Telecoms Services & VAT

In the European Union (EU), the services of connection to the Internet are taxed differently, for VAT purposes, to content provision services. Internet access provision is a telecommunications service in the EU – this is a rather different treatment to that in the United States, where Internet access is generally not regarded as a telecommunications service for sales/use tax purposes.

Since the issue of the Telecoms Derogation in March 1997, non-EU Telcos and ISPs providing Internet access services to EU private individuals, will probably be aware that these services are taxable in the EU member state in which they are consumed. The Telecoms Directive published in June 1999 effectively formalised the rules in the Derogations. Therefore, if a non-EU provider is doing business with private individuals (non-taxable persons) in all 27 member states, it has a potential VAT registration and reporting responsibility in each of those states. This obviously raises the level of compliance obligations and cost significantly.

An alternative might be to go “local” in one EU member state, for example, by forming a subsidiary company there, and invoicing to non-taxable EU customers with local VAT from that location. However, it may be necessary to demonstrate substance and a definite physical presence to obtain such a local VAT registration. There are also pitfalls to be wary of – in some member states a local VAT registration may trigger a direct tax liability as the local entity may be regarded as a permanent establishment. However, with proper planning there are a number of opportunities to take advantage of the different compliance levels, different VAT rates and different interpretation of the rules in the various EU countries.

Our Telecoms Services include:

* Assistance with setting up UK or European subsidiaries or other entities.
* Managing VAT compliance, accounting and direct tax compliance.
* Providing tax planning advice regarding both VAT and direct taxes (such as corportate tax, income tax, etc)

For further information / consultation please contact us or read the articles below.

  • Telecoms & VAT: co-location services

    Where equipment is hosted in a “data-centre” or a “tele-house” one could say this gives rise to co-location services.  The equipment could be housed in racking space, shelving or in an entire room reserved for a particular customer and would basically require space and therefore consuming capacity.  The sale of co-location space is often accompanied by [...]

  • Telecoms Carriers Consulting Services

    We can assist in the following areas of telecoms tax planning and re-structuring: Post-acquisition tax planning and re-structuring * Re-organising the tax structure of the acquired telecoms company to ensure the tax benefits are preserved as to: · Sales · Service companies / LBUs (Local Business Units) · Ownerships of IRUs (Indefeasible Rights of Use) · Operations & infrastructure * Tax pros and cons [...]

  • Telecoms B2B: use and enjoyment

    Scenario BerlinTelecom (a EU telecoms supplier) provides WashingtonTelecom (a US telco) access to its EU telecoms network.  Is VAT chargeable to the clients of the US telco when they use their mobile phones on European business trips? VAT analysis As WashingtonTelecom is established in the US the normal place of supply would be in the US – outside the [...]

  • Telecoms & VAT: “dark fibre”

    “Dark fibre” involves the supply of fibre optics strands to a customer who would need connectivity to transmission equipment in order to receive or transmit messages.  Under the Telecoms Directive the “transfer or assignment of the right to use capacity” is included in the definition of a telecoms service.  Although dark fibre is “unused” capacity (compared to [...]

  • Telecoms & VAT: network management services

    The objective of network management services is to maximise the productivity and efficiency of a telecoms network.  The five key areas include: Configuration management Performance management Default management Security management Accounting management An example of a network management service could be “call and call-back” services.  If network management services are treated as ancillary to the provision of telecoms services then the [...]

  • Telecoms & VAT: Bundled and inter-connected services

    Telecoms services can often be bundled together with other services in a single contract.  Thus the “package of services” may consist of basically separate services which are dealt with in the same contract or “inter-connected services” which are technically related.  Regarding “bundled services” the issue is whether the different strands or service components should be differentiated [...]

  • Mobile telephony & VAT

    Scenario A British subscriber to UKTelCo uses his mobile phone in France.  UKTelCo is collecting the payment but FranceTelco provides the service as there is a roaming agreement between the two telcos.  Where is the place of supply for VAT purposes?  Is it the UK where the subscriber is resident or France where the call is originated? If [...]

  • Telephone cards sales

    Telephone cards distribution business    VAT   Explanation of Place of Supply Rules regarding telecommunications services.   Phone cards – goods or services?  Impacts physical delivery to UK establishment.   VAT rules for telephone cards,  face value cards /vouchers, pre-paid, post-paid cards, promotional schemes etc,   VAT rules at distributor level & retail level – taxed when sold or taxed when used.   “Reverse charge” VAT rules [...]