Tag Archives: pos

VAT: Place of supply of matchmaking. The Gray & Farrar case

By   26 November 2019
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Latest from the courts

The Gray & Farrar International LLP (G&F) First Tier Tribunal (FTT) case.

The romantic side of VAT (well…if romance comes at a cost of £15,000 a time).

The issue here was the place of supply (POS) of the services provided by G&F to clients all over the world.

Background

The Appellant ran an exclusive matchmaking business. It provides its services to clients in many jurisdictions. It argued that its supplies to non-taxable (individuals) persons who reside outside the EU where outside the scope of UK VAT because the POS was where the supply was received. HMRC formed the view that these services did not fall within the required definition of “consultancy” such that the POS was where the business belonged. As G&F belonged in the UK, the relevant services were subject to VAT. So, the issue was: whether matchmaking could be regarded as a consultancy service.

Legislation

The EU legislation is found at The Principal VAT Directive, Article 59(c) (“para(c)”) and in the UK law at The VAT Act 1994, Schedule 4A para 16(2)(d).

In the words of para (c):

“the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information” 

So, did G&F’s services fall within para (c)?

Decision 

The judge stated that “… the services provided by the appellant must be compared with services “principally and habitually” provided by a consultant…and that such similarity is achieved when both types of service serve the same purpose.”  And that consultancy is “advice based on a high degree of expertise” or “specialist and expert advice by someone with extensive experience/qualifications on the subject”.  Was matchmaking that?

Well, the FTT decided that services would fall within para(c) if they are services of the sort which are primarily and habitually supplied by one or more of the specifically listed suppliers and that “consultants” are not limited to persons who are members of the liberal professions but to persons who are in ordinary usage “consultants” and typically act in an independent manner – that is to say are not dependent on, or integrated with, their client.

HMRC argued that what G&F were providing was the possibility of entering into a long-term happy relationship: and that was what the Appellant was selling. The FTT accepted that that dream was what the typical client would want, but saw a difference between what is provided and the reason the service is wanted. It gave the example of a school providing education, not the hope of a good job.

Further, HMRC contended that G&F’s activities went far beyond the provision of advice and information because they involved all the other elements that go into the service of matchmaking. Those activities included ascertaining and executing the needs of the client, reading the non-verbal clues, reading body language, and the inexplicable magic of applying knowledge based on intuition and experience to identify people who may be compatible. The FTT said that that was all very well but drew a distinction between the skills required by the seller and what was sold.

Split decision

A first Tribunal member concluded that the material elements of the supply consisted only of the provision of information and expert advice, and the supply fell within para (c).

Another Tribunal member considered that the actions of the liaison team in G&F promoted and helped the making of a successful relationship, but he was not persuaded that the support provided by the liaison team assisted the provision of information about a potential partner or served the supply of G&F’s MD’s advice that a particular person might be suitable. It was support in the developing of a relationship – support in addition to the use of the information and expert advice received – and was not shown to be sufficiently inconsequential to say that it was just part of those elements. The liaison team provided a form of ready-made confidante for the client with whom he or she could discuss a relationship and his or her hopes and concerns for it or for other relationships. It enabled him or her to obtain the kind of support one might obtain from a friend – a listening ear or sounding board – and informal advice.

As two members of the Tribunal disagreed on the outcome, it fell to the judge to give a casting vote; which he did in favour of dismissing the appeal.

So, in this case at least, matchmaking is not consultancy. (Although I like the definition of the service being “inexplicable magic”).

Commentary

If it easy to make assumptions about the precise nature of a type of service. In order for certain services to be UK VAT free they need to meet the relevant criteria fully. “Consultancy” is a bit of a catch all, but this case illustrates the dangers of a lack of analysis. This was a close case and I could see the decision going the other way on another day quite easily.

VAT: Digital services to EU customers after Brexit

By   1 October 2019
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HMRC has published guidance on how to account for digital sales to EU customers when the UK’s MOSS system becomes redundant. Full document here.

After Brexit, businesses will no longer be able to use the Mini One Stop Shop (MOSS) to declare sales and pay VAT due in EU Member States.

The final return period for MOSS will be the period ending 31 December 2019.

A business will be able to use MOSS to:

  • submit a final return by 20 January 2020
  • amend the final return until 14 February 2020
  • update registration details until 14 February 2020
  • view previous returns

For sales made after Brexit, a business will need to register for either:

  • VAT MOSS in any EU member state
  • VAT in each EU member state where you sell digital services to consumers.

