Value-added tax on intra-European Union services
This article will introduce you to the taxation of intra-European Union services under the Value Added Tax Act (VATA), the general rules governing such taxation and the various types of supplies of services.
Intra-European Union supplies of goods are subject to special rules under VATA.
Further below the article examines the VAT taxation procedure of the most commonl intra-European Union services.
General rules of taxation of intra-European Union supplies
The general rules, including those regarding the supplies of intra-European Union services, are outlined in Chapter Five of VATA (Arts. 51 - 53).
The chargeable event for an intra-European Union supply occurs at the date on which this event would occur for a supply within the territory of the country, except for the chargeable event for an intra-European Union supply in Art. 7 (4) which occurs at the date on which the transport of the goods from the territory of the country starts.
The tax on an intra-European Union supply becomes chargeable on the 15th day of the month following the month during which the chargeable event occurs or the date on which the invoice was issued where this invoice has been issued prior to the 15th day of the month following the month during which the chargeable event has occurred (except for the cases where this invoice has been issued in relation to payment received on the supply before the date of occurrence of the chargeable event).
For continuous supplies of goods under Art. 7 (1) - (4) VATA for a period longer than one calendar month, the chargeable event occurs at the end of each calendar month, such that for the calendar month of termination of the supplies the chargeable event occurs on the date of termination of supplies.
Supply of services in transport of goods within the European Union
The scope of these services includes:
- transport of goods from one Member State to another;
- transport of goods from one Member State to another and transport of the same goods within the Member State from which the goods are dispatched or to which they arrive, provided that the internal transport is associated with cross-border transport.
The Act states several criteria for determining the place of supply for the transport of goods, namely, where the supply is performed - within the European Union or outside the European Union; whether the recipient is a taxable or non-taxable person; where the goods actually transported to.
The place of supply of services in the intra-European Union transport of goods to a non-taxable person shall be the territory of the Member State of departure (Art. 22 (1) VATA).
The place of supply of transport of goods outside the European Union provided to a non-taxable person shall be the place where the transport is carried out, proportionately in terms of distances covered (Art. 22 (2) VATA).
The place of supply of transport of goods within or outside the European Union provided to a taxable person shall be determined in accordance with the provisions of Art. 21 (2) and (3), i.e. the place of supply is the place of independent economic activity of the recipient or the location of fixed establishment of the recipient, or the permanent address/habitual residence of the recipient (Art. 22 (3) VATA).
Art. 22 (4) and (5) VATA specify forwarding, courier and postal services and their relationship with transport services.
If the transport is carried out within the European Union, but the recipient is a person outside the EU, transport companies have to charge the respective VAT depending on the place from which the goods were dispatched. In this case the company outside the European Union will be able to recover the tax paid by it in compliance with the rules for reimbursement of VAT paid to foreign persons.
The regime of intra-European Union transport described above concerns the transport of goods, not passengers. The transport of passengers from one Member State to another is treated as 'international' transport and is subject to a zero tax rate.
Another important fact to note in relation to this regime is that the charge depends on the VAT regime in the Member State in which the recipient of the service is "registered" and not "established", which enables to assess where to register a company with its best interest in mind.
Supply of forwarding services
A forwarding service is one for the organisation, conduct or handling of transport of goods within or outside the European Union, together with the activities included in it for the transport handling, document processing, storage and insurance (Art. 22 (5) VATA).
For the purposes of the Act, forwarding, courier and postal services other than those under Art. 49 VATA, provided in connection with the transport of goods within or outside the European Union shall be considered to be intra-European Union transport of goods or transport of goods outside the European Union respectively - Art. 22 (4) VATA.
Supply of services by an intermediary
Art. 24 VATA stipulates that the place of supply of services by an intermediary acting in the name of and for the account of another person provided to a non-taxable person shall be the place of the underlying supply in connection with which the intermediary has acted.