"The Internal Market, globalisation, deregulation and improved
technology have all combined to create enormous changes in the
volume and pattern of trade in services within the European Union,"
said Frits Bolkestein, Commissioner for the Internal Market and
Taxation. "It is increasingly possible for a number of services to
be supplied at a distance and therefore a review of the VAT rules
in this area is necessary."
The consultation is based on a paper prepared by the
Commission's Taxation and Customs Directorate-General. The paper
considers the idea of shifting taxation from the place where the
supplier is established or has a fixed place of business to the
place where the customer is located, when the customer is a
trader.
The current system, that of taxing in the place where the
supplier is located worked adequately when the VAT system was first
introduced but, with increasing supplies of services across
borders, this rule can now lead to administrative complexities,
distortions of competition and double or non-taxation of
international supplies of services.
The paper considers the idea of changing the VAT rules so that
the customer (if he is a trader) rather than the supplier would be
responsible for paying the VAT on services supplied to him. In
other words, the rules for applying VAT to services supplied to a
business customer in another EU country would be modelled on the
current rules for VAT on goods sold to a business in another Member
State.
This would reduce administrative burdens since it would mean
that suppliers would not, as is often the case at present, have to
register for VAT purposes when providing services into a Member
State other than that in which they are established.
Furthermore, as the changes would bring the VAT rules more into
line with rules concerning the taxation of supplies of services in
many non-EU jurisdictions that apply consumption taxes, there would
be less risk of double or non-taxation in the case of international
supplies of services.
Since such a change would mean that a service provided to a
business in another country would be exempted from VAT in the
Member State of the supplier, information exchange between Member
States' tax administrations would be important to ensure that the
VAT is actually paid by the receiving trader.
Therefore, the report also considers the possibility of
extending to supplies of services the system of electronic
information exchange used between tax authorities, known as the
"VAT Information Exchange System" or "VIES".
The paper suggests that even if the basic rule for the place of
supply of services rules were to be altered in this way, it would
still be necessary to exclude certain supplies, such as passenger
transportation service, sporting or artistic services, from this
general rule for administrative and policy reasons.
The consultation is open for comments until the end of June
2003.
The consultation paper is available at
this page of the EU's web site.