Registration deadline

A business will need to register by the 10th day of the month following its first sale to an EU customer after Brexit.

A business cannot register before Brexit.

The EC website may be used to:

  • check whether a business should register for Union or Non-Union MOSS
  • find out who to contact to register for VAT MOSS in an EU member state.

Further details are provided in the HMRC guidance.

The above assumes that the UK will leave the EU, and that there will be no agreements on VAT before Brexit

What are digital services?

Radio and television broadcasting services

These include:

  • the supply of audio and audio-visual content
  • live streaming

Telecommunications services

This means transmission of signals of any nature by wire, optical, electromagnetic or other system and includes:

  • fixed and mobile telephone services
  • Voice over Internet Protocol (VoIP)
  • voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services
  • paging services
  • access to the internet

Electronically supplied services

These rules only apply to e-services that you supply electronically and includes things like:

  • supplies of images or text, such as photos, screensavers
  • supplies of music, films and games
  • online magazines
  • website supply or web hosting services
  • distance maintenance of programmes and equipment
  • supplies of software and software updates
  • advertising space on a website

VAT: Land and property quiz – Answers

By   1 August 2019
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The “fun” quiz.

The important thing to consider is what the purchaser does, or intends to do, with the land once purchased. This will dictate the input tax recovery position. So, can the input tax be recovered? Answers to quiz questions in the 26 July 2019 post below

Answers 

On the purchased land the person constructs:

  1. a dwelling and supplies the house on a 25-year lease

Yes

The lease is 21 years or over, so it is zero rated. However, a lease under 21 years would be an exempt so no recovery. For more details

  1. an office and uses it for his own business supplying FS to a client in China

Yes

However, if the FS supply had been to the UK or another EU Member State, the supply would be exempt so no input tax recovery. This may change in the event of a No-Deal Brexit.

  1. a storage facility and a fully taxable company leases it to another company in the same partly exempt VAT group after opting to tax

No

Unlikely to be full input tax recovery as the VAT group is itself partly exempt. The Capital Goods Scheme (CGS) may apply.

  1. a block of ten flats with a gym and swimming pool which tenants are entitled to use. Grants 99 years leases on all flats

Yes

The supply is zero rated, notwithstanding there are additional (to usual residential dwellings) facilities.

  1. a dwelling but uses it for short term holiday lets of no more than a fortnight.

Yes

Holiday lets are standard rated, so the business would be taxable. The purchaser would need to VAT register, however.

  1. a warehouse which is sold on completion but without an option to tax being made before the sale

Yes

A ‘new” commercial building (one under three years old) is mandatorily standard rated, so no option to tax is required.

  1. the land is held with the intention of constructing dwellings at some time in the future, which could be over six years

Yes

As long as the intention remains, and can be evidenced, the input tax may be attributed to the future taxable, zero rated, supply.

  1. a factory which is not subjected to an option to tax but is leased to an US company

 No

The place of supply (POS) is the UK as this is where the immovable property is located, regardless of the status of the client. Consequently, this is an exempt supply with no right to input tax recovery.

  1. a block of three flats which are rented for six months before freehold sale

No, or maybe, or yes

The initial supply is exempt, so the input tax is, preliminarily, attributed to the short term lets. However, a simplified form of the partial exemption de minimis limits may be used and, depending on the scale of the development, it is possible that some, or all, of the input tax may be recovered despite the initial exempt supplies.

  1. a sport hall by a school Academy which is leased to sporting charities and also used for its own educational purposes. No option to tax

No

It would be unlikely that an Academy would be able to recover all the input tax. Because it would make (exempt) business supplies, this would fall outside the VAT Act 1994, Section 33 rules, so there would be no input tax recovery in respect of those activities. There would be an apportionment and only the input tax referable to own use would be recoverable as those supplies of education would be non-business. If the Academy opted to tax the facilities (and was VAT registered), the input tax would be recoverable in full. No input tax referable to business use would be possible if the Academy was using VAT126 claims. VAT and Academies

  1. a manufacturing plant which a company rents to a connected (non-VAT grouped) party which makes and sells toys. The option is taken

Yes

As the connected party is fully taxable the anti-avoidance rules do not apply. If the connected party was not able to recover the VAT charged to it (say it made exempt supplies) the anti-avoidance legislation would kick in and the option would be disapplied, meaning that the input tax in the hands of the developer would not be recoverable.

