Any business providing cross border services within the EC will be potentially affected by the changes agreed by the European Commission in December 2007 known as the "VAT Package".  Many of these changes came into effect on 1 January 2010.  Those businesses that have not already prepared should examine their systems to ensure that they will be ready to comply with the new rules.


The VAT package aims to establish a more even playing field for businesses supplying services across the EC.  In recent years, with the rise in electronic commerce, there has been distortion of competition with a number of well-known businesses locating in Luxembourg to enable VAT billing on cross-border transactions at the lowest rate of VAT available.  The VAT package aims to standardise the place of supply of service rules to be based on where the service is consumed.  In addition there are improvements to the system for cross border VAT refunds and improved administrative compliance between Member States. 

The package consists of the following:

  • changes to the general rules on place of supply of services;

  • changes to the regime for intra-EC VAT refunds; and

  • improved administrative co-operation between EC countries.

Place of supply of services rules 

The default rule pre 1 January 2010 was that supplies were subject to VAT in the EC Member State where the supplier was located. There was an over-ride where certain listed services were supplied to business customers located in another Member State or to customers located outside the EC. 

The rules changed such that the new default position for business-to-business supplies of services is that they are subject to VAT in the EC Member State in which the recipient has established his business as of 1 January 2010 (subject to specific exceptions, such as services related to land - which are subject to VAT where the land is situated; or supplies of passenger transport - supplied where the transport takes place).  The rules apply whether or not the services are used for the purposes of an economic activity although they do not apply where a taxable person receives supplies for personal use.

Member States retain the right to change the place of supply to the place of effective 'use and enjoyment' in certain situations.  This may mean that a service which would be located outside the EC on the basis of the new place of supply rules may still be caught in the VAT net if effective 'use and enjoyment' occurs within a particular Member State.

EC businesses supplying services to private consumers continue to be subject to VAT generally where the supplier is located, subject to certain exceptions.

Where an "electronically supplied service" is supplied by a non-EC business to a private EC consumer, the place of supply continues to be where the consumer is established. This measure ensures a level playing field within the EC for supplies of such services to consumers regardless of the origin of the supplier.  "Electronically supplied services" are broadly those services delivered over the internet or an electronic network which are heavily dependent on information technology rather than merely as a means of communication to facilitate a supply. Examples include downloaded music, films and games.

To simplify VAT registration and accounting obligations for non-EC businesses in relation to supplies of electronically-supplied services to EC private consumers, non-EC businesses benefit from special rules for an optional "one stop shop" registration scheme (the "Scheme"), providing fulfilment of VAT obligations both in the Member State of VAT registration and in those EC Member States where the business is not VAT registered. Under the Scheme, a business can register electronically in a single EC Member State of choice in order to account for VAT on the sales of such services to all EC private consumers. A single quarterly VAT electronic declaration is produced, containing details of all the VAT due in each of the EC Member States. The Member State of choice then distributes the VAT revenue as appropriate among the relevant EC Member States.

Where an EC established business supplies electronically supplied services to a private EC consumer, the place of supply will remain where the supplier is located until 1 January 2015, at which time the place of supply will change to where the consumer is established, thus bringing all such services within the same place of supply rules. The Scheme will then from that date be available to EC suppliers.

From 1 January 2015, the rules relating to telecoms and broadcasting services will also mirror those for electronically supplied services, acknowledging the increasingly blurred distinctions since the introduction of 3G networks and video-on-demand. Thus, the place of supply of these services to private consumers will be where the private consumer is based, and the Scheme will be available to EU and non-EU businesses providing such services.

Changes to procedures for VAT refund claims

As of 1 January 2010 an electronic cross border refund mechanism was established to enable a business registered for VAT in one EC Member State to reclaim VAT incurred in another EC Member State. 

The previous refund system (under the 'Eighth VAT Directive') required a business to claim VAT directly from each Member State where it was incurred. This slow paper based system often resulted in many businesses not claiming at all due to high administrative costs and uncertainty over the length of the process with no interest on late payments or the right to appeal a decision. According to the EC, more than 50% of large businesses did not claim refunds to which they were entitled due to the difficulties under the old refund system.

The new electronic platform aims to provide refunds within four months of a claim, with the right (i) to appeal and (ii) to obtain interest on overdue refunds. In addition the new place of supply of services rules will no doubt reduce the number of refund claims.

Improved administrative co-operation relating to VAT and the Exchange of Information between Member States

As of 1 January 2010 there was an increased compliance burden for businesses making supplies of services within the EC in order to protect VAT revenues. This was due to calls from the European Parliament to combat tax fraud.

EC Member States are required to collect VAT information and make this available to other EC Member States through an electronic platform. Businesses within the EC are required to complete an EC Sales List for services supplied on a reverse charge basis every three months and have to supply an EC Sales List for goods supplied on a monthly basis. The EC Sales List has to include customer information such as VAT registration numbers and total value of supplies which will incur destination-based VAT.

There is also a new obligation to exchange information more quickly with other EC Member States to enhance the ability to counter fraud. This includes reducing the time for submission of EC Sales Lists from six weeks to 14 days for paper based submissions and 21 days for electronic submissions and reducing the amount of time tax authorities have to process and exchange the data.

Local status


In the UK the main changes to implement the VAT package have, following consultation, been introduced in the Finance Act 2009.  Guidance has also been issued as well as draft legislation covering the new EC Sales List rules.  Of particular note, the UK Government has decided to make the use and enjoyment provisions mandatory to the place of supply of hiring of goods or means of transport, telecoms and broadcasting, electronically supplied services to a relevant business person.


The VAT package was incorporated into French tax law in the 2010 Finance Act and was effective as from 1 January 2010. 

The French tax authorities published guidance commenting on the new provisions which was also effective on 1 January 2010. It includes practical information for the application of the VAT package such as definitions, general rules and its exceptions and synthesis charts. 

The Netherlands

The VAT package was implemented on 1 January 2010. The scope of the one-stop-shop model for electronic services will be extended to telecom and broadcasting services as per 2015 in The Netherlands. 


In Belgium the main changes to implement the VAT package had been submitted to Parliament in the Bill dated 11 September 2009, amending the Belgian VAT Code and were eventually voted into law on 26 November 2009. The Act entered into effect as of 1 January 2010, in accordance with the EC VAT Directive. The EC Sales Lists must be filed electronically (through Intervat) on a monthly basis, although transactions below a certain threshold may be reported on a quarterly basis only. 

Action required

Many businesses, and in particular, those which have VAT entrenched software in their ERP systems and a large turnover of cross border supplies, will have been looking at these changes for the last couple of years in order to ensure that their systems and processes are robust enough to meet the new regime (to the extent that they have been able to do so when the local legislation is only now being made available in many Member States). Other businesses, particularly those which are not sophisticated in terms of VAT systems and which infrequently make cross border supplies of services, may not have considered the new rules in as much detail. 

For further information please contact a member of the tax team at Bird & Bird LLP.