VAT B2B services: case study 1

The new EC general VAT rule on the place of supply of services in a B2B context states that the place of supply of services to a taxable person acting as such shall be the place where the person has established his or her business.  However, if those services are provided to a fixed establishment of the taxable person other than the place where the person has established his or her business, the place of supply will be where that fixed establishment is located. 

This general rule gives rise to a number of interesting scenarios illustrated below with examples.

Customer in same country but delivery in different countries

Your company provides telecommunications services such as email and internet access services in the EU.  Your customer’s HO is established in the same EU country as you are so the contractual and billing route is domestic with a single invoice.  However, you provide cross-border services to the customer’s branches (fixed establishments) in other EU member states also .  What will be the VAT treatment?  Will EC sales lists be required?

Customer in different country, but service is delivered in supplier’s country

You are an Indian software services company with a subsidiary in the UK. Your contract and invoice is with your customer’s HO in another EU member state but you deliver the service to the UK branch of your customer.  You would normally take the VAT number of your EC customer and zero-rate the transaction and prepare the EC sales list entry.  However, the service is consumed in the UK by the UK fixed establishment of your customer.  What will your response be if HMRC of the UK demand VAT on your supply enjoyed by the customer’s UK branch assuming you cannot recover the VAT from your customer at a later date?