Proposal for a Council Directive amending Directive 77/388/EEC as regards the place of supply of services
Date: 2003-12-23
Institutions: European Commission
Subjects: VAT, provision of services, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 23.12.2003
COM(2003) 822 final

2003/0329 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 77/388/EEC as regards the place of supply of services

(presented by the Commission)

EN

  EN

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

In July 2000, the European Commission stated its intention to put forward a number of new
proposals  in  the  VAT  area  as  part  of  its  new  VAT  strategy.1  Modernising  the  rules  on  the
place of supply of services was identified as one of the future priorities.

On  7  May  2002,  the  E-Commerce  VAT  Directive2  amending  and  amending  temporarily
Directive  77/388/EEC  as  regards  the  value  added  tax  arrangements  applicable  to  radio  and
television broadcasting services and  certain electronically supplied services was adopted. At
that time, it was announced that this Directive would be the last individual change to Article 9
of  the  Sixth  VAT  Directive3  before  a  more  general  and  thorough  review  of  the  rules
governing the place of supply of services in totality. Furthermore, in statements entered in the
minutes of the meeting at which the Council adopted that Directive, several delegations called
upon  the  Commission  to  accelerate  this  review.  In  particular  they  asked  that  the  current
distortions  in  the  internal  market  concerning  cross-border  hiring  of  means  of  transport  be
considered.

The aim of this proposal is to bring about the first part of the reform of the rules on the place
of supply of  services.  It  deals  with  supplies  between  taxable  persons.  Supplies  whereby  the
customer is a non-taxable person will be addressed in a subsequent exercise.

2.

BACKGROUND

Since  work  first  started  in  the  1960’s  on  the  introduction  of  a  common  VAT  system  in  the
Community, the view has been that taxation of services should take place in the Member State
of consumption.4 However, during discussions on the Sixth VAT Directive it was recognised
that systematically  defining  the  place  of  consumption  as  the  place  of  taxation  could  lead  to
some serious practical problems. As a result, it was decided that the basic rule for the place of
supply of services – and therefore the place of taxation – is where the supplier is located. For
any service to be taxed anywhere else it must explicitly be excluded from the basic rule.

At  that  time,  to  a  very  large  degree,  these  rules  in  fact  resulted  in  the  tax  accruing  to  the
country  of  consumption.  However,  the  realities  of  the  Internal  Market,  globalisation,
deregulation  and  technology  change  have  all  combined  to  create  enormous  changes  in  the
volume and pattern of trade in services. It is increasingly possible for a number of services to
be  supplied  at  a  distance.  In  response,  a  series  of  amendments  to  the  Sixth  VAT  Directive
have been taken to address this problem over the years and many defined services are in fact
taxed where the customer is located.5 For the most part, these changes have involved supplies
made to  taxable  persons,  since  there  has  always  been  a  simple  mechanism  (i.e.,  the  reverse

1

2
3
4

5

COM (2000) 348 Final, 7 July 2000 ‘A strategy to improve the operation of the VAT system within the
context of the internal market’.
Directive 2002/38/EC adopted 7 May 2002.
Sixth Council Directive 77/388/EEC of 17 May 1977
Article 6(3) of the 2nd VAT Directive provided that the place of the  provision  of  services  shall,  as  a
general  rule,  be  regarded  as  being  the  place  where  the  service  that  is  provided,  the  right  that  is
transferred or granted, or the object that is hired, is used or enjoyed.
Article 9(2)(e) of the Sixth VAT Directive lists services that are subject to taxation based on where the
customer is established.

2

 
                                                
charge mechanism) for dealing with the taxation of such supplies. On the other hand, supplies
to non-taxable persons are for the most part subject to VAT where the supplier of the service
is established.

Over  the  course  of  the  last  year,  there  were  three  separate  consultations  with  the  Member
States in Working Party No 1 in order to discuss problems with the place of supply rules for
services and how best to resolve them. Additionally, a public consultation was undertaken on
this  matter  in  May-June  of  2003.  Over  50  written  responses  were  received  from  industry
associations and businesses from many different countries.

The consultations support, generally, the review of the place of supply of services rules as it is
acknowledged that the existing rules are problematic. At the same time, it was recognised that
any  changes  in  this  area  must  balance  the  control  needs  for  the  tax  administrations  and  the
administrative  obligations  for  the  traders,  while  respecting  the  basic  principle  that  VAT
should accrue to the Member State where consumption occurs.

As a result of the  aforementioned consultations, a number of parameters  with respect to the
proposal have been established.

3.

THE PARAMETERS OF THE PROPOSAL

The Commission considers that any modification of the rules governing the place of taxation
of  services  should  result,  to  the  greatest  extent  possible,  in  taxation  at  the  place  where  the
actual consumption takes place. Furthermore, the proposal on the place of supply of services
should  seek  a  balance  between  the  control  needs  for  tax  administrations  and  the
administrative  obligations  for  traders.  Taxation  at  the  place  of  consumption  should  only  be
pursued as far as it does not lead to additional obligations.

3.1.

Taxable Persons

For  all  services  provided  to  taxable  persons,  the  place  of  taxation  should  be  the  place  of
consumption. Businesses use the services provided to them in order to produce goods or other
services. The cost of these services is included in the price of the goods. Therefore one could
well argue that for most, if not all, services the place of consumption is the place  where the
customer has established his business. That is the place where the services are consumed.

In the provisions in force there are 21 different sub-rules applicable to the place of supply of
services and 14 of these rules6 already use the place of establishment of the customer (or the
Member  State  which  issued  him  a  VAT  number)  for  cross-border  supplies  of  services.  The
tax is collected via the self-assessment or reverse charge mechanism. Depending on the nature
of the business (e.g., taxable activities), there may exist a corresponding right of deduction for
the taxable person.

3.2.

Non-Taxable Persons

Services  supplied  to  non-taxable  persons  or  final  consumers  should  also  follow  the  general
principle that they should be taxable at the  place where the  actual consumption takes place.

6

Article 9(2)(e) first indent, second indent, third indent, fourth indent, fifth indent, sixth indent, seventh
indent, eighths indent, ninth indent, Article 9(2)(f), Article 28b(C), Article 28b(D), Article 28b(E) and
Article 28b(F).

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Contrary to the supply of services to taxable persons, for services provided to final consumers
it is even more crucial to determine the place of consumption, as this VAT is not deductible
and therefore forms part of the revenue of the Member State.

While application of the general rule of taxation at the place where the customer is established
or domiciled would reflect better taxation at the place of consumption, it would also lead to
significant practical problems at this point in time. It is not realistic to expect final consumers
to  self-assess  tax  (i.e.,  use  the  reverse  charge  mechanism)  on  services  acquired  in  another
Member  State  for  consumption  where  they  are  established  or  domiciled.  The  alternative
would be to require providers of services to register in every Member State of consumption in
order to collect and remit tax to the Member State where the non-taxable person is established
or domiciled. This would, however, entail a great deal of additional administrative burden on
business, which would not be desirable.

3.3.

