The place of supply of services rules in the VAT Act , were transposed from Council Directive 2008/8/EC of 12 February 2008 (commonly referred to as the VAT Package) that amended Council Directive 2006/112/EC (the VAT Directive).  On 1 January 2010, new rules were introduced to ensure that VAT on services will better accrue to the country of consumption.

 

The new rules make provision for determining the place where a service is considered to take place and therefore where the service is to be taxed. In most cases services would be taxed under the so-called default rule, or general rule, but there are a number of exceptions where specific rules apply.

 

The following overview is intended to serve as a general guide towards understanding of  the new 'place of supply of services' rules.

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Overview​

 

The place of taxation is determined by where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service. A distinction must be made between a taxable person acting as such (a business acting in its business capacity) and a non-taxable person (a private individual who is the final consumer).  The various 'place of supply of services' rules, can be summarised as follows:

 

a) Default Rule B2B  - the place of supply shall be where the taxable person who receives the supply of services, has established his business.

 

 

b) Default Rule B2C - the place of supply shall be where the supplier has established his business.

 

 

It is to be noted that the place where the business of a taxable person is established shall be the place where the functions of the business’s central administration are carried out.  Account shall be taken of:

 

• the place where essential decisions concerning the general management of the business are taken;

• the place where the registered office of the business is located ; and

• the place where management meets.

 

 

c) Special Rules for certain services that apply irrespective of the status of the customer, relating to :

 

• services connected to immovable property -  the place of supply shall be where the property is located;

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• passenger transport - the place of supply shall be where the transport takes place, proportionate to the distances covered;

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• short term hiring of transport -  the place of supply shall be where the means of transport is actually put at the disposal of the customer; and

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• restaurant/catering services -  the place of supply shall be where the services are physically carried out. 

 

 

d) Special Rules for supplies to taxable persons in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and of ancillary services related to the admissions, supplied to a taxable person - the place of supply shall be the place where those events actually take place.

 

 

e) Special Rules for supplies to non-taxable persons , relating to :

 

• intermediary services - the place of supply shall be where the underlying transaction is supplied;

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• transport of goods - the place of supply shall be where the transport takes place, proportionate to the distances covered;

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• long term hiring of transport - the place of supply shall be where the customer is established, has his permanent address or usually resides;

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• ancillary transport activities such as loading, unloading, handling and similar activities  - the place of supply shall be the place where the services are physically carried out;

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• work on movable tangible property - the place of supply shall be the place where the services are physically carried out;

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• entertainment/education, telecoms, broadcasting - the place of supply shall be the place where the customer is established, has his permanent address, or usually resides; and 

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• electronically supplied services - the place of supply shall be the place where the customer is established, has his permanent  address, or usually resides.

 

 

Further Observation

 

In each one of the above broad categories, there are a number of grey areas and areas of uncertainty, as exceptions by various member states have been introduced, to prevent double taxation, non-taxation or distortion of competition. For example, member states may decide to shift the place of supply of services, which are either inside or outside the EU to inside or outside their territory, when according to the effective use and enjoyment of the service this differs from the place of supply as determined by the general rules. This is referred to as the 'use and enjoyment override'. 

 

One needs to consider also the evidence that would need to be provided to the VAT authorities to justify the application of anyone of the various place of supply of services rules, particularly in the case of non-taxable persons operating a superyacht for personal use. 

 

 

If you would like to know more about this  'place of supply of services'  VAT matter, please contact us.