THE burden of identifying the location of your EU digital goods consumers from January 2015 onwards is all on you: the supplier of the service.
This burden includes the collection of evidence in identifying consumers in the EU. The 2015 EU VAT legislation requires two non-conflicting pieces of evidence to be produced so as to determine what VAT rate should be applied to these digital goods sales. This will, undoubtedly, increase the administrative burden on suppliers, particularly so for small-to-medium sized businesses without the benefit of a large staff base.
This chart outlines the process of providing evidence to identify where consumers of digital goods are located in the EU. Chart courtesy of the EU Taxation & Customs website.
If you provide broadcasting, telecommunications and electronic services to consumers in the EU then you have a decision to make. How will you go about identifying the location of your consumer in the EU?
Guidelines for identifying consumers
The UK tax authority (HMRC) provides the following guidelines allowing you to presume the location of the consumer. The guidelines are as follows:
If the service is provided through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided
If the service is supplied 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 journey
If the service is supplied through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located
If the service is supplied through a mobile phone, the consumer location will be the country code of the SIM card
If a broadcasting service is supplied through a decoder, the consumer location will be the postal address where the decoder is sent or installed
The UK tax authority has also indicated that so as to keep the administrative burden on businesses to a minimum, your business can apply these consumer location guidelines without needing to collect and keep any supporting evidence.
Non-contradictory pieces of evidence
However, if the guidelines above do not identify where your consumer is located you can select the correct consumer location. To support this, you will need to provide three pieces of non-contradictory commercial evidence (for example, evidence of the consumer’s billing address, their bank details, their internet protocol (IP) address) to support your view.
On the flip side a tax authority can challenge a supplier’s presumption of their consumer’s location. In this case – as per the chart above – the tax authority will require three pieces of non-conflicting evidence proving the customer’s location.
Examples of non-conflicting evidence include:
The customer’s billing address
Fixed landline of the customer
An IP address
Bank account details
A mobile phone SIM which will contain an EU country code
Other commercially relevant information
If your business provides broadcasting, telecommunications and electronic services in situations not included in the above list, then your business will have to back-up the decision identifying consumers in the EU by providing two pieces of non-contradictory evidence.
In the Draft Explanatory Notes of the 2015 VAT changes it clearly states that “some businesses may decide to collect four or more pieces of information which show two different (or more) sets of non-contradictory evidence.”
It goes on to point out that it is the supplier who decides which items of evidence to collect and further, if information gathered is conflicting, which elements he considers as most reliable for identifying the location of the customer.
The bottom line: if you supply broadcasting, telecommunications and electronic services to consumers in the EU then you will have to decide soon what process you will use to identify/prove their location.
If you need a technical solution for your e-commerce website to comply with the new EU VAT rules, contact Taxamo. We have a full solution that enables merchants to be fully compliant by 1 January, 2015.
- Storing transaction data for ten years
- How will you account for your B2C customers?
- Does your system account for evidence collection?
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Our one simple integration meets the requirements of international digital tax laws on tax calculation, reporting, and invoicing. It also offers merchants a simple, cost-effective, and reliable way to stay compliant.
Taxamo launched with an EU VAT solution in January 2015 and has since expanded to support US digital tax (sales & use), Japanese consumption tax (JCT), South African VAT, Norway’s VAT system, Switzerland VAT, Canadian domestic sales tax, and South Korean VAT. Further regions will be introduced throughout 2016.
Existing Taxamo customers include BBC Worldwide, BitTorrent, Penguin Random House, and Time Inc., among many others. In addition, Taxamo has announced a number of strategic partnerships including Braintree Payments and WooCommerce.
Note: Taxamo content is created for guidance only, please consult your local tax advisor for professional advice.