Scope of the Proposal

As  a  result  of  detailed  discussions  with  Member  States  and  a  public  consultation,  which
concluded  30  June  2003,  a  number  of  parameters  with  respect  to  the  proposal  have  been
established. At present, the focus is solely on amending the provisions relating to supplies to
taxable persons (i.e., B2B supplies). The issue  of  supplies to non-taxable  persons  (i.e.,  B2C
supplies) will be addressed subsequently. In this context, however, the Commission considers
that the introduction of a mechanism which will enable tax to be collected in the country of
consumption without creating undue administrative complications is an essential prerequisite.
This would  be, in  effect,  a  'one-stop  shop'  similar  to  that  currently  in  operation  for  non-EU
established suppliers of digitised services. The Commission services will monitor closely the
workings of this mechanism, which would appear to have a potential for a broader application
in the intra-community context.

4.

THE PRESENT RULES FOR TAXABLE PERSONS AND PROBLEMS ENCOUNTERED

The general rule for the place of supply of services deems the place of taxation to be where
the supplier has established his business or has a fixed establishment from which the service
is supplied or, in the absence of such a place, the place where he has his permanent address or
usually  resides.7  Complementing  this  rule,  are  a  number  of  exceptions8  which  override  the
general  rule  and  can  cause  the  place  of  taxation  to  change  depending  on  the  nature  of  the
supply.

These exceptions exist for  services related to immovable property, transport services – both
passenger  and  goods,  services  that  are  of  a  cultural,  artistic,  sporting,  scientific  and
educational  nature,  work  on  movable  tangible  property  and  intangible  services,  including
copyrights,  patents,  advertising,  professional  services  (e.g.,  engineers,  lawyers,  etc.),  the
supply  of  staff,  the  hiring  out  of  movable  tangible  property,  telecommunications,  radio  and
television broadcasting and electronically supplied services.

The  structure  of  these  rules  results  in  a  number  of  problems.  The  following  list,  while  not
comprehensive,  gives  an  overview  of  the  types  of  problems  encountered.  It  should  also  be
noted that the following problems could equally apply to supplies to non-taxable persons.

7

8

Article 9(1)
Article 9(2)

4

 
                                                
4.1.

General Problem

A  general  problem  that  arises  from  Article  9(1)  is  the  obligation  for  taxable  persons  who
receive a service but are not established in the same country as the supplier of the service, to
ask  for  a  refund  under  the  Eighth  or  Thirteenth  Directives.  The  refund  procedure  can  be
complicated  and  very  time-consuming.  In  order  to  avoid  this  procedure,  there  is  often  a
tendency to inappropriately use the reverse charge mechanism.

4.2.

Forms of transport

The  place  of  taxation  of  a  “form  of  transport”  has  caused  some  disputes.  Since  forms  of
transport may easily cross frontiers it is difficult, if not impossible, to determine the place of
their use and in each case, a practical criterion must therefore be laid down for charging VAT.
Consequently, for the hiring out of all forms of transport, the Sixth VAT Directive provides
that the service should be deemed to be supplied, not at the place where the goods hired out
are  used,  but,  with  a  view  to  simplification  and  in  conformity  with  the  general  rule,  at  the
place where the supplier has established his business.

Due to the different rules on the deduction of VAT for automobiles that are applicable in the
Member States, the cross-border hiring of motor vehicles, especially the long-term leasing to
taxable  persons,  is  problematic.  It  creates  a  tax  incentive  for  taxable  persons  in  certain
Member  States  to  lease  automobiles,  used  for  business  purposes,  in  another  Member  State
rather  than  obtaining  the  automobiles  in  their  own  Member  State  in  order  to  benefit  from
more favourable deduction rules.

The scope of the meaning of “forms of transport” also causes problems. It has been discussed
in  the  VAT  Committee  whether  trailers,  semi-trailers,  containers  and  pallets  should  be
included within the scope of “forms of transport” and therefore their hire should be excluded
from Article 9(2)(e).

4.3.

Registration in Other Member States

In  many  instances,  a  service  provider  may  supply  services  in  respect  of  movable  tangible
property  in  a  Member  State  other  than  where  they  are  established.  The  VAT  is  due  in  the
Member State where the work was performed. At present this means that the service provider
may be required to register with the tax administration in  that  Member  State  and  pay  VAT.
For many businesses this can prove administratively onerous, especially where they carry out
activities  in  a  number  of  Member  States  (e.g.,  pan-EU  service  and  maintenance  contracts).
The control of such businesses can also prove burdensome for tax administrations.

4.4.

Intangible Services (The Interpretation of existing Article 9(2)(e))

The European Court of Justice (ECJ) has consistently held that Article 9(2) sets out a number
of  specific  instances  of  places  where  certain  services  are  deemed  to  be  supplied,  whereas
Article  9(1)  lays  down  the  general  rule  on  the  matter.  In  every  situation,  the  question  that
arises is whether it is covered by a specific instance mentioned in Article 9(2). If not, it falls
within the scope of Article 9(1)9

In effect, this has put a great deal of pressure on existing Article 9(2)(e), which lists services
for which a customer that is a taxable person can account for VAT under the reverse charge

9

Case C-327/94 Dudda, paragraph 21.

5

 
                                                
mechanism. Services that arguably could be covered by such an Article include management
fees, laboratory services (such as testing for conformity with technical specifications), product
inspection including analysis and certification, interpreter services and translation services.10

The  reality  is  that  all  new  and  all  previously  unknown  services  that  do  not  fall  within  the
scope  of  one  of  the  exceptions  are  taxable  where  the  supplier  is  established.  This  equally
applies to services that are conducive to being supplied at a distance or at differing stages in
the production chain. It  can lead to cases of double taxation, unintentional non-taxation  and
often  complicated  and  time  consuming  refund  procedures  under  the  Eighth  or  Thirteenth
Directives.

4.5.

Composite Supplies

The  present  rules  do  not  adequately  address  composite  or  bundled  services.  Such  services
may  consist  of  a  number  of  different  aspects,  some  which  may  be  covered  under  existing
Article  9(2)(e)  and  some  that  may  not.  Invariably  an  issue  on  how  to  characterise  such  a
supply arises, as parties involved in such a transaction would seek to benefit from the reverse
charge  mechanism,  rather  than  have  the  place  of  supply  fall  under  the  general  rule.  An
example  of  such  a  supply  would  be  that  of  waste  disposal  service  which  is  a  composite
supply11  involving  a  number  of  different  operations  in  succession  which  are  not  covered
under the existing Article 9(2)(c). The service only has some of the characteristics of services
which consist of work on movable tangible property within the meaning of the fourth indent
of Article 9(2)(c) and therefore falls under the general rule in Article 9(1).

5.

SUMMARY OF THE PROPOSED RULES FOR TAXABLE PERSONS

It has been concluded that it is necessary to consider a basic change to the place of supply of
services  rules  for  taxable  persons.  The  main  rule  for  services  provided  to  taxable  persons
should be defined as “the place where the customer is established”. In the current provisions,
both  the  place  of  establishment  of  the  taxable  person  and  the  Member  State  where  the
customer is registered for VAT purposes are used to determine the place of supply of services.
It is preferable to rely on the place where the customer is established as it covers all taxable
and exempt activities. This is proposed as the general rule while simultaneously maintaining a
number of exceptions, largely based on existing criteria. This ensures the general principle of
taxation  at  the  place  of  consumption,  while  guaranteeing  the  practicalities  of  the  system  by
not imposing disproportional administrative burdens upon certain traders.

