connection with immovable goods in the State from a supplier who is established outside the State, the business customer is required to account for Irish VAT on these services.

Note 1: There are no changes to the existing arrangements for reverse charge that apply to principal contractors and subcontractors involved in construction operations to which Relevant Contracts Tax applies (see Construction Services New VAT rules for Principal Contractors and Sub-contractors).

3 Obligations of Irish suppliers

3.1 Identification of a Business for a B2B supply

It will be a matter of fact whether the customer is a business or not. In the case of supplies to a business in another Member State, the supplier must obtain the customer’s VAT number, insert it on the invoice and retain records of the transaction. The supplier will enter the details of all supplies of services to businesses in other Member States on his/her recapitulative VIES statement of intra-Community supplies.

The place of supply rules recognise that in a small number of cases, the recipient of the service may not yet have received a VAT number from the tax authority in the relevant Member State while the recipient is clearly engaged in an economic activity. In these cases, the recipient business will be required to provide an alternative tax identification number or a letter from the tax authority in that Member State confirming that it is a business. However, service suppliers are required to show details of the services supplied together with the correct VAT number of the recipient on their recapitulative VIES statement – this may mean in practice that the details are entered on a recapitulative statement that covers a period subsequent to the period during which the supply of the service was made.

Given that the correct accounting for VAT lies with the recipient of a B2B service there may be a temptation for a supplier to classify B2C services as B2B. If the status of a customer purchasing services from a trader in the State has been wrongly determined as B2B when it should have been taxed as B2C, and no VAT was charged, the supplier will be liable to pay the VAT at the appropriate rate together with interest and penalties in the event of a Revenue audit. When it comes to ascertaining the status of the customer, the supplier will be assumed to have acted in good faith, and therefore should not be liable for the VAT, when he/she has:

1. established whether the customer is a taxable person via the VAT number communicated or through such other proof presented to show that the customer is a taxable person or a non-taxable legal person (see Paragraph 3.3 Supplies of services to non-taxable legal persons) for VAT purposes, and
2. obtained confirmation of the validity of the VAT number of the customer and carried out a reasonable level of verification via existing security procedures.

3.2 Supplies of services used in whole or in part for non-business use

Where a service is intended in part for the personal use of the customer (or staff) and in part for professional use, the supply of that service will be treated as B2B. The assessment of the purpose to which each service will be put, which is necessary to determine the place of supply of that service, will take into account only the circumstances existing at the time the supply is made. If there are reasonable indications that the service supplied is intended for the customer’s own personal use or that of the staff of a business, who has communicated a VAT number or provided other proof to be a taxable person, the supplier should seek a self-declaration from the customer on the planned purpose of the acquired service. In this case, reasonable indications would be that the nature of the supply is not consistent with the nature of the business.

3.3 Supplies of services to non-taxable legal persons

Non-taxable legal persons, public bodies, schools, political parties etc. who have been registered for VAT are considered to be a business for the purposes of the place of supply rules. These bodies are required to produce their VAT numbers to the supplier.

3.4 B2B supplies to customers outside the EU

The general rule will apply for B2B supplies to customers outside the EU e.g. an electronic supply of software to a company in Turkey will not be subject to VAT, as the place of supply of that service is Turkey. In addition to proof as to the place of establishment of the customer outside the Community, the supplier must also furnish proof that the customer is a taxable person. To that end, the supplier must obtain sufficient evidence from his customer to show that the customer is a taxable person. This evidence may consist of the VAT number, or a similar number which is used to identify the business, allocated by the tax authority in the country of establishment. The evidence of the VAT number may be supplemented by other relevant information, including details obtained from the customer’s competent tax authorities which confirm that the customer is a taxable person, the customer’s order form containing his/her business address and trade registration number, and/or a print-out of the customer’s website, to confirm that the customer is conducting an economic activity.

3.5 B2C supplies to customers outside the EU

In respect of B2C supplies, the nature of the service will determine whether it is taxed under the general rule or is not subject to VAT. No VAT will be charged by the service provider on the following services supplied to non-business customers established outside the EU (unless the place of supply of the service is the State e.g. services connected with immovable goods):

1. transfers and assignments of copyrights, patents, licences, trade marks and similar rights;
2. advertising services;
3. the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information;
4. obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right;
5. banking, financial and insurance transactions including reinsurance, with the exception of the hire of safes;
6. the supply of staff;
7. the hiring out of movable tangible property, with the exception of all means of transport;
8. the provision of access to, and of transport or transmission through, natural gas and electricity distribution systems and the provision of other services directly linked thereto;
9. telecommunications services;
10. radio and television broadcasting services;
11. electronically supplied services, in particular those referred to in Annex II of the VAT Directive (2006/112/EC).