  1. a car showroom and offices which a company uses for its own business of selling cars, providing finance and brokering insurance

No

There would be mixed use; car sales are taxable, finance and insurance are exempt, so some of the input tax would probably not be recoverable (dependent upon the de minimis limits). The development would be an overhead of the business. It is likely that the property would be an item covered by the CGS.

  1. a care home for the elderly which a company uses for that purpose

No

This likely be an exempt supply, so no input tax recovery on supplies which are properly VATable. There may be reliefs on construction costs, however.

  1. a small cabin office and the remaining land is used for a forestry business which will have no sales for ten years (when the trees are grown)

Yes

Although the intended taxable supplies are some way off, as long as the intention can be evidenced, the input tax may be recovered when incurred as it will relate to those intended taxable transactions. If the intention changes, this may impact the initial recovery. More information

  1. a residential block which is immediately transferred to an associated company (an arm’s length transaction) on completion. No tenants are in situ.

Yes

The transfer of the freehold triggers the zero rating. The associated company may then, if it chooses, make exempt supplies without a VAT cost. This type of planning can be very helpful.

So there we have it. How did you get on?  I would say that any score over eight is very good.

VAT: Land and property – A “fun” quiz

By   26 July 2019
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VAT: Land and property

I am quite often asked the seemingly straightforward question: Can I recover VAT on this land purchase? So, by way of a little quiz, I look at why this can be a loaded question.

Background

A person purchases bare land in the UK for £450,000 which is subjected to the option to tax. So, VAT of £90,000 is incurred. Your task, should you wish to accept it, is to say yes, no, or maybe to input tax recovery in the following situations (assume the purchaser is VAT registered).

Questions

On the purchased land the person constructs:

  1. a dwelling and supplies the house on a 25-year lease
  2. an office and uses it for his own business supplying FS to a client in China
  3. a storage facility and a fully taxable company leases it to another company in the same partly exempt VAT group after opting to tax
  4. a block of ten flats with a gym and swimming pool which tenants are entitled to use. Grants 99 years leases on all flats
  5. a dwelling but uses it for short term holiday lets of no more than a fortnight.
  6. a warehouse which is sold on completion but without an option to tax being made before the sale
  7. the land is held with the intention of constructing dwellings at some time in the future, which could be over six years
  8. a factory which is not subjected to an option to tax but is leased to an US company
  9. a block of three flats which are rented for six months before freehold sale
  10. a sport hall by a school Academy which is leased to sporting charities and also used for its own educational purposes. No option to tax
  11. a manufacturing plant which a company rents to a connected (non-VAT grouped) party which makes and sells toys. The option is taken
  12. a car showroom and offices which a company uses for its own business of selling cars, providing finance and brokering insurance
  13. a care home for the elderly which a company uses for that purpose
  14. a small cabin office and the remaining land is used for a forestry business which will have no sales for ten years (when the trees are grown)
  15. a residential block which is immediately transferred to an associated company (an arm’s length transaction) on completion. No tenants are in situ.

We are looking at recovery of input tax on the land purchase here, ignoring other (say; construction and professional) costs. That is another article in itself.

The questions have been simplified, usually, they tend to be rather more “involved”.

Answers

…soon!

VAT: Brexit – Intending Trader registration for overseas businesses

By   14 June 2019
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With the continuing uncertainty over a No-Deal Brexit, which appears to be a more likely prospect given recent political events, HMRC has made a statement on the process of registering non-UK EU businesses as intending traders in the UK.

Background

What is an intending trader?

An intending trader is a person who, on the date of the registration request:

  • is carrying on a business
  • has not started making taxable supplies
  • has an intention to make taxable supplies in the future

If the business satisfies HMRC of its intention, HMRC must VAT register it. VAT Act 1994, Schedule 1, 9 (b). It is, in some cases, difficult to convince that there is a genuine intention to make taxable supplies. This often comes down to documentary evidence.

Why do overseas businesses need to register as intending traders?

In the event of a No-deal Brexit, it is assumed that the EU VAT simplification that relieves the current obligation to be registered in the UK will no longer available. As a consequence, the EU supplier will itself become responsible for accounting for VAT on sales deemed to be made in the UK. In order to do this, the business will require a UK VAT registration. As the simplification is in place until Brexit, the registration will be required the very day after the UK leaves the EU – currently 1 November 2019.

Therefore, many EU businesses have applied for UK VAT registration as intending traders. That is, they do not currently make supplies, but intend to in the future (from 1 November 2109).

The issue

The Chartered Institute of Taxation has reported that businesses applying for intending trader registrations are experiencing difficulties with the process.

