Vat & Communication Services

Cristina Trenta

European Commission, January 21st 2009

VAT and Communication Servicesin the European Tax System and in the Italian and Swedish Experience

Cristina Trenta – VAT and Communication Services

This talk examines European regulations in the field of VAT for communication services as modified by Directives 1999/59/EC and 2002/38/EC, currently contained in Directive 2006/112/EC as implemented within the national system in both Sweden and Italy

About this Talk


Goals

identification and classification of communication services

territoriality in the field of communication services

applicable VAT rates and the impact of these rates on national tax systems


Framework

Sixth Council Directive 77/388/EEC Council Directive 1999/59/EC Council Directive 2002/38/EC Council Directive 2006/112/EC Council Directive 2008/8/EC


Main Issues

Lack of harmonization connected with the national implementation of Directives 1999/59/EC and 2002/38/EC

The new course of Directive 2008/8/EC seems to perpetuate current defects


Lack of Harmonization

Double taxation and non-taxation issues may rise in transactions between Member statesThese might depend on:

Generic ambiguities in the text of the Directives

Implementation errors at the national level


Perpetuation of Current Defects

Simplifications following the application of the new art. 58 are not enoughThe scope of the option on effective use and enjoyment will become broader because of art. 59aMember states are allowed more freedom in the implementation of this rule


Classifying Supplies

Supplies of goods are the transfer of the right to dispose of tangible property as the owner [art. 14 (1) RVD ex Art. 5 (1) Sixth Directive]Supplies of services are those transactions which do not constitute a supply of goods [art. 24 (1) RVD ex Art. 6 (1) Sixth Directive]


(SE) Changes in National Tax Law

Sweden (SE)Act (2003:220)

Implemented Directive 2002/38/EC

Changes to the VAT Act (ML) were required, especially in respect to the rules on the territoriality of radio-television and electronic services (Ch. 5, 7§ ML)

New indents were added as par. 11, concerning services of radio and television broadcasting, and par. 12, concerning electronic services

These were classified as supplies of services


(IT) Changes in National Tax Law

Italy (IT)Legislative Decree (DLgs) 273/2003

Implemented such services within the frame of Presidential Decree (DPR) 633/72, art. 7, par. 4 as new letters d), f), f-ter) and f-quater)Effectively classified them as supplies of services


(IT) Issues in VAT Law

The definition of supply of goodsIs so broad it may be considered to cover any type of goods

Drops the distinction made at the EU level between on-line and off-line operation

Is in partial contradiction with Community provisions, as it defines supplies of goods “acts upon consideration that involve the transfer of property or the creation or transfer of rights of use or enjoyment for goods of any kind” (art. 2)


(IT) Issues in VAT Law

The definition of supply of servicesDiffers from the one given at the Community level

Positively and non residually defines supplies of services as “transactions upon remuneration which depend on a specific set of contracts and on bonds to do, not to do, to allow” (art. 3)


(IT) An Example

“The providing of meals on the part of a company that operates restaurants (...) is to be considered a supply of goods”(Corte di Cassazione, Dec 3 1997, n. 3953)

“Consequently, restaurant transactions are characterized by a cluster of features and acts, of which the provision of food is only one component and in which services largely predominate. They must therefore be regarded as supplies of services within the meaning of Article 6(1) of the Sixth Directive”(ECJ, Case C-231/94, Faaborg-Gelting Linien)

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(EU) Definitions

Communication Services

Telecommunication services Radio and Television broadcasting services

Electronically supplied services


(EU) Telecommunication Services

“(...) services relating to the transmission, emission or reception of signals, words, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception, with the inclusion of the provision of access to global information networks”

[Art. 24(2) RVD, ex Article 9(2)(e), 10th indent, 2nd sentence]


(EU) Telecommunication Services

“Services whose provision consists wholly or partly in the transmission and routing of signals on a telecommunications network by means of telecommunications processes, with the exception of radio broadcasting and television”

[Council Directive 90/387/EEC]


(EU) Radio-TV Broadcasting Services

Radio and Television broadcasting services are only mentioned in art. 56 (1) (j) RVD, ex art. 9 (2) (e) 11th, Sixth DirectiveBut Com (2000) 349 expressly recalls Directive 89/552/EC in respect to the definition of radio- and tv broadcasting