The effect of such a change would be twofold. First, it would limit the instances whereby a
supplier  would  be  required  to  register  for  VAT  purposes  when  performing  services  in  a
Member State other  than where he  is  established.  Second,  it  would  increase  the  reliance  on
the reverse charge mechanism (i.e., self-assessment) where a taxable person receives services
from a person not established in the same country. Both of these effects can  be  regarded  as
major simplifications.

It  would  still  be  necessary  to  utilise  certain  exceptions  to  this  general  rule  for  both
administrative and policy reasons, as previously mentioned. The identified exceptions are as
follows:

10

11

Indeed, such services are routinely discussed at the VAT Committee where common interpretations of
their tax treatment are sought.
Case C-429/97 Commission vs. French republic

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The  first  exception  would  need  to  be  in  respect  of  services  connected  with  immovable
property.  This  would  be  essentially  the  same  as  existing  Article  9(2)(a)  of  the  Sixth  VAT
Directive.  The  existing  rule  is  reasonably  straightforward  to  apply  and  generally  results  in
taxation  where  the  service  is  consumed.  Additionally,  this  sector  is  often  subject  to
exemptions, which in turn affect rights of deduction.

The second  exception would need to  be with respect  to  passenger  transportation services.  It
would be very difficult to address this issue for taxable persons only and any change in this
regard  could  result  in  difficult  interpretative  and  administrative  problems.  The  Commission
recognises that the existing provisions cause problems and therefore proposes to address this
issue in its subsequent evaluation of B2C supplies.

The third exception would need to be with respect to cultural, artistic, sporting, entertainment
or  similar  services.  Again,  the  existing  rule,  which  is  based  on  where  these  services  are
performed,  generally  results  in  taxation  where  consumption  occurs.12  It  is  proposed  that
scientific and educational services, when provided to taxable persons, be eliminated from this
exception,  largely  for  simplification  purposes.  For  businesses  that  acquire  such  services  in
Member States other than where they are established, they would no longer be required to rely
on the 8th Directive refund mechanism.

The final exception would need to relate to certain services that are tangible in nature, such as
restaurant services. This ensures that services that are supplied for immediate consumption at
a  readily  identifiable  location  are  subject  to  VAT  where  the  supplier  is  established.  This
exception  would  reflect  the  reality  of  where  such  services  are,  for  all  intents  and  purposes,
consumed and would be easier for suppliers of such services to administer (e.g., they would
not  have  to  be  concerned  with  whether  their  customer  is  a  taxable  or  non-taxable  person).
Notwithstanding,  this  matter  is  difficult  to  address  and  this  exclusion  from  the  general  rule
would be monitored by the Commission and reviewed subsequently in  conjunction with  the
rules for non-taxable persons (i.e., B2C).

6.

THE EFFECT OF THE PROPOSED RULES ON THE AFOREMENTIONED PROBLEMS

The  proposed  changes  would,  for  the  most  part,  resolve  many  of  the  aforementioned
problems.

The general problem (Paragraph 4.1) of the misuse of Article 9(2)(e) would be resolved to a
great extent as the place where the customer is established would become the general rule for
establishing the place of supply.

The  issue  of  hiring  of  means  of  transport  (Paragraph  4.2)  is  fundamentally  a  problem  of
differing  rules  of  deduction  amongst  Member  States,  which  in  turn  creates  inappropriate
distortions. This problem would be avoided where the means of transport is hired or leased for
period  of  time  in  excess  of  30  days  by  virtue  of  the  fact  that  with  the  place  of  taxation
changing  to  where  the  customer  is  established,  the  reverse  charge  mechanism  and  local
deduction  rules  would  apply.  Thus,  the  tax  incentive  to  hire  automobiles  for  long-term
business use in other Member States would be eliminated. The short-term hiring or leasing of
means of transport would continue to be where the supplier has established his business, thus
better reflecting where consumption is likely to take place.

12

Existing Article 9(2)(c) of the Sixth VAT Directive

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The  issue  of  multiple  registrations  (Paragraph  4.3)  would  be  resolved  to  a  great  extent  as
service providers would no longer ordinarily be required to register when performing services
in  other  Member  States.  This  problem  is  resultant  largely  from  the  existing  exception  in
Article 9(2)(c) to the general rule. For example, it is proposed that service contracts involving
work performed on tangible movable property would fall under the general rule.

The issue of relying on a list, such as the one in existing Article 9(2)(e), would be removed
(Paragraph  4.4).  As  a  result,  the  need  to  maintain  or  update  the  list  as  new  appropriate
services enter the market place or are identified would no longer be required. Further, issues
of interpretation with regards to the services defined at present in the list would be removed.
As  the  existing  Article  9(2)(e)  becomes,  in  effect,  the  new  general  default  rule,  all  new
services would automatically be captured.

Finally, on the issue of composite supplies (Paragraph 4.5), as the supply of services changes
generally  to  the  place  where  the  customer  is  established  and  the  reverse  charge  mechanism
applies, any bundled or composite supplies would be simply be caught under the general rule.
As  such,  the  existing  problem  of  the  list  of  terms  and  reality  of  emerging  business  models
(e.g., the service packages that include a variety of service elements) are less problematic.

7.

EXTENSION OF THE VAT INFORMATION EXCHANGE SYSTEM (VIES) TO SERVICES

The  VIES was  set up  in  1993 to enable Member States to control  exempt  intra-Community
acquisitions  of goods by  taxable persons.  This information-exchange  system  was  necessary,
as with effect from 1 January 1993, there would no longer be documentary control of imports
and  exports  at  national  frontiers.  The  reason  that  the  VIES  only  covered  intra-Community
supplies of goods was that most of the rules on the place of taxation of services had not been
changed by the advent of the single market.

Currently,  the  VIES  supplies  details  of  exempted  intra-Community  supplies  of  goods.
Taxable  persons  making  intra-Community  supplies  of  goods  on  recapitulative  statements
(normally  on  a  quarterly  basis)  supply  the  information  to  their  national  tax  administrations.
Each administration captures the data, and then transmits it electronically to the Member State
of  the  taxable  person  making  the  intra-Community  acquisition  of  the  good,  who  can  then
verify if the reverse charge mechanism has been appropriately applied. It is also noteworthy
that  the  messaging  system  is  used  for  the  exchange  of  information  received  from  non-
established  taxable  persons  availing  of  the  special  scheme  that  was  introduced  by  the  E-
Commerce VAT Directive adopted in May 2002, with effect 1 July 2003.13

From  the  perspective  of  tax  administrations,  systems  and  procedures  are  in  place  for  the
capture, storage, transmission and exploitation of the VIES data. Adding services to the scope
of the VIES information would not impose a significant burden on administrations.

