VAT Changes

From 1 January 2010, new VAT rules came into effect across the EU with regard to the VAT that arises on cross-border supplies and the procedure for recovering foreign VAT. This is one of the biggest changes to the EU VAT system in recent years, and the changes will be phased in over the next 5 years culminating in a one stop VAT shop in 2015.

The three principal areas where there is change are as follows:

• The place of supply rules for services
• Cross-border refund procedures simplified – Simplification of the 8th Directive Refund Procedure
• New compliance requirements – VIES Returns for Services

Place of Supply of Services

Prior to 1st January 2010, the general rule regarding the place of supply of services to other VAT registered persons is that the VAT liability arises in the EU country where the supplier has his place of business, subject to certain exceptions.

From 1 Jan 2010 business to business services will be deemed to be supplied where the customer is located. This simplification means that the recipient of the service will self account for the VAT liability on the service in the country where they are located. There are a number of exceptions to this rule including services connected to land and buildings, passenger transport services, restaurant and catering services. Key areas to which the reverse charge will be extended are administrative services, leasing of means of transport and work on moveable goods (i.e. repairing moveable goods).

Foreign VAT refunds

From 1 Jan 2010 businesses will submit their foreign VAT reclaims electronically to the Irish Revenue who will verify the claim and forward it to the appropriate Member State to process the refund. This should speed up the claims process and provide a greater legal certainty for the claimant. The deadline for filing a foreign VAT refund claim will be extended from 30 June to 30 September following the end of the year in which the VAT was incurred. The new rules will restrict recovery for partially exempt companies to the Irish recovery rate.

New VIES filing requirements

The new rules have extended the VIES filing requirements to services. Suppliers of certain services to foreign EU business customers will be required to file quarterly statistical VIES returns electronically through ROS from 1 Jan 2010.
The new rules also introduce a requirement that where the value of the goods supplied to foreign EU business customers exceeds €100,000 per quarter then a monthly VIES return will be required rather than a quarterly return.

Penalties will apply for late or incorrect submissions of VIES returns.

The benefit of the new rules is that they provide a simplification of the method of accounting for VAT and a consistent treatment of VAT on services across the EU. On the downside there is the potential for an increase in reverse charge costs for VAT exempt or partially exempt businesses and there are new compliance requirements which will be an additional burden on business.