For these services to be supplied free of VAT, the supplier will need to provide proof that the customer is established outside the Community. The supplier must obtain the necessary information from the customer and verify the accuracy of that information via existing security procedures, such as credit card pre-authorisation checks which verify that an address is associated with a card number. If a B2C supply made from the State is wrongly identified as being made to a person outside the Community when it was an intra-Community supply, the supplier may be liable for Irish VAT and may incur interest and penalties in the event of a Revenue audit.

Services not included in the list above, which are supplied to a non-business customer outside the EU are subject to Irish VAT at the appropriate rate.

3.6 Invoicing

Where the service is supplied to a VAT registered customer in another Member State, the supplier must ascertain the VAT Number of the customer and that number, together with an indication that the reverse charge applies, must be included on the supplier’s invoice, along with the supplier’s own VAT Number and details of the transaction. It is possible to verify the format of a VAT Number at the EU Commission website or whether a VAT Number is appropriate to a particular trader by contacting the VIMA Office at vimahelp@revenue.ie.

4. Obligations for Businesses in the State receiving services from abroad

4.1 Requirement to Register

A business in the State, which receives a taxable service from outside the State (both intra-Community or from outside the Community) will be required to register and account for Irish VAT. This is a continuation of the existing arrangements, which applied in respect of services currently listed in the Fourth Schedule to the VAT Act 1972 (see Appendix 1).

4.2 Accounting for VAT on received services

For VAT purposes, the recipient of such services is regarded as the supplier of the services to himself or herself. The recipient of services from outside the State must account for tax on such services in Box T1 and T2 (if appropriate) in their periodic VAT returns on the invoiced amounts at the appropriate Irish VAT rate as if they had themselves made the supply. They must furnish their Irish VAT number to the supplier.

4.3 VAT-exempt persons

VAT-exempt persons (e.g. bookmakers, banks, insurance companies), and persons whose activities are outside the scope of VAT, such as charitable organisations, who receive taxable services for business purposes from outside the State, must register and account for Irish VAT on these received services. Persons in the State who receive VAT-free services from a person established in another EU Member State on the basis that they are taxable persons or non-taxable legal persons are required to self-account for Irish VAT on those received services. They will receive periodic VAT returns from the Office of the Collector General and must account for VAT on these services in Box T1 of the return on the amounts charged to them, as if they had supplied such services to themselves within the State. Such persons who receive taxable services for the purposes of an exempt business are not entitled to a VAT input credit. Flat-rate farmers, fishermen and race-horse trainers who register in respect of receiving such services are entitled to retain their unregistered status in respect of their farming or fishing activities.

4.4 Public Bodies

Non-taxable legal persons, local authorities, State agencies, semi-State bodies, etc. who have been allocated a VAT number are to be treated as taxable persons for the purposes of VAT on services received whether they engage in economic activities or not (see Paragraph 3.3 Supplies of services to non-taxable legal persons). These bodies are required to provide their VAT number to suppliers, and account for Irish VAT on services received where the place of supply is the State.

5. Other issues

5.1 Effective Use and Enjoyment

The specific use and enjoyment rules already in place in the VAT Act will continue to operate under the new place of supply of services rules. These rules prevent double taxation, non-taxation or distortions of competition and better reflect the place where the actual service is received, which in turn is the place of taxation. These rules operate in two distinct ways as outlined at (a) and (b) below.

1. The place of supply of services provided in the State but effectively used and enjoyed outside the Community is deemed to be outside the Community. An example is the hiring out of means of transport.
2. The place of supply of services provided by persons established outside the Community but effectively used and enjoyed in the State is the State. Examples are as follows.
   • The hiring of movable goods.
   • Telecommunications services, telephone cards, radio or television broadcasting services when supplied to private individuals.
   • Banking, financial and insurance services, including reinsurance and financial fund management (but excluding the provision of safe deposit facilities) when supplied to private individuals.
   • Money transfer services supplied to persons in the State by an intermediary on behalf of a principal established outside the EU.