The Commission believes that a change to the place of supply rules of services warrants the
inclusion  of  reverse  charge  services  within  the  reporting  obligations  currently  existing  for
intra-Community  supplies  of  goods,  which  would  imply  an  extension  of  the  scope  of  the
information exchanged between Member States through the VIES. In this regard, comments
were sought on the question of extending VIES in the Commission’s consultation paper that
was published on 7 May 2003. In response, there was a general reaction against the extension,
largely  due  to  perceived  additional  administrative  burdens  and  concerns  over  the  systems’

13

Article 26c of the Sixth VAT Directive.

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accuracy  and  effectiveness.  In  light  of  this,  the  Commission  will  review  the  technical
functioning of the present system and investigate possible improvements that could make the
system simpler, faster and more reliable. The review will commence in January 2004 and the
extension  of  the  reporting  obligations  to  include  services  will  only  be  implemented  from
January 2008 onwards. In advance of that date, the Commission will make a separate proposal
to  amend  the  regulation  on  administrative  cooperation  in  the  field  of  value  added  tax14  in
order  to  lay  down  the  rules  regarding  the  exchange  of  this  information  between  Member
States.

8.

MEANING OF "FIXED ESTABLISHMENT"

It has been suggested that the meaning of “fixed establishment” is problematic and should be
clarified legislatively. This issue of the meaning of "fixed establishment" has been the subject
of  a  number  of  court  decisions.  Essentially  these  decisions  have  concluded  that  an
establishment  must  possess  a  sufficient  degree  of  permanence  and  a  structure  adequate,  in
terms of human and technical resources, to supply the services in question on an independent
basis.  The  Commission  is  of  the  view  that  the  status  quo  is  acceptable  and  a  great  many
comments received in the public consultation concur.

It has also been suggested that where a taxable person makes a supply and has more than one
establishment (e.g., a permanent establishment in one Member State and a fixed establishment
in another Member State), that it may be ambiguous as to which establishment actually makes
or receives the supply and that default criteria should be established.  The  Commission is of
the view that which establishment makes a supply of a service is ultimately a question of fact
and any introduction  of criteria to be  considered in making such a determination would  not
necessarily simplify matters. Again, the consultation responses largely reflected this opinion.

9.

INTRA-COMPANY SERVICES

It  is  the  view  of  the  Commission  that  supplies  of  services  between  different  branches  of  a
company or between a branch and its head office (i.e., different establishments) are normally
outside the scope of VAT, provided that they are part of the same legal entity. This is the case
where  the  establishments  are  situated  within  the  same  Member  State  or  in  more  than  one
country. The Commission is aware that all Member States do not uniformly share this view.
This  results  in  uncertainty  and  the  possible  excessive  application  of  VAT  for  suppliers  of
exempt services (e.g., financial services).

This  issue  was  raised  a  number  of  times  by  respondents  to  the  public  consultation.  Many
respondents noted that this issue is problematic when dealing with cross-border transactions.
The uncertainty regarding the rendering of intra-company services would be clarified by the
introduction of a specific provision confirming the view that such services are not supplies for
VAT purposes.

The Commission is also aware that in the exempt sector there is a potential for a bias towards
the sourcing or performance of services in a Member State with a low VAT rate or in third
countries. In effect, services for which no deduction would be available (e.g., for use as input
in making an exempt supply) are acquired in the lowest-rate Member State or a third country
before being passed on to branches existing in other higher rate Member States. This is only

14

Council Regulation (EC) No. 1798/2003 of 7 October 2003

9

 
                                                
an  issue  when  the  branch  is  situated  in  a  different  country  as  a  ‘fiscal  frontier’  exists.  The
Commission  will  continue  to  monitor  the  situation  and,  if  necessary,  address  this  problem
when it brings forward proposals covering the various exempt sectors.

10.

CONCLUSION

Under the present place of supply rules, services are taxed on the basis of where the supplier
is  established  unless  they  are  specifically  defined  as  being  taxed  somewhere  else.  In  this
regard, a number of exceptions to the general rule exist. However, as a result of globalisation
and advances in technology as well as the nature of these supplies (e.g., intangible, composite,
etc.) the addition of new appropriately defined exceptions is difficult. It is often the case that
the issue of the place of supply of services is one determined by the Courts. Ultimately, this
model is proving difficult to apply for taxpayers and difficult to administer for tax authorities.

In response, a shift from taxation where the supplier is established to taxation where the client
is established would better reflect the current state of the services sector and provide greater
certainty for all stakeholders. Exceptions to this general rule would still be required, but these
services  are  clearly  linked  to  special  features  that  make  the  determination  of  the  place  of
taxation  administratively  straightforward  (e.g.,  the  location  of  the  immovable  property)  and
better reflect the place of actual consumption (e.g., attending a sporting event).

11.

COMMENTS REGARDING THE INDIVIDUAL PROVISIONS

The legislative structure for the new proposed Article 9 would largely follow the structure of
the existing provision. Article 9 itself would provide the general place of supply rule for both
taxable  and  non-taxable  persons.  This  would  be  followed  by  a  series  of  exceptions,  which
may apply to taxable persons, non-taxable persons or both. In absence of a specific exception
applying, the general place of supply rule found in Article 9 would apply.

Article 1(1)

Article 6(6): Intra-Company Transactions

This  provision  confirms  the  Commission's  view  and  that  of  a  great  majority  of  Member
States. Where services are rendered within the same legal entity (e.g., a service rendered by a
head office to branch), they are not considered to be supplies for purposes of the Sixth VAT
Directive.  This  is  the  case  where  the  establishments  are  within  a  single  Member  State  or
multiple  countries.  Services  rendered  for  consideration  between  separate  legal  entities  (e.g.,
head office and a wholly owned subsidiary) are supplies.

Article 1(2)

Article 9: General Rule

Point (1):

The new general rule with respect to the place of supply of services to taxable persons would
be determined  on the basis of where the taxable  person  receiving  the  service  is  established,
rather  than  the  jurisdiction  in  which  the  supplier  of  the  services  is  established.  The  taxable
person  receiving  the  supply  would  therefore  rely  on  the  reverse  charge  mechanism  for
supplies made by persons established in different countries. The long-term hiring and leasing

10

 
of  vehicles  would  fall  under  the  general  rule  as  would  most  supplies  of  services  by
intermediaries.

Point (2)

The  rules  for  non-taxable  persons  remain  unchanged.  The  general  rule  with  respect  to  the
place of supply of such services would continue to be determined on the basis of where the
supplier is established. [C.f. the existing Article 9(1)]

Point (3):

This  provision  addresses  the  issue  of  persons  who  for  the  purposes  of  the  Sixth  VAT
Directive perform both economic (taxable and/or exempt) and out of scope activities. In the
interest of administrative simplification and greater certainty for  all parties  concerned,  these
persons  would  be  treated  as  taxable  persons  for  purposes  of  Article  9  with  respect  to  their
acquisitions  of  services.  As  a  result,  even  where  a  particular  service  may  be  for  use  as  an
input in their capacity as a non-taxable person, they would be treated as a taxable person with
regards to the determination of the place of taxation for the services they acquire. The same
would, of course, also apply for an exempt taxable activity. Ultimately, the person would be
required to use the reverse charge mechanism to account for VAT applicable to the input, but
no right of deduction would exist.