In response, HMRC have stated:

“Businesses in the position you have described can register for VAT using the Advanced Notification facility, by registering online requesting a voluntary registration from an advanced date of 1 November 2019. In the ‘business activity’ section they should enter trade class/SIC code 99000 European Community. In the free text box they should describe accurately what the business does and ensure there is a positive amount entered in the ‘taxable turnover in the next 12 months’ box. If this is not done the application will be rejected. This information will enable the VAT Registration Team (VRT) to identify and actively manage any registration that is conditional on the UK leaving the EU without a deal.

If there is a change to the date of withdrawal from the EU, the VRT will amend the Advanced Notification date to match this new date. If the UK enters a transitional period or agrees a deal with the EU that allows current arrangements to continue then the registration will be cancelled. The approval of an Advanced Notification registration in these circumstances is only made as a contingency for the UK leaving the EU without a deal and the VAT number may not be used unless that happens. The business will receive an automated notification of an Advanced Notification VAT Registration and the VRT may follow this up with a manual letter to further explain the conditions and both.

With the UK having agreed an extension to the date of withdrawal from the EU, we would not expect businesses to use this facility until closer to the 1st November.”

It is clearly prudent for overseas businesses which make certain supplies in the UK to properly prepare for a No-Deal Brexit. However, experience insists that many have not identified or made provisions for this outcome.

We are able to assist and advise other EU Member State businesses on this process.

VAT: Worldwide rates and registration limits

By   20 May 2019
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It can be difficult finding the answer to simple questions on VAT/GST. So, I provide a summary below of the rates of VAT applicable in the major countries which apply VAT/GST and the amount of income per year that a domestic business may receive before it is required to VAT register. You, or your clients, will need to be aware of these if they have a Place Of Supply (POS) overseas. I hope that it is useful to have this information all in one place – a “cut out and keep” type document!

Worldwide VAT/GST rates Annual turnover limit for Registration 
Standard rate Reduced rates National currency Limit
Australia 10.0 0.0 AUD  75 000
Austria 20.0 10.0/13.0 EUR  30 000
Belgium 21.0 0.0/6.0/12.0 EUR  25 000
Canada 5.0 0.0 CAD  30 000
Chile 19.0 N/A CLP None
Czech Republic 21.0 10.0/15.0 CZK 1 000 000
Denmark 25.0 0.0 DKK  50 000
Estonia 20.0 0.0/9.0 EUR  40 000
Finland 24.0 0.0/10.0/14.0 EUR  10 000
France 20.0 2.1/5.5/10.0 EUR  82 800
Germany 19.0 7.0 EUR  17 500
Greece 24.0 6.0/13.0 EUR  10 000
Hungary 27.0 5.0/18.0 HUF 8 000 000
Iceland 24.0 0.0/11.0 ISK 2 000 000
Ireland 23.0 0.0/4.8/9.0/13.5 EUR  75 000
Israel 17.0 0.0 ILS  99 003
Italy 22.0 4.0/5.0/10.0 EUR  65 000
Japan 8.0 N/A JPY 10 000 000
Korea 10.0 0.0 KRW 30 000 000
Latvia 21.0 5.0/12.0 EUR  40 000
Lithuania 21.0 5.9/9.0 EUR  45 000
Luxembourg 17.0 3.0/8.0/14.0 EUR  30 000
Mexico 16.0 0.0 MXN None
Netherlands 21.0 9.0 EUR  1 345
New Zealand 15.0 0.0 NZD  60 000
Norway 25.0 0.0/12.0/15.0 NOK  50 000
Poland 23.0 5.0/8.0 PLN  200 000
Portugal 23.0 6.0/13.0 EUR  10 000
Slovak Republic 20.0 10.0 EUR  49 790
Slovenia 22.0 9.5 EUR  50 000
Spain 21.0 4.0/10.0 EUR None
Sweden 25.0 0.0/6.0/12.0 SEK  30 000
Switzerland 7.7 0.0/2.5/3.7 CHF  100 000
Turkey 18.0 1.0/8.0 TRY None
United Kingdom 20.0 0.0/5.0 GBP  85 000

Source National Delegates – position as at 1 January 2019

Notes

Reduced rates include zero-rates applicable to domestic supplies (ie; exemption with right to deduct input tax). They do not include zero-rated exports or other supplies subject to similar treatment such as international transport.

Registration/collection thresholds identified in this table are general concessions that relieve domestic suppliers from the requirement to register for and/or to collect VAT/GST until such time as they exceed the turnover threshold.  Thresholds shown in this table apply to businesses established in the country. In most countries, the registration threshold does not apply to foreign businesses ie;. businesses having no seat, place of business, fixed establishment, domicile or habitual residence within the country.