(EU) Radio-TV Broadcasting Services“Television broadcasting means the initial transmission by wire or over the air, including that by satellite, in unencoded or encoded form, of television programmes intended for reception by the public. It includes the communication of programmes between undertakings with a view to their being relayed to the public. It does not include communication services providing items of information or other messages on individual demand such as telecopying,electronic data banks and other similar services”

[Council Directive 89/552/EC]


(EU) Electronically Supplied Services

Annex II Directive 2006/112/EC, ex Annex L1. Website supply, web-hosting, distance maintenance of programmes and equipment;

2. Supply of software and updating thereof;

3. Supply of images, text and information, and making databases available;

4. Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;

5. Supply of distance teaching.

Council Regulation (EC) No. 1777/2005



Directive 2000/31/EC, on legal aspects of information society services

Recalls Directive 98/48/EC amending Directive 98/34/EC, which lays down a procedure for the provision of information in the field of technical standards and regulations



service any information society service provided for remuneration, at a

distance, by electronic means and at the request of a recipient at a distance without the parties being simultaneously present by electronic means sent initially and received at its destination by means of electronic

equipment (...) and entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means

at the individual request of a recipient of services provided through the transmission of data on individual request



Services not falling under the definition given by Directive 98/48 follow Annex V, Directive 98/34/EC:

1. Television broadcasting services (including near-video on-demand services), covered by point (a), art. 1, Directive 89/552/EEC

2. Radio broadcasting services


A Small Difference

The VAT Committee (2003) distinguished between electronically supplied services and television broadcasting services when they are provided simultaneously over different broadcast mediaThe ECJ confirmed the distinction between information society services and television broadcasting services in Case C-89/04 (Mediakabel BV vs Commissariaat voor de Media)


A New Concept of Media

Directive 2007/65/EC art. 1 (a) replaces Directive 89/552/ECIntroduces audiovisual media servicesThese can be supplied by electronic communications networks as per art. 2 (a) of Directive 2002/21/ECElectronic communications network are defined as transmission systems and they include the Internet


The New Way of the Commission

COM (2006) 210 Final

“The growth of podcasting, video-on-demand, streaming and digital broadcasting means that content can be accessed in several ways”

“It will be increasingly difficult to justify differences in tax treatment as broadcasting, telecommunications and e-services converge”


A Visual Comparison

IT EU

ITALY SWEDEN

EU


(SE) Communication Services

Defined in the Mervärdesskattelag (ML, 1994:200) when dealing with territoriality (Ch. 5, 7§10)

Ch. 5, 7§10 ML defines telecommunication services

Ch. 5, 7§12 ML defines electronic services

Overlap with praxis as Skatteverket defined telecommunication services in Dnr 4743-98/900


(SE) TV Broadcasting Services

ML offers no definition of tv broadcasting services, but Prop. 1996/97:81 distinguishes telecommunication services and television services:

“Also the transfer of data, radio messages and television programmes are covered by the definition, since only the transferring is relevant. The message itself, for example radio or television programmes, aren't covered by the definition”


(IT) Communication Services

DPR n. 633/72 gives no definitions of communication servicesDM n. 388/2000 is not harmonizedResolution n. 196/2002 confirms Italian definitions to be different from those of the EU


(IT) Telecommunication Services

“The transmission, emission, or reception of signs, signals, writing, images and sounds or information of any nature, supplied by wire, cable, radio, optical or other electronic or electromagnetic systems and instruments or similar, made available for the purposes by technology, the assignment or granting of the right to use the above cited means to provide telecommunications services; the distribution of radio-television signals by wire or satellite; the letting available of wire or satellite network; access to global information network; as well as any other operation ancillary to, or in any case connected to, the above mentioned services, when the same are regarded as an integral part of the services as per the contract agreement”.