Article 9a: Immovable Property

The  exception  from  the  general  rule  relating  to  supplies  of  services  related  to  immovable
property applies equally to both taxable and non-taxable persons. The text remains virtually
unchanged but does include the  text “the provision of hotel or similar accommodation” and
“the  granting  of  rights  to  use  immovable  property”  in  order  to  give  certainty  that  hotel
services  and  access  to  toll  roads  are  considered  connected  to  immovable  property.  [C.f.  the
existing Article 9(2)(a)]

Article 9b: Passenger Transport

This exception from the general rule covers passenger transport services and applies equally
to  both  taxable  and  non-taxable  customers.  The  rules  for  taxation  of  passenger  transport
services  have  not  been  changed.  Services  of  transporting  goods  for  taxable  persons  are
covered by the general rules, whereas services for transporting goods for non-taxable persons
are  covered  under  Article  9e.  [C.f.  the  existing  article  9(2)(b)]  As  noted  previously,  these
rules would be addressed in the subsequent evaluation of B2C supplies.

Article 9c: Cultural, artistic, sporting, entertainment and similar activities

This exception from the general rule applies to cultural, artistic, sporting,  entertainment  and
similar  activities.  This  applies  equally  to  both  taxable  and  non-taxable  customers.  The  text
remains  virtually  unchanged  from  the  existing  Article  9(2)(c),  first  indent,  but  no  longer
includes  a  reference  to  scientific  and  educational  services  with  respect  to  taxable  persons.
This would result in the taxable person being required to use the reverse charge mechanism
rather  than  pay  VAT  and  request  a  refund  under  the  Eighth  or  Thirteenth  Directive.  For
scientific and educational services supplied to non-taxable persons Article 9f applies.

11

 
Article 9d: Specific Services to Taxable Persons

A final exception from the general rule applies to the place of supply of what can be described
as  tangible  services  when  supplied  to  a  taxable  person.  The  effect  of  this  exception  is  to
ensure  that  services  that  are  supplied  for  immediate  consumption  at  a  readily  identifiable
location  (e.g.,  restaurant  meals  and  haircuts)  are  treated  as  being  supplied  at  the  place  of
origin. This rule better reflects the reality of where such services are consumed and is easier
for suppliers of such services to administer.

The  exception  has  three  components.  The  first  component  requires  that  the  service  be
rendered in the Member State where the supplier is established or has a fixed establishment.
The  second  component  requires  the  physical  presence  of  both  the  service  provider  and  the
customer. The third component is that the services must be provided directly to an individual
for immediate consumption, reflecting the nature of these services.

The long-term hiring or leasing of movable  tangible property  (e.g., the long term leasing of
automobiles) and work on movable property (e.g., the repair of an automobile) are expressly
excluded and such supplies would fall under the general rule.

'Long-term  hiring  or  leasing'  is  defined  to  mean  an  agreement  that  provides  continuous
possession  or  use  of  movable  tangible  property  for  a  period  of  more  than  30  days.  For
example,  where  a  taxable  person  hires  an  automobile  at  an  airport  for  business  use  for  a
period of five days, the place of supply would be where the supplier is established, not where
the  business  customer  is  established.  This  rule  better  reflects  where  the  movable  tangible
property is going to be consumed and provides administrative ease for suppliers.

As noted previously, the operation of this provision would be monitored by the Commission
and reviewed subsequently in conjunction with the rules for non-taxable persons (i.e., B2C).

Article 9e: Transport of Goods for Non-Taxable Persons

For  taxable  persons  all  transport  of  goods  and  all  services  ancillary  to  this  transport  would
follow the general rule under new Article 9. As a result Article 28b(C) and (D) are deleted.
The  rules  for  non-taxable  persons  have  been  consolidated.  In  this  regard,  the  provision  is  a
merger  of  the  existing  Article  9(2)(b),  Article  28b(C)(1),  Article  28b(C)(4)  and  a  part  of
Article 28b(E)(1). For all transport services the place of supply shall be the place of departure.
This would change the place of supply for transport of imported and exported goods for non-
taxable  persons.  This,  however,  would  have  little  impact  because  the  latter  services  are
exempt  under  Article  14(1)(i)  or  Article  15(13).  Note  that  related  services  rendered  by
intermediaries acting in the name and  for  the  account of non-taxable persons would  also  be
the place of departure.

Article 9f: Specific Services to Non-taxable Persons

The rule for ancillary transport services, valuations of and work on movable tangible property
and  services  relating  to  scientific  and  educational  activities  when  supplied  to  non-taxable
persons  would  remain  unchanged.  The  provision  of  these  services  would  continue  to  be
taxable at the place where the services are physically carried out. This provision incorporates
the second, third and fourth indents of existing Article 9(2)(c).

12

 
Article 9g: Electronically Supplied Services to Non-taxable Persons

The place of supply of electronically supplied services, such as those described in Annex L,
supplied to non-taxable  persons  by  non-EU  suppliers  would  continue  to  be  the  place  where
the  non-taxable  person  is  established,  has  his  domicile  or  habitual  residence.  Non-EU
suppliers  of  such  services  are  required  to  collect  VAT,  which  is  ultimately  remitted  to  the
Member State where the non-taxable person is established.

As set out in Article 4 of Council Directive 2002/38/EC15 of 7 May 2002 this rule applies for
a period of three years starting from 1 July 2003.

Article 9h: Telecom and Radio and Television Broadcasting Services to Non-taxable Persons

The  place  of  supply  of  telecommunications  services  and  radio  and  television  broadcasting
services to non-taxable persons by non-EU suppliers would continue to be the place where the
services  are  actually  used  and  enjoyed.  The  article  also  includes  the  definition  of
‘telecommunication services’.

Article 9i: Intermediary Services to Non-taxable Persons

The  place  of  supply  of  services  rendered  by  intermediaries  acting  in  the  name  and  for  the
account of other persons, where such services form part of the transaction, would be the place
where those transactions take place. This Article would not apply to those services referred to
in Article 9e and Article 9j.

Article 9j: Services to Non-taxable Persons Outside the Community

This rule reflects that for non-taxable persons who reside outside the community, the place of
supply rules for a specific list of intangible services would be the place where the person is
established  or  has  his  permanent  address  or  usually  resides.  The  list  of  services  largely
mirrors what is at present in Article 9(2)(e).

Article 9k: Use and Enjoyment Override

This  rule  enables  a  Member  State  to  override  any  of  the  place  of  supply  rules  that  apply  if
there is a need to avoid double or non-taxation or address distortions of competition. The two
deeming  rules  that  are  available  to  Member  States  under  this  provision  mirror  the  existing
rules  under  Article  9(3).  At  present,  these  rules  only  have  limited  application  to  supplies
governed by the current Article 9(2)(e). It is proposed that these rules apply to the entire place
of supply provisions, including both taxable and non-taxable persons.