VAT: Zero rating of prescriptions

By   29 April 2019
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Latest from the courts

The UK is unique in the EU for the zero rating of medicines prescribed by a registered medical practitioner.

In the First Tier Tribunal (FTT) case of Pearl Chemist Ltd (Pearl) the issue was whether the development of new technology and legislation affected the zero rating of prescriptions written by UK registered and non-UK registered doctors and the  interpretation of “registered medical practitioner”.

Background

Pearl is authorised to dispense medicines prescribed online by doctors based in countries based in the European Economic Area. It contracted with a third party which operated websites which offered medical screening and services, primarily for conditions such as erectile dysfunction, hair loss and obesity/weight loss.

Customers of the third party could obtain an online consultation with qualified doctors. If the doctor decided to issue a prescription, the written prescription would be sent to Pearl who would then despatch the medicine directly to the individual customer on behalf of the third party. Pearl treated all these supplies as zero-rated. The relevant law covering such prescriptions changed in 2008 such that it was now possible to dispense drugs prescribed by a qualified doctor based outside the UK.

HMRC formed the view that these supplies were not covered by the UK zero rating on the basis that an EU qualified doctor who is not registered with the GMC is not a registered medical practitioner. An assessment for output tax was issued in respect of supplies made against prescriptions written by non-UK doctors.

The issues

The issues, broadly were:

  • Are qualified doctors based outside the UK covered by the description “registered medical practitioner” in UK legislation?
  • If not, does this breach of the principle of fiscal neutrality? (Whether there is clear discrimination between identical supplies made on the prescription of UK doctors and doctors from other EU countries)

Decision

The judge ruled that the UK zero rating does not cover prescriptions written by non-UK doctors as they are not within the definition of “registered medical practitioner” Consequently, the supplies must be standard rated in the UK. However, the exclusion of medicines prescribed by overseas doctors from the zero-rating constitutes a breach of the principle of fiscal neutrality. This seemed good news for Pearl, but…the Tribunal stated that it was unable to provide an effective remedy for that breach and accordingly dismissed the appeal and affirmed HRMC’s assessment.

Commentary

This decision seems rather harsh on the appellant. It appears that the judge ruled that she had no power to override UK Parliament’s intention despite the inherent “unfairness” of the outcome of this intention where identical supplies were treated differently depending on where the prescription was written.

Certainly an odd one and I wonder if this is the last of this matter. Any business in a similar situation may need to review its position on the basis of this decision.

Changes to recovery of VAT on imports

By   15 April 2019
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HMRC have recently issued RCB 2 (2019) which sets out HMRC’s view on Toll Manufacturers (TM). TM is an arrangement in which a company which has a specialised equipment processes raw materials or semi-finished goods for another company. It may also be called toll processing. Typically, a TM will import, say, pharmaceutical goods, process and distribute them within the UK for clinical trials on behalf of an overseas owner.

HMRC has become aware that a number of UK TMs have paid import VAT on behalf of overseas customers have also claimed a corresponding deduction for input tax under VAT Act 1994 Section 24. However, there is no provision in UK law for such deduction.

Current treatment

TMs will usually act as importer and recover import VAT via a C79 despite them not being the owner of the goods (the owner instructs the TM to carry out works on their goods on their behalf).

HMRC has now confirmed that this VAT treatment is incorrect, and it will no longer be permitted.

New treatment

Only the owner of the goods will be treated as the importer and be able to recover import VAT. TMs will no longer be able to claim this VAT.

However, HMRC will not require TMs to make adjustments to past claims and the treatment will only be required going forward.

Introduction

The change comes into effect from 15 July 2019

Affect

Affected TMs are likely to need to make significant changes to their systems before that date.

Overseas owners of the relevant goods will either need to:

  • register for UK VAT and claim the import VAT on a “regular” return, or
  • make a claim via the Thirteenth VAT Directive (86/560/EEC)

NB: In cases where title has passed before import into the UK (businesses sell on the goods before importing them into the UK so ownership and title has passed to the new owner, however the business that sold the goods acts as importer on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate – C79) the correct procedure is for the new owner of the goods to be the importer of record and reclaim the import VAT and not the previous owner.

As with many areas of VAT, a No-Deal Brexit is likely to increase the complications for such cross-border transactions in the future.

Please contact us if you have any queries or require assistance on this matter.