[Decreto Ministeriale 24 October 2000, n. 366]


(IT) A Brief Recap

The Italian definition of telecommunication services: includes television services includes services that are simply linked with telecommunication services

goes directly against the ECJ Case Laws


(IT) TV Broadcasting ServicesThe Italian VAT Act does not define TV broadcasting servicesThe Gasparri Broadcasting Act, May 3 2004, no. 112, defines the Integrated System of CommunicationsLegislative Decree July 31 2005 no. 177, Testo Unico della RadiotelevisioneThe Italian definition of TV broadcasting services is not harmonized with the EU regulations, impacting taxation


(IT) The TV Act and the ECJ

ECJ Case C-380/05, Centro Europa 7 Srl v Ministero delle Comunicazioni e Autorità per le garanzie nelle comunicazioniThe Gasparri Act 112/2004 is not aligned with the EU legislation and the definition of TV broadcasting plays an important role


(IT) Electronically Supplied Services

The Italian Vat Act did not implement Annex L Directive 2002/38/EC now Annex II of the RVD DirectiveAn incomplete definition can be found in the praxis in RM 15/11/2004, n. 133120:

“An electronically supplied service is first of all a service delivered via the Internet or an electronic network or a service which is strictly dependent from information technology (that is, it is essentially automatic and involving minimal human intervention, and in the absence of information technology does not work)”


A Widespread Issue?

"Telecommunication services" means services relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems (...)"Telecommunication services" shall also include radio and television broadcasting services

[Rep. Of Malta VAT Act, Chapter 406 (11) (3)]


Place of Supply

Directive 1999/59/ECDirective 2002/38/EC Directive 2008/8/EC, for the place of supply of servicesTwo general cases: Communication service is supplied to a taxable person

Communication service is supplied to a non-taxable person


Rules of Territoriality

31/12/2009 31/12/2014

TELECOMMUNICATIONSERVICES ANDRADIO AND TVBROADCASTINGSERVICES

ELECTRONICALLYSUPPLIEDSERVICES

Art. 56(1) Dir. 2006/112/EC [ex art. 9(2)(e)] and the destination principle are to be applied

COMMUNICATIONSERVICES

The rule in art. 44, Dir. 2008/8/EC is to be applied. The destination principle stands. Art. 59 (a) on the effective use and enjoyment can be applied as well

B2B Transactions

B2C Transactions

Art. 45 of Directive 2008/8/EC applies (origin principle)

Art. 58 of Directive 2008/8/EC (destination principle) applies

Art. 43 (ex art. 9 (1)) Directive 2006/112/EC applies (origin principle) B

2CB

2B

Art. 57(1) (ex art. 9 (3) (f)) RVD applies

The place of supply is the place where the non-taxable person is established, has a permanent address or usually resides. It is not possible to apply art. 58(b) for the mandatory disposition in art. 58

New art. 58, Directive 2008/8/EC applies.

Art. 59 applies if the consumer is not an EU citizen

The criterion of effective use and enjoyment does not apply obligatorily, following art. 59. The residence criterion applies

All consumers fall under the provisions of the new art. 58 Directive 2008/8/EC (residential criterion)

Rule of the effective use and enjoyment contained within the new art. 59a is optionally appliable

B2C

Art. 59 (1) (2) on the effective use and enjoyment is to be applied mandatorily

Art. 59 a on the effective use and enjoyment applies mandatorily (ex art. 59b)

Art. 59 applies for non-EU consumers (residential criterion)

All consumers fall under the provisions of the new art. 58 Directive 2008/8/EC (residential criterion)

Rule of the effective use and enjoyment contained within the new art. 59a is optionally appliable

B2C


Issues Pertaining to the Effective Use and Enjoyment

Art. 59 (1) (2) of Directive 2006/112/EC applies [ex Art. 9 (4) of the Sixth Directive]Effective Use and Enjoyment for Telecommunication and Radio and Television Broadcasting Services for a non-EU supplier and a non-taxable resident customerGeneral lack of compliance between the two Member states could lead to risks of double taxation


Examples of Double Taxation

NON-EU SUPPLIERNON-TAXABLE RESIDENT CUSTOMER

Non Eu operator

Swedish non taxableresident person

buys here a service

And uses and enjoys the service

in Italy

TELECOMMUNICATION AND RADIO AND TELEVISION BROADCASTING SERVICES



NON-EU SUPPLIERNON-TAXABLE NON-RESIDENT CUSTOMER

Legal presumption of use if the service

is provided in Sweden through a stable

network connection

Legal presumption of use if the service is originating there

Non EU operator

Non taxable personnon resident customer

TELECOMMUNICATION AND RADIO AND TELEVISION BROADCASTING SERVICES

SWEDEN ITALY



NON-EU SUPPLIERNON-TAXABLE RESIDENT CUSTOMER

Non Eu operator

Swedish non taxableresident person

Non taxable person on the territory of the State

ELECTRONICALLY SUPPLIED SERVICES


Effective Use and Enjoyment

Bulgaria, art. 21(4)residence and effective use and enjoyment of the service within the country