Article 1(3)

Article 12(3)(a) fourth subparagraph: Rates

The change in this Article is necessary because the corresponding paragraph of Article 9 has
been renumbered.

15

Council  Directive  amending  temporarily  Directive  77/388/EEC  as  regards  the  value  added  tax
arrangements applicable to radio and television broadcasting services and certain electronically supplied
services

13

 
                                                
Article 1(4)(a)

Article 21(1)(b): Reverse Charge Mechanism

This rule would be changed as a result of the change to the place of supply rules for taxable
persons. At present the reverse charge mechanism applies where a taxable person acquires a
service  listed  in  Article  9(2)(e)  from  a  taxable  person  established  in  another  country.  The
change  to  this  provision  would  reflect  the  new  provision,  specifically  the  first  sentence  of
Article 9(1).

Article 1(4)(b)

Article 21(5): Multiple Establishments and the Reverse Charge Mechanism

A new Article 21(5) is inserted in order to treat an establishment of a taxable person situated
in another country who is also established within the territory of the country of the customer
as a non-established taxable person. It has emerged from discussions in the VAT Committee
that  the  reverse  charge  mechanism  does  not  legally  apply  in  this  situation,  although  the
situation  is  analogous  to  that  of  a  non-established  taxable  person.  This  measure  provides
certainty as to which party is required to account for the VAT.

Article 1(5)

Article 22(6)(b): Extension of the VIES to Services

Existing Article 22(6)(b) would be replaced with effect from 1 January 2008. This allows the
Commission  reasonable  time  to  review  and  improve  the  existing  VIES  such  that  it  can  be
extended  to  services.  As  a  result,  from  this  date  onwards  suppliers  of  services  to  taxable
persons (i.e., customers), who are required to account for the VAT under the reverse charge
mechanism,  would  be  required  to  include  services  on  their  recapitulative  statement.  The
information  required  to  be  reported  would  be  the  supplier's  VAT  identification  number,  the
customer's VAT identification number and the total value of the supplies of services provided
by the supplier to each taxable customer.

Article 1(6)

Article 28b(C), (D), (E) and (F): Deletion of Specific Services Rules

Under  the  proposal,  it  would  be  necessary  to  delete  the  provisions  contained  in  Articles
28b(C), (D), (E) and  (F).  Depending on the particular provision, it has  either been rendered
unnecessary or reproduced in another form under the guise of administrative streamlining.

Article 28b(C)

The intra-Community transport of goods for taxable persons would now be caught under the
general rule for services to taxable persons found in Article 9(1). For non-taxable persons, this
rule is reproduced in proposed Article 9e.

Article 28b(D)

Services ancillary to intra-Community transport of goods for taxable persons would be caught
under the general rule for services to taxable persons found in Article 9(1). For  non-taxable
persons, this rule is reproduced in proposed Article 9f(a).

14

 
Article 28b(E)

The  place  of  supply  for  services  performed  by  intermediaries  for  taxable  persons  would  be
caught  under  the  general  rule  for  services  to  taxable  persons  found  in  Article  9(1).  This
applies  for  both  services  related  to  the  transportation  of  goods  and  of  passengers.  For  non-
taxable persons, the supply for services performed by intermediaries related to transportation
would be the place of departure,  as per Article 9(e).  In  all other circumstances, the place of
supply  of  intermediary  services  for  non-taxable  persons  is  where  those  services  are
performed.

Article 28b(F)

The place of supply of valuation of and work on movable tangible property when provided to
taxable persons  would  also  be  caught  under  the  general  rule  for  services  to  taxable  persons
found in Article 9(1). For non-taxable persons, this rule is reproduced in Article 9f(b).

15

 
2003/0329 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 77/388/EEC as regards the place of supply of services

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 93 thereof,

Having regard to the proposal from the Commission16,

Having regard to the opinion of the European Parliament17,

Having regard to the opinion of the European Economic and Social Committee18,

Whereas:

(1)

(2)

(3)

16

17

18

19

20

The  realisation  of  the  internal  market,  globalisation,  deregulation  and  technology
change  have  all  combined  to  create  enormous  changes  in  the  volume  and  pattern  of
trade in services. It is increasingly possible for a number of services to be supplied at a
distance. In response, piece-meal steps have been taken to address this over the years
and many defined services are in fact at present taxed on the basis of the destination
principle.

The  proper  functioning  of  the  internal  market  requires  the  amendment  of  the  Sixth
Council Directive  77/388/EEC of 17  May  1977  on  the  harmonization  of  the  laws  of
the  Member  States  relating  to  turnover  taxes  –  Common  system  of  value  added  tax:
uniform basis of assessment19 as regards the place of supply of services, following the
Commission's  strategy  of  modernisation  and  simplification  of  the  operation  of  the
VAT common system20.

For  all  supplies  of  services  the  place  of  taxation  should,  in  principle,  be  the  place
where the actual consumption takes place. If the general rule for the place of supply of
services  rules  were  to  be  altered  in  this  way,  it  would  still  be  necessary  to  utilise
certain exceptions to this general rule for both administrative and policy reasons.

OJ C , , p. .
OJ C , , p. .
OJ C , , p. .
OJ L 145, 13.6.1977, p. 1. Directive as last amended by Directive 2003/92/EC (OJ L 260, 11.10.2003,
p. 8).
COM(2000) 348 final

16

 
                                                
(4)

For supplies of services to taxable persons, the general rule with respect to the place of
supply  of  services  should  be  based  on  the  place  where  the  customer  is  established,
rather than where the supplier is established.

(5) Where services are supplied to non-taxable persons, the general rule should continue
to be that the place of supply of services is the place where the supplier has established
his business.

(6)

In  certain  circumstances, the  general  rules as regards  the  place  of  supply  of  services
for both taxable and non-taxable persons  are  not  applicable  and  specified  exclusions
apply.  These  exclusions  should  be  largely  based  on  existing  criteria  and  reflect  the
principle of taxation at the place of consumption, while not imposing disproportionate
administrative burdens upon certain traders.

(7) Where  a  taxable  person  receives  services  from  a  person  not  established  in  the  same
Member  State  the  reverse  charge  mechanism  should  be  obligatory,  meaning  that  the
taxable  person  should  self-assess  the  appropriate  amount  of  VAT  on  the  acquired
service.

(8)

Services  rendered  between  different  establishments  of  a  taxable  person  are  normally
outside the scope of Directive 77/388/EEC. In the interests of greater legal certainty,
that position should be confirmed in legislation.

(9)

Directive 77/388/EEC should therefore be amended accordingly,

HAS ADOPTED THIS DIRECTIVE:

Article 1

Directive 77/388/EEC is hereby amended as follows:

(1) In Article 6 the following paragraph 6 is inserted:

“Where  a  single  legal  entity  has  more  than  one  fixed  establishment,  services  rendered
between the establishments shall not be treated as supplies.“

(2) Article 9 is replaced by the following:

"Article 9

General rule

1.

The  place  of  supply  of  services  to  taxable  persons  shall  be  the  place  where  the
customer  has  established  his  business  or  has  a  fixed  establishment  to  which  the
service is supplied.

