Vienna Conference “The Future of VAT in a Digital Global Economy"

Session IV – Intermediated delivery and third party billing

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Sophie Claessens (PwC)

25 September 2014

@ PwC 2014

Session overview

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Background

The world’s Digital Transformation

Challenges in identifying who owes the VAT in a digital supply chain

Why bother?

Business scenarios and their VAT implications

One digital content service, multiple intermediaries

Agency / Principal

Above-the-VAT-line billing vs. Below the VAT line billing

The EU approach

EU VAT Directive

Implementing provisions

Explanatory Notes

ECJ case law

Fitness for purpose?

@ PwC 2014

The world’s digital transformation More connectivity…

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0

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

% U

K A

cti

ve

Ad

ult

Po

pu

lati

on

Transitional Digital Natives Traditional Consumers

Digital converts Digital natives

@ PwC 2014

Delivery and billing of digital content A complex distribution chain…

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Aggregator

Content owner

Content owner

Content owner

Portal

Content owner

Content owner

AppStore

Content owner

Content owner

Consumer

• Different sales situations

• Long and cross-border supply chains

• Multiple intermediaries

• Different roles and legal responsibilities

• Use of payment service providers

• Cash flows do not always coincide with service delivery

@ PwC 2014

Challenges in identifying who owes the VAT What’s the relevance?

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Money

Service

Who is the «real» supplier for VAT?

• who is liable for VAT accounting on the supply to the consumer?

• what is the contractual and commercial capacity of the intermediary?

• where is the burden of proof?

• Tax authorities interests: assure VAT revenues and ease of control

• Business stakes: uncollected VAT exposure, margin evaporation, unfair competition

Content

Provider Intermediaries

Private

Consumer

@ PwC 2014

Role of the intermediary Above-the-VAT-line billing

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The Access Operator acts as the direct content provider (operator branded content)

The Access Operator acts as commissionaire/undisclosed

agent (third party content)

Money

Service

Billing

@ PwC 2014

Role of the intermediary Below-the-VAT-line billing

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The content provider contracts directly with the end user, the access operator acts as a disclosed agent towards the content provider.

Money

Service

Billing

@ PwC 2014

Who owes the VAT in a digital supply chain? EU VAT 2015 decoded

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Imp

lem

enti

ng

Mea

sure

s

Am

end

s

Am

end

s

Rules for 904/2010

in light of MOSS

Am

end

s in

lig

ht

of

MO

SS

Explanatory Notes

Implementing Reg 1042/2013

Implementing Reg 282/2011

Reg 904/2010

Combating Fraud

Implementing Reg 815/2012

MOSS guidelines

Implementing Reg 967/2012

National Legislation

Directive 2008/8/EC

Principal VAT Directive

2006/112/EC

Member State

Interpretations

Taxpayer

@ PwC 2014

Who owes the VAT in a digital supply chain? Article 9a(1)

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Where electronic services are supplied through a telecommunications network, an interface or a portal.....a taxable person taking part in that supply shall......be presumed to be acting in his own name but on behalf on the electronic service provide unless that service provide is explicitly indicated as the supplier by that taxable person and this is reflected in the contractual arrangements between the parties.......

@ PwC 2014

Who owes the VAT in a digital supply chain? Article 9a(1)

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Key questions

Who is “taking part” in the supply?

What does it mean to those involved?

When can the Content Provider be explicitly indicated as making the supply to the consumer?

What are the limitations?

Are payment providers “taking part” in the supply?

@ PwC 2014

Who owes the VAT in a digital supply chain? Article 9a(1) continued

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“........In order to regard the electronic service provider as being explicitly indicated as the supplier of the electronic services by the taxable person, the following conditions must be met:

(a) the invoice issued or made available by each taxable person taking part in the supply of the electronic services must identify the electronic services and the supplier of those electronic services;

(b) the bill or receipt issued or made available to the customer must identify the electronic services and the supplier of those services.

A taxable person who, in regard to a supply of electronic services, sanctions the charge to the customer, sanctions the delivery of the services or sets the general terms and conditions of the supply, shall not be able to explicitly indicate another person as the supplier of those services.”

@ PwC 2014

Who owes the VAT in a digital supply chain? Article 9a(2)

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Article 9a also applies to

Telephone services provided through the Internet (VoIP)

Supplied through a telecommunications network, an interface or a portal such as a marketplace for applications.

@ PwC 2014

Who owes the VAT in a digital supply chain? Article 9a

Complex decision chart with presumptions and rebuttals

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@ PwC 2014

EU VAT supply chain rules – Fit for purpose? Some summary thoughts…

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• Different perspectives and roles of the parties in the chain

• Available information flow/knowledge within the chain?

• Taxable amount, location & status of customer, registration (s), invoicing, VIES etc, etc?

• Interpretation by MS?

• Robustness of Art 9a?

• Potential for errors

• VAT, commercial, legal, IT and accounting impact?

• Need for commercial and legal certainty and protection

• Need to be ready for January 2015

Thank you!

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