Be ready for January 1st VAT changes, CIOT reminds businesses

The EU VAT Package, which comes into effect on January 1st 2010, means big changes to rules on the taxation of cross-border services. At present, some services (such as management services) are treated, for tax purposes, as being supplied where the business supplying them is based. But from the new year, virtually all services supplied to a business in another EU member state will be regarded as having been supplied in the place where the customer (the business receiving the service) is established.

This is a response to the internationalisation of service provision and the fact it has become so much easier over recent years to provide services at a distance. The reforms are designed to produce a more level playing field between service providers, and to prevent them reducing their VAT bill by locating outside the EU, or in the EU member states with the lowest VAT rates.

Douglas Gordon, Chairman of the CIOT’s VAT and Indirect Taxes Sub-Committee, said:

“Any business which supplies or receives cross-border services needs to be ready for these changes. Most will be already have been contacted by their advisers but any that haven’t should seek advice straight away.

“The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits.

“However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them. The existing ‘Intrastat’ system is therefore being extended from goods to services, with a consequential increase in the administrative burden, and many businesses being brought into the system for the first time.

"Unfortunately, the system will continue to have its complexities. The EU needs to be ready to step in and resolve problems that come about where there are differences in views between member states. For example, where a UK company has a presence in, say, Germany and makes a supply to a German customer, what level of involvement does the UK company's German presence require before the supply is treated as having been made by that entity? It is important that businesses are not caught in the middle.”

Notes to editors

Further information on the changes is available in a number of articles published in 2009 in Tax Adviser magazine (the magazine for CIOT and Association of Taxation Technicians members) –

‘A Happy New Year?’ (Neil Owen, December 2009 edition)
‘The VAT Package – Looking Forward to 2010’ (Richard Woolich, May 2009 edition)
‘The VAT Package – Time to Take Action’ (Richard Woolich, April 2009 edition)

- ENDS -

For further information please contact George Crozier on 020 7340 0569 or email gcrozier@ciot.org.uk