To continue on the discussion of VAT 2010 changes we want to provide more insight into the scope of these changes.
Starting on January 1, 2010, all businesses in the European Union need to be in compliance with the fundamental changes to the VAT system agreed on by the ECOFIN in December 2007 and adopted in February 2008. Any size company in any industry has the potential to be impacted. Businesses with complex supply chain operations and complex selling models will be impacted the most. And while these changes – dealing primarily with place of supply of services and the recovery of VAT of purchases made in other EU countries – will modernize and simplify current rules, they will also be highly disruptive.
In order to comply, businesses will need to determine exactly how they will be individually effected by the changes. They will have to retool their financial systems. And they will have to redefine business processes and retrain employees. Yet sometimes disruption can be a useful thing, and the 2010 VAT changes, however unsettling, present businesses with the opportunity to strike out into new directions and forge more flexible, cost-effective and sustainable approaches to ongoing VAT compliance than they have been used to. But first it is necessary to understand the scope of the changes and their business impact.
Changes to Place of Supply of Services
In a major change to the VAT system, business-to-business (B2B) supply of services will be taxed where the customer is situated, and no longer where the supplier is located. Business-to-consumer supply of services, on the other hand, will continue to be taxed in the country where the supplier is situated. That sounds simple enough, but there are variables and circumstances that negate these general rules. For instance, if you supply restaurant and catering services, or are involved in transport, cultural, entertainment, educational, telecommunications or electronic services to consumers, specific rules apply to bring taxation to the place of consumption.
Changes to EC Sales Listings (ESL)
Sales Listings used to apply only to B2B sales of goods. But in another major change, as of 2010 they extend to the supply of B2B services to which the reverse charge applies. Again, there are variables. B2C supplies are not covered, nor are B2B supplies when they are not taxable for the customer. Member States also will have specific rules around when to file the ESL.