If  the  place  where  a  taxable  person  has  established  his  business  or  where  he  has  a  fixed
establishment can not be determined, the place of supply of services shall be the place where
that taxable person has his permanent address or usually resides.

17

 
2.

3.

The place of supply of services to non-taxable persons shall be the place where the
supplier  has  established  his  business  or  has  a  fixed  establishment  from  which  the
service is supplied.

For the purposes of paragraphs 1 and 2, where a person is a taxable person who also
performs  activities  or  transactions  that  are  not  considered  to  be  taxable  supplies  of
goods or services, he shall be deemed to be a taxable person in respect of all services
supplied to him except where the services are for his own private use or that of his
staff.

Article 9a

Immovable property

The place of supply of services related to immovable property, including the services of estate
agents and experts, the provision of hotel or similar accommodation, the granting of rights to
use immovable property and services  to prepare  and co-ordinate construction  work,  such  as
the services of architects and of firms providing on-site supervision, shall be the place where
the immovable property is located.

Article 9b

Passenger transport

The place of supply of passenger transport services shall be the place where the transport is
effected, proportionate to the distances covered.

Article 9c

Cultural, artistic, sporting, entertainment and similar activities

The place of supply of services relating to cultural, artistic, sporting, entertainment, or similar
activities, including the activities of the organisers of such activities, and where appropriate,
the supply of services ancillary to such activities, shall be the place where those services are
physically carried out.

Article 9d

Specific services to taxable persons

The place of supply of services to taxable persons, other than the long-term hiring or leasing
of  or  working  on  movable  tangible  property,  shall  be  the  place  where  the  supplier  has
established his business or has a fixed establishment from which the service is supplied, or the
place where he has a permanent address or usually resides, when the following conditions are
met:

(a)

the  services  are  rendered  in  the  Member  State  in  which  the  supplier  is
established,  has  a  fixed  establishment,  or  has  a  permanent  address  or  usually
resides,

18

 
(b)

the  services  require  the  physical  presence  of  the  service  provider,  or  the
material presence of the means of providing the service, at the same time as the
physical presence of the customer,

(c)

the services are provided directly to an individual for immediate consumption.

For  purposes  of  this  Article,  'long-term  hiring  or  leasing'  shall  means  an  arrangement
governed by an agreement providing for continuous possession or use of the movable tangible
property throughout a period of more than thirty days.

Article 9e

Transport of goods for non-taxable persons

1.

2.

3.

4.

5.

The  place  of  supply  of  transport  services  of  goods,  including  intra-Community
transport and the services of intermediaries, to non-taxable persons shall be the place
of departure.

Member States need not apply the tax to that part of the intra-Community transport
of goods corresponding to journeys made over waters which do not form part of the
territory of the Community.

‘Intra-Community transport of goods’ shall mean transport of goods where the place
of departure and the place of arrival are situated within the territories of two different
Member States.

The  transport  of  goods  where  the  place  of  departure  and  the  place  of  arrival  are
situated  within  the  territory  of  the  same  Member  State  shall  be  treated  as  intra-
Community transport of goods where such transport is directly linked to the transport
of goods where the place of departure and the place of arrival are situated within the
territories of two different Member States.

The 'place of departure’ shall mean the place where  the transport  of  goods actually
starts, irrespective of distances covered to the place where the goods are located and
the 'place of arrival’ shall mean the place where the transport of goods actually ends.

Article 9f

Specific services to non-taxable persons

The  place  of  supply  of  the  following  services  supplied  to  non-taxable  persons  shall  be  the
place where those services are physically carried out:

(a)

ancillary  transport  activities  such  as  loading,  unloading,  handling  and  similar
activities in the name and on behalf of other persons;

(b)

valuations of and work on movable tangible property;

(c)

services relating to scientific and educational activities, including the activities
of  the  organisers  of  such  activities  and,  where  appropriate,  the  supply  of
ancillary services.

19

 
Article 9g

Electronically supplied services to non-taxable persons

Until  30  June  2006,  the  place  of  supply  to  non-taxable  persons  of  electronically  supplied
services, including in particular the services referred to in Annex L and services supplied by a
taxable  person  who  has  established  his  business  outside  the  Community  or  has  a  fixed
establishment  there  from  which  the  service  is  supplied,  shall  be  the  place  where  the  non–
taxable person is established, has his permanent address or usually resides.

Article 9h

Telecom services and radio and television broadcasting services to non-taxable persons

The  place  of  supply  of  telecommunications  services,  including  the  provision  of  access  to
global information networks, and radio and television broadcasting services, supplied to non-
taxable  persons  by  a  taxable  person  who  has  established  his  business  or  has  a  fixed
establishment from which the service is supplied outside the Community shall be the country
in which the services are effectively used and enjoyed.

For purposes of this Article, ‘telecommunications services’ shall mean 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.

Article 9i

Services supplied by intermediaries to non-taxable persons

The place of supply  of  services  rendered to non-taxable persons  by  intermediaries  acting  in
the name and on behalf of other persons shall, where such services form part of transactions
other than those referred to in Article 9e and Article 9j, be the place where those transactions
are carried out.

Article 9j

Services to non-taxable persons outside the Community

The  place  of  supply  of  the  following  services  supplied  to  a  non-taxable  person  who  is
established or who has his permanent address or usual residence outside the Community shall
be the place where that person is established, has his permanent address or usually resides:

(a)

transfers  and  assignments  of  copyrights,  patents,  licences,  trade  marks  and
similar rights;

(b)

advertising services;

(c)

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

20

 
(d)

(e)

obligations  to  refrain  from  pursuing  or  exercising,  in  whole  or  in  part,  a
business activity or a right referred to in this Article;

banking,  financial  and  insurance  transactions  including  reinsurance,  with  the
exception of the hire of safes;

(f)

the supply of staff;

(g)

(h)

(i)

the hiring out of movable tangible property, with the exception of all means of
transport and of all other vehicles;

telecommunications  services,  including  the  provision  of  access  to  global
information networks;

the provision of access to, and of transport or transmission through, natural gas
and  electricity  distribution  systems  and  the  provision  of  other  directly  linked
services;

(j)

radio and television broadcasting services;

(k)

electronically supplied services, in particular, those referred to in Annex L;

(l)

the  services  of  agents  who  act  in  the  name  and  on  behalf  of  other  persons,
when they procure for their principal the services referred to in this Article.

Article 9k

Avoidance of double taxation

In  order  to  avoid  double  taxation,  non-taxation  or  distortion  of  competition  Member  States
may,  with  regard  to  the  supply  of  services  referred  to  in  Article  9,  Article  9a,  Article  9b,
Article 9c, Article 9d, Article 9e, Article 9f, Article 9h, Article 9i and Article 9j, treat:

(a)

(b)

the  place  of  supply  of  services,  if  situated  within  their  territory,  as  being
situated outside the Community where the effective use and enjoyment of the
services actually takes place outside the Community;

the  place  of  supply  of  services,  if  situated  outside  the  Community,  as  being
situated  within  their  territory  where  the  effective  use  and  enjoyment  of  the
services actually takes place within their territory.”;

(3)

In Article 12(3)(a), the fourth subparagraph, is replaced by the following:

“The third subparagraph shall not apply to the services referred to in Article 9j(k).”

