WRITTEN QUESTION P-1668/02

by Françoise Grossetête (PPE-DE) to the Commission

(5 June 2002)

Subject: Persons liable for payment of VAT interpretation of Article 21 of Directive 77/388/EEC

Article 21(1)(b) of Directive 77/388/EEC(1) states that, under the internal system, value added tax is liable to be paid by taxable persons to whom services covered by Article 9(2)(e) are supplied or persons who are identified for value added tax purposes within the territory of the country to whom services covered by Article 28b(C), (D), (E) and (F) are supplied, if the services are carried out by a taxable person established abroad.

This means that if taxable person X in Member State A provides a service covered by one of the articles above, from an establishment based in A, for the economic activity of taxable person Y, who is established and identified for VAT purposes in Member State B, the person liable for VAT is:

- either customer Y established in Member State B, if supplier X does not have a fixed establishment in B,

- or supplier X's establishment in B, even if the establishment in B has never been involved in supplying the service to Y and has no reason to be informed of activities carried out by another department in the undertaking of which it forms part.

If the Commission takes the view that X's establishment in B is liable for payment of VAT in B even if it has never been involved in the activity concerned what can be done to resolve the issue of double taxation, which might arise because of differences in the application of Article 21(1)(b)? An example is given below. Undertaking X in Member State A provides music and software online from its principal establishment in A to a non-taxable person in Member State B. Undertaking X has an establishment in B that provides advertising services to another category of customers and this establishment has never been involved in the online supply of music and software. What should be done if Member State A and Member State B both consider that VAT is payable to them?

(1) OJ L 145, 13.6.1977, p. 1.

answer given by Mr Bolkestein on behalf of the Commission

(21 June 2002)

Article 21(1) of the Sixth VAT Directive (value added tax) provides that the person liable to pay tax is the taxable person who supplies taxable goods or provides taxable services of a kind other than those covered in paragraphs (b) and (c) and in those cases where the Member State exercises the option provided for in the second sentence of paragraph (a).

The second sentence of paragraph (a) provides that when the taxable transaction is effected by a taxable person resident abroad Member States may adopt arrangements whereby tax is payable by someone other than the taxable person residing abroad. This is known as a reverse charge which is one of the options available to the Member States. It allows Member States, inter alia, to ensure that taxable foreigners do not have to pay tax in their own country. More use has been made of this option since tax representation became mandatory for traders established in the Community (since the entry into force on 1 January 2002 of Directive 2000/65/EC)(1).

Paragraphs (b) and (c) also provide in some instances (triangular trade, services of the type covered by Article 9(2)(e) and Article 28b(C), (D), (E) and (F)) that the taxable person has to be the consignee (this situation is known as a harmonised reverse charge).

In both cases the condition is that the taxable person supplying the goods or services may not be established in the country.

Concerning the example of double taxation that was quoted, the Commission does not agree with the analysis set out in the question. If taxable person X established in Member State A provides on-line services from the place where he is established in Member

State A to non-taxable customers established in another Member State, the place of taxation remains Member State A in accordance with Article 9(1) of the Sixth VAT Directive and Member State B cannot require the person to pay tax on the transaction. For the purpose of calculating the amount of VAT due, the place of taxation first has to be determined. Only then is it possible to determine who is required to pay. Once the place of taxation has been established, it is the legislation of the Member State of taxation which decides who is required to pay the VAT in its territory and it is therefore impossible for double taxation to occur whatever the provisions concerning liability for VAT.

(1) OJ L 269, 21.10.2000.