VAT MOSS and No-Deal Brexit

By   11 March 2019
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In the event of an increasingly likely no deal Brexit, changes have been put in place to the existing MOSS (Mini One Stop Shop) arrangements. Details of MOSS here.

These intended changes will affect UK businesses which provide electronically supplied services such as  cross-border telecommunication, television and radio broadcasting, or digital services to non-business (eg; individuals) recipients in the EU.

Such services include:

  • website hosting
  • supply of software
  • access to databases
  • downloading apps or music
  • online gaming
  • distance teaching

The existing threshold of £8818 pa introduced by Schedule 4A, para 15(1) of the VAT Act 1994 will be removed via SI2019/404.

This means that if there is a no deal Brexit UK businesses supplying such services will either be required to:

  • register for Non-Union MOSS, or
  • register for VAT in each EU Member State in which they made a sale (where the customer belongs),

MOSS Non-Union Scheme 

A business may use the Non-Union scheme when it supplies cross-border electronically supplied services to consumers in all EU countries (including the EU country selected as the Member State of identification).

The EU countries where a business supplies services to are known as Member States of consumption.

Selecting a member state of identification

A business must designate a Member State of identification. This can be any EU country a business chooses. A business may change the member state of identification at a later date if it wants. Again, this can be any EU country a business chooses.

Registration

A business registers online via the Member State of identification’s portal.

VAT rules

A business will be allocated a VAT number by the EU country chosen to be the Member State of identification and charge VAT at the rate of the EU countries where its customers reside. The same invoicing rules as your Member State of identification must be used (although an invoice is not required in most countries when supplying services under the MOSS scheme).

VAT returns

A business must submit detailed online quarterly VAT returns within 20 days of the end of each return period. The information is then securely transferred from your Member State of identification to the relevant Member State of consumption.

VAT rates

VAT rates can be checked for the supply of telecommunications, broadcasting and electronically supplied services using the Tax Information Communication database.

For further information and to register for MOSS please see here.

VAT: Place of supply of “erotic services”

By   19 February 2019
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Latest from the courts

Readers of a nervous disposition may want to look away now.

In the case of Geelen C-568/17 (in French) the advocate General (AG) was asked for an opinion on the supply of what was coyly called webcam sessions.

Background

The defendant in the main proceedings, Mr Geelen, was a VAT registered person in The Netherlands. He provided the services of the organisation and provision of interactive erotic sessions broadcast live over the Internet. The models were located in the Philippines and Mr Geelen provided them with the necessary hardware and software to transmit the sessions over the Internet. Customers contacted the models via a website after creating an account for this purpose. The sessions were broadcast live and were interactive, which meant that customers had the opportunity to communicate with the models and give them instructions. The services provided by the defendant were intended for the Dutch market. I set out the arrangements here, as I am sure that none of my readers will be aware of such things * polite cough *

This is interesting as an example of technology overtaking legislation which was enacted before such services could even be contemplated (well, by the people drafting the VAT legislation anyway).

The issue 

The issue was where was the place of supply of these services. If they were in The Netherlands, then Dutch VAT would apply, but if they were deemed to be outside the EU, no EU VAT would be payable. The tax authorities considered that such services were subject to VAT in The Netherlands and issued a tax assessment notice.

Technical

Generally, the rule is that for B2C services the place of supply (POS) is where the supplier belongs. However, there is an exception for cultural, artistic, and entertainment activities. These are taxed where performed (outside the EU in this case if the exception is applicable).

Opinion

It was the AG’s opinion that, in the first place, there was no doubt that the services in question were entertaining…

However, he opined that the only way to provide cultural activities, entertainment, education, etc. was either to bring service users together at the actual place of service delivery, or to provide a service at the location of the users.

The technological development that has taken place since the relevant legislation was drafted has enabled services in which beneficiaries participate remotely, sometimes even actively, in a cultural, entertainment or other event, without necessarily doing so in real time. In a cultural reference: The “unity of action, time and place”, to refer to the categories of classical theatre, was thus upset.

In the AG’s opinion, these services were not intended to be covered by the exception. Consequently, these were not services “supplied where performed” and the general B2C rules applied, so the POS was The Netherlands and Dutch VAT was applicable.  It was concluded that performance does not take place where the models are based, or where the consumer was located, but where Mr Geelen brought together all elements of the supply.

Summary

The legislation must be interpreted as meaning that the services of organising and providing live interactive webcam sex do not constitute services for entertainment purposes within the meaning of the relevant provisions.