(4)

Article 21, in the version set out in Article 28g, is amended as follows:

(a) in paragraph 1, point(b) is replaced by the following:

taxable  persons  to  whom  services  covered  by  Article  9(1)  are  supplied  if  the
“(b)
services are carried out by a taxable person not established within the territory of the
country;”

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(b) the following paragraph 5 is added:

"In  cases  where  the  taxable  transaction  is  made  by  an  establishment  of  a  taxable
person which is not situated in the territory of the country, where that person has at
the  same  time  an  establishment  in  the  same  Member  State  as  the  customer,  the
taxable  person  shall  be  deemed,  for  the  purposes  of  paragraphs  1  and  2,  not  to  be
established within the territory of the country."

Article 22(6)(b), in the version set out in Article 28h of Directive 77/388/EEC shall be

(5)
amended as follows:

(a) The first subparagraph is replaced by the following:

"Every  taxable  person  identified  for  value  added  tax  purposes  shall  also  submit  a
recapitulative  statement  of  the  acquirers  identified  for  value  added  tax  purposes  to
whom he has supplied goods under the conditions provided for in Article 28c (A) (a)
and (d), and of consignees identified for value added tax purposes in the transactions
referred  to  in  the  fifth  subparagraph  and  of  the  taxable  customers  to  whom  he  has
supplied services under the conditions provided for in Article 9(1)".

(b) The third subparagraph is replaced by the following:

"The recapitulative statement shall set out:

–  the number by which the taxable person is identified for purposes of value added
tax in the territory of the country and under which he effected supplies of goods in
accordance with the conditions laid down in Article 28c (A) (a) and under which
he effected supplies of services in the conditions laid down in Article 9(1),

–  the  number  by  which  each  person  acquiring  goods  or  services  is  identified  for
purposes of value added tax in another Member State and under which the goods
or services were supplied to him,

–  for  each  person  acquiring  goods  or  services,  the  total  value  of  the  supplies  of
goods or services effected by the taxable person. Those amounts shall be declared
for the calendar quarter during which the tax became chargeable.”

(c) The following sixth subparagraph is added:

"As regards services, the provisions of the first and third subparagraphs shall apply
from 1 January 2008.”

(6)

Articles 28b(C), (D), (E) and (F) are deleted.

Article 2

1.
Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative
provisions necessary to comply with this Directive by #### at the latest. They shall forthwith
communicate to the Commission the text of those provisions and a correlation table between
those provisions and this Directive.

22

 
When Member States adopt those provisions, they shall contain a reference to this Directive
or be accompanied by such a reference on the occasion of their official publication. Member
States shall determine how such reference is to be made.

Member States shall communicate to the Commission the text of the main provisions

2.
of national law which they adopt in the field covered by this Directive.

This Directive shall enter into force on the day following that of its publication in the Official
Journal of the European Union.

Article 3

Article 4

This Directive is addressed to the Member States.

Done at Brussels,

For the Council
The President

23

 
IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE TO
SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

TITLE OF PROPOSAL

Proposal  for  a  Council  Directive  amending  Directive  77/388/EEC  as  regards  the
place of supply of services.

THE PROPOSAL

1.

Taking  account  of  the  principle  of  subsidiarity,  why  is  Community  legislation
necessary in this area and what are its main aims?

The Commission considers that any modification of the rules governing the place of
taxation of services should respect, as far as possible, that for all services the place of
taxation should, in principle, be the place where the actual consumption takes place.

For  supplies  of  services  to  taxable  persons,  the  general  rule  with  respect  to  the
place  of  supply  of  services  should  be  based  on  where  the  customer  (i.e.,  the
taxable  person)  is  established,  rather  than  where  the  supplier  is  established.  The
advantages  of  this  approach  are  many.  First,  there  would  be  no  need  to  amend  the
Sixth Directive with respect to taxable persons  every  time  a  new  service  or  service
delivery model appears. Second, this approach is more in  line with the one used in
many  other  VAT  jurisdictions.  This  would  diminish  the  possibilities  of  double  or
unintentional non-taxation in international supplies of services. Finally, it resolves a
number  of  bundling  issues,  such  as  those  that  might  exist  between  tangible  and
intangible services.

Furthermore,  any  new  proposal  on  the  place  of  supply  of  services  should  seek  a
balance  between  the  control  needs  for  tax  administrations  and  the  administrative
obligations for traders.

THE IMPACT ON BUSINESS

2.

Who will be affected by the proposal?

Which sectors of business?

All  sectors  of  business  are  concerned,  both  as  suppliers  of  services  and  as  persons
receiving services supplied by taxable persons established in other countries.

Which size of business (what is the concentration of small and medium-sized firms)?

All sizes of business.

3.

What will business have to do to comply with the proposal?

Nothing  in  particular.  Businesses  must  comply  with  national  legislation  introduced
by their Member State to amend, where appropriate, the applicable rules in order to
transpose the Directive.

24

 
4.

What economic effects is the proposal likely to have:

On employment?

On investment and the creation of new businesses?

On the competitiveness of businesses?

On consumers?

This  proposal  as  such  will  have  no  direct  impact  on  employment,  consumers  and
investments. Because this proposal introduces some major simplifications such as an
increased reliance on the reverse charge mechanism the competitiveness of business
will improve.

5.

Does the proposal contain measures to take account of the specific situation of small
and medium-sized firms (reduced for different requirements, etc.)?

No

CONSULTATION

6.

On 7 May 2003 DG TAXUD launched an on-line consultation at the TAXUD web-site.
The  consultation  period  officially  ended  on  30  June  2003  but  responses  were  still
received and informally accepted until the middle of August.

A total of 57 external contributions were received in response to the consultation. Of
that total, 33 were from national and European federations or associations, 22 were
from business and two were from individuals.

While  the  overwhelming  majority  of  respondents  are  supportive  of  the  proposed
framework  for  the  rules  that  envisions  a  change  from  the  origin  principle  to  the
destination  principle  with  respect  to  the  place  of  taxation  of  services  supplied  to
taxable  persons,  there  were  a  few  persons  who  called  for  the  continuation  of  the
origin system, albeit enhanced by the introduction of a structure to redistribute VAT
back to the Member State where the customer is established. Additionally, those who
were supportive of the change from origin to destination had a number of concerns
with respect to the outlined exclusions from the proposed general.

Of  those  who  expressed  their  view  on  the  extension  of  VIES,  a  large  majority
strongly opposed the idea. VIES as it is functioning nowadays is seen as a source of
practical  difficulties,  of  errors  and  of  costs.  It  is  generally  not  considered  to  be  an
efficient tool to combat fraud. It was also noted several times that VIES only covers
services supplied by a taxable person in one of the Member States.

A synopsis of the responses and a list of the responders were published on the web-
site on 18 September 2003.

IMPACT ON MEMBER STATES

7.

The proposed amendments will not have any impact on own resources.

25