Belgium, art. 21§5Réputée se situer en Belgique dès qu'une des parties à l'opération y a établi un siège d'activité économique ou un établissement stable

Latvia, art. 4 (7)(73) Shall be inland if a third country person provides such services to a non-taxable person


Rates on Communication Services

A reduced VAT tax rate can't be applied to electronically supplied services, as per Directive 2002/38/ECA reduced VAT tax rate for TV broadcasting services can be applied, as per Annex III Directive 2006/112/EC point 8


Changes

COM (2000) 348 final, Review and rationalization of the rules and derogations applying to the definition of reduced VAT rates

COM (2003) 397 final, Proposal for a Council Directive amending Directive 77/388/EEC as regards reduced rates of Value Added Tax

COM(2008) 428 final Council Directive


Unchanged ScenariosCOM(2008) 428 final Council Directive, amending Directive 2006/112/EC as regards reduced rates of Value Added Tax

Annex III to Directive 2006/112/EC after the future amendments still contained the provision for the reduced tax rate for television broadcasting services

Small change for audio books, CDs, CD-ROMs or any physical support that predominantly reproduce the same informational content as printed books

Intention at the Communitarian level is to maintain the preexisting scenario without any substantial change regarding television services

Annex III of Directive 2006/112/EC point 8 still outlines the possibility to apply a reduced tax rate for television services


Specific VAT Rates Issues

An uneasy correct classification and identification of electronically supplied services

A large discrepancy in VAT tax rates within Member states: from a low 14% in the Azores, Madeira, a 15% in Cyprus and Luxembourg, to a high 25% in Sweden and Denmark


SE: Case Study

Case 6845-04 rotel 11461The large gap in the VAT tax rate progression influences the location of the company

Sweden applies the highest VAT tax rate in the whole EU


IT: Case Study

Italy applies reduced VAT rates for Radio-TV broadcasting servicesBefore D.L. November 29 2008, no. 185:

TV license fee 4%Coded digital monthly and yearly subscription fees for cable and satellite services, inc. near VoD 10%Extensible to electronic services, but reduced VAT rates for electronic services are not allowedTV license fee for terrestrial services, inc. near VoD 20%


IT: Case Study

TV license fee 4%

TV license fee via mobile 4%

TV license fee via internet 4%

Coded digital TV license fee via cable, via satellite, via digital terrestrial, Near VoD included 20%

Uncoded Radio-Tv broadcasting services with a variety of different goals 4%

Tv advertisement 20%

Books 4%

Audio book 20%

Audio books for the blind or the almost blind 4%

DVD, CD-Rom 20%

DVD, CD-Rom if sold as part of a magazine 4%

TV lic

ense

fee

via

mobile

TV lic

ense

fee

via

inte

rnet

Coded

dig

ital

TV lic

ense

fee

via

cab

le,

sate

llite

, dig

ital

ter

rest

rial

, nea

r VoD

Unco

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Rad

io-T

v bro

adca

stin

g

serv

ices

with d

iffe

rent

goal

s

Tv a

dve

rtis

emen

t

Books

Audio

books

Audio

books

for

the

blin

d

or

the

alm

ost

blin

d

DVD

, CD

-Rom

DVD

, CD

-Rom

if so

ld

as p

art

of a

mag

azin

e

TV lic

ense

fee

4% 4% 4% 4% 4% 4% 4%

20% 20% 20%20%

A B C D E F G H I L M

VAT rates after DL 185/2008


Conclusions

EU concepts and definitions do not find direct correspondence in national Acts

Callbacks to national Acts are used Terminological differences are common This leads to double taxation, non-taxation, and harmful tax competition

EU regulations are weakened and often abolished by national, domestic rules


Thank You

Cristina TrentaPhD, European Tax [email protected]@ihh.hj.se

With many thanks toProf. Björn Westberg, JIBS (SE)Skattenytt Foundation

Vat & Communication Services

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Transcript of Vat & Communication Services