5.2 VAT 60A/B Procedure

Prior to 1 January 2010 services listed in the Fourth Schedule to the VAT Act 1972 have been taxable on a reverse charge basis when supplied to taxable persons established outside the State. The majority of other services have been subject to Irish VAT. The customers of such services can obtain a refund of Irish VAT subject to certain conditions.

The VAT 60A/B procedure allows a supplier to zero rate the supplies of non-Fourth Schedule services to specified customers. The supplier completes a form VAT 60A that is certified by his customer and submitted to the Revenue Commissioners. When the supplier receives authorisation from the Revenue Commissioners on form VAT 60B he can apply the zero VAT rate to subsequent supplies of services to that customer.

After 1 January 2010 most services supplied to taxable persons abroad will, in line with the new rules for the place of supply of services, be taxable on a reverse charge basis. However a limited number of services, while supplied to taxable persons abroad will continue to be subject to Irish VAT. In such cases, the VAT 60A/B procedure can still apply where the necessary requirements are met. For more information on the VAT 60B procedure please contact VAT (UnRegistered) Repayments Section at unregvat@revenue.ie.

5.3 Future changes to the place of supply rules

The changes to the place of supply rules are being implemented over a period of 5 years. There will be some changes to the place of supply rules for cultural, artistic, sporting, scientific, educational and entertainment services in 2011, further changes to the rules for hiring out of means of transport in 2013, with significant changes in 2015 to the place of supply rules for B2C services which will shift the place of taxation from the place of the supplier to the place of the customer. These will be legislated for at the appropriate time.

6. Further Information

Enquiries regarding any issue contained in this Information Leaflet should be addressed to the Revenue District responsible for the taxpayer’s affairs. Contact details for all Revenue Districts.

VAT Interpretation Branch,
Indirect Taxes Division,
Dublin Castle.
December 2009

Appendix 1 – Fourth Schedule Services

1. Transfers and assignments of copyright, patents, licences, trade marks and similar rights;
   1. hiring out of movable goods other than means of transport;
2. advertising services;
3. services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, data processing and provision of information (but excluding services connected with immovable goods);
   1. telecommunications services;
   2. radio and television broadcasting services;
   3. electronically supplied services;
   4. the provision of access to, and of transport or transmission through, natural gas and electricity distribution systems and the provision of other directly linked services;
4. acceptance of any obligation to refrain from pursuing or exercising in whole or in part, any business activity or any such rights as are referred to in paragraph (i);
5. banking, financial and insurance services (including re-insurance [and financial fund management functions] but not including the provision of safe deposit facilities);
6. the provision of staff;
7. the services of intermediaries who act in the name and for the account of a principal when procuring for him/her any services specified in paragraphs (i) to (vi).

Appendix 2 – Common EU rules on hiring out of new means of transport

Given that in certain circumstances the place of supply and hence taxation could change e.g. a hiring of a means of transport was initially short-term, but was subsequently extended, or a long term contract was cut short, EU Member States have agreed common rules[1] how this will work in practice, as set out below:

• The duration of the possession or use will be assessed on the basis of the contractual agreement between the parties involved.
• If two or more contracts for the hiring of the same means of transport follow each other with an interruption of 2 days or less, the first term of the contract will be taken into account in the assessment of whether the second contract is regarded as short term or not.
• The duration of each previous contract will be taken into account when assessing the duration of subsequent contracts when made under the same conditions for the same means of transport. However, the duration of a short term contract, before a subsequent contract which qualifies as long term by dint of the previous contracts, will not be reassessed retrospectively, provided no evidence of abuse of law exists.
• When a short term contract is subject to an extension which has the effect of causing it to exceed the 30 or 90 day limits, a reassessment of the contract will be required. However, when the prolongation is due to clearly established circumstances outside the control of the parties involved (force majeure), no reassessment of the contract will take place.
• If a short term contract is succeeded by another short term contract between the same parties but relating to a separate means of transport, each contract will need to be examined separately in order to determine whether it is of a short duration or not, provided no evidence of abuse of law exists

[1] It is envisaged that these rules will be underpinned by an EU Regulation, and therefore there may be minor changes to these rules when the legislative process is completed.

Appendix 3 – New intra-Community VAT rules for services: Summary position for taxable person established in Ireland and supplying services to customers in other Member States.

Case 1: Irish supplier supplying services to a business in another Member State concludes that the place of taxation is the other Member State, under the reverse charge procedure (new rules).

Case 2: Irish business receiving services from a business in another Member State in a case where the place of taxation is Ireland, under the reverse charge procedure (new rules).