Electronically Supplied Services

From 1 January 2015, where digital services are supplied on a business-to-consumer basis, the supplier is responsible for accounting for VAT on the supply at the VAT rate applicable to where the customer is based.

The rule change only applies to ‘e-services’ that are ‘electronically supplied’ and includes things like:

• supplies of images or text, such as photos, screensavers, e-books and other digitised documents, for example, PDF files

• online magazines

• supplies of software and software updates

• advertising space on a website

It specifically does not include educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link).

In order to be electronically supplied the service has to involve minimal or no human intervention.  In practice this can be either:-

• where the sale of the digital content is entirely automatic, for example, a consumer clicks the ‘Buy Now’ button on a website and either:
  • the content downloads onto the consumer’s device
  • the consumer receives an automated email containing the content
• where the sale of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an e-service

Currently there are no services provided by the University that have minimal or no human intervention but this is reviewed on at least an annual basis

All ‘e-services’ that are ‘electronically supplied’ in the ways outlined above are ‘digital services’ and are covered by the rule changes.

Examples of electronic supplies and whether or not they’re ‘digital services’

How to determine where the customer is based?

To try to simplify the rules for some supplies of digital services the supplier can make a ‘presumption’ about the place where the supply is to be taxed. Where the presumptions apply, the business doesn’t need to know in which country the consumer of the digital service resides. This in turn means that where a digital services supply is made through one of the locations below, the business supplying the service doesn’t need to obtain any further evidence to justify in which member state the VAT is due.

Types of supplies covered by the presumption rule include where the digital service is supplied:

• through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby (VAT will be due in the member state where those places are actually located - if a German tourist makes a call from a telephone box in France, VAT will be due in France)
• on board transport travelling between different countries in the EU (VAT will be due in the member state of departure, for example, if a ferry operator provides a wi-fi hotspot on board ship which is available to passengers for a fee, VAT will be due in the member state of departure and won’t depend on a passenger’s place of residence)
• through a consumer’s telephone landline (VAT is due in the member state where the consumer’s landline is located)
• through a mobile phone (the consumer location will be the member state country code of the SIM card - if a French resident downloads an app to their smartphone while on holiday in Italy, VAT will be due in France)

Where the digital services are supplied other than in the circumstances listed above, the business making the supply must obtain and keep 2 pieces of non-contradictory evidence to show which member state the customer is normally located in.

Examples of the type of supporting evidence that tax authorities will accept include:

• the billing address of the customer
• the Internet Protocol address of the device used by the customer
• customer’s bank details
• the country code of SIM card used by the customer
• the location of the customer’s fixed land line through which the service is supplied
• other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)