EU VAT REVIEW

The need for such review

The basic rules regarding the place of services in cross border situations are well known.

• B2B services: The place of supply of services to a taxable person acting as such shall be the place where that person has established his business. And inextricably linked to this is a reverse charge of VAT, i.e. the VAT shall be payable by the recipient of the services. He is liable for payment of the VAT to the tax authorities in his member state.
• B2C services: The place of supply of services to a non-taxable person shall be the place where the supplier has established his business. And in principle the VAT shall be payable by the taxable person carrying out a taxable supply of services.

However when it comes to services that do not follow the basic rules, things become more complicated. This is the case for the supply of services connected with immovable property. The place of supply of services connected with immovable property, shall be the place where the immovable property is located. Although there are other issues such as which services do have a sufficient link with the immovable property, the most important issue here is: who is liable for paying the VAT when the taxable person carrying out a taxable supply of such services is not established in the member state where the immovable property is located?

The reason for the complexity is that the EC Directive did not impose one solution, but it allows the member states to decide who is liable for paying the VAT in such case. Consequently different member states will have different solutions and this means that one should know the VAT legislation of 28 member states in order to find the answer in each member state. Without the help of experts in the different member states this would hardly be possible. The strength of this review is that all member states where Morison KSi has independent members have contributed. Due to its geographic position within the EU the study was extended to Switzerland.

Case Study

Member firms were given a case study and asked to consider the VAT requirements, in their countries, in a number of different circumstances.

Facts: The client is a company which is neither established in the country where the immovable property is located nor does it have a permanent establishment (PE) in that country. This client is active in the building industry and is hereafter referred to as EU-BUILD.

EU-BUILD has concluded contracts for the construction of buildings in the country where the immovable property is located. Sometimes EU-BUILD works solely with its own personnel however sometimes the services of subcontractors are used – both local subcontractors and foreign subcontractors (not established in that country).

Occasionally EU-BUILD brings its own materials from its home country to the construction site in that country.

The place of supply of such services shall be the place where the immovable property is located (art. 47 of Directive 2006/112/EC). Therefore, if EU-BUILD performs such construction works in that country, than the local VAT is applicable, not only in the relation between EU-BUILD and the principal, but also in the relation between EU-BUILD and its subcontractors.

Questions, collated data and summary

All firms were asked whether EU-BUILD should register for VAT in their country and whether it should pay the local VAT to their local VAT authorities or whether it could/should apply a “reverse charge” of VAT in a number of circumstances.

The answers collected will give the reader a first inside in the local VAT rules in the different member states (and Switzerland) as regards services connected to immovable property.

This VAT review was initiated by and carried out under the leadership of Hans Philips – Van Havermaet (Belgium). With special thanks to all the member firms that have contributed to the success of this VAT cross border initiative.