EU 2015 VAT Changes – Customer Location

2015 EU VAT changes – Determining customer location

By now most of you will be aware of the EU VAT changes to digital downloads, where the VAT is now charged for the country it is downloaded in rather than from where it is supplied, however many businesses are questioning how they determine their customers place of supply. Many people now a days use many different installs or plugins etc. to change their perceived location, for example there are many chrome plug ins that allow you to set your location to different countries in order to access certain video streaming services or websites otherwise blocked or different in the country that they are in, but will this affect the VAT rate that they pay for digital downloads? Could you for example be in Hungary and set your location to Luxembourg in order to only pay 17% (new 2015 rate) instead of 27%? And if so how to companies prevent this from happening and inadvertently committing VAT fraud.

Which means that the key issue for suppliers will be to correctly identify where their customers belong, so they can apply the correct rate of VAT. In order to try to provide both clarity and certainty on this point the regulations contain a number of presumptions which will have legal effect in all 28 EU Member States.

When you provide digital services in the circumstances below, you can presume that the location of your consumer is as specified below. If the service is supplied:

• Through a decoder, the consumer location will be the postal address where the decoder is sent or installed.
•Through a Wi-Fi hot spot, an internet café, a restaurant or a hotel lobby etc., the consumer location will be the place where the services are provided
• Through a mobile phone, the consumer location will be the country code of the SIM card.
• On board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the consumer’s journey.
• Through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located.

Where one of the presumptions apply, you are only required to retain evidence showing the relevant place (e.g. the place where the decoder is installed). However, if you choose to, you may rebut the presumption using alternative evidence. To support this decision you will need to collect and to keep three pieces of non-contradictory commercial evidence.

If you are providing digital services in circumstances not listed above, you will need to support your decision about the consumer’s location by providing two pieces of non-contradictory commercial evidence.

If the presumptions referred above do not apply, you will be expected to obtain and to keep in your records two pieces of non-contradictory evidence from the following list to support your taxing decisions. E.g.:

• Billing address of the customer
• Internet Protocol (IP) address of the device used by the customer
• Bank Location
• Country code of SIM card used by the customer
• Location of the customer’s fixed land line through which the service is supplied to him
• Other commercially relevant information (e.g. product coding information which electronically links the sale to a particular jurisdiction)

Once you have two pieces of non-contradictory evidence that is all you need and you do not need to collect any further supporting evidence. This is the case even if, for example, you obtain a third piece of evidence which happens to contradict the other two pieces of information.

Additionally you need to assess whether there is sufficient VAT knowledge in your business to handle the resulting VAT compliance, across a number of jurisdictions and whether your IT systems and business infrastructure will adequately capture, record and declare the appropriate information.

Failure to prepare adequately for the impact of 2015 on your company could lead to financial penalties, loss of income through an unsuitable pricing strategy, potential for a detrimental effect upon your customer ‘buying experience’, interest for non-compliance and/or late registration, and the potential to register for VAT in every EU country in which you have customers. Following these guidelines will help ensure that you are being VAT compliant, even if the customer is trying to hide their location, as you will have sufficient evidence to show that you are charging what you believe to be the correct VAT.

For more information on the EU 2015 changes see our previous blog:

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