ECOFIN, (European Commission’s Economic and Financial Affair Council) recently adopted new value added tax (VAT) legislation that will change the place of supply rules for services and create a new electronic procedure for claiming cross-border VAT refunds. The new rules are part of the “VAT Package,” that is primarily intended to change the rules ensuring that VAT on services accrues to the country in which consumption occurs and to deter businesses from moving their operations to countries with lower VAT rates.

These new rules mean minor changes for some firms doing business in the European Union (EU), but they will require major changes for many others. Naturally, the rules affect the cross-border sales of business-to-business (B2B) services most significantly, but all businesses should assess the impact of the changes on their business. The key changes involve:

• Change in the place of supply of B2B services, which will be tied to where the customer consumes the services rather than where the supplier is located. This might seem like a simple change, but it has the potential to cause huge problems for the unwary.
• Mini one-stop shop, which is being implemented for broadcast and telecommunication services by 2015, with an eye to rolling it out eventually to a wider range of industries. This will ultimately make it possible for a company to register once for VAT in a country of its own choice and have that registration apply across the entire EU, this being essentially an extension of the existing rules surrounding services supplied by electronic means.
• Expansion of the EC Sales List, which will apply to services as well as to goods supplied and will require a greater level of detail in the report. This is a major new reporting burden for certain taxpayers.
  
• Electronic VAT refunds, eliminating the paper-based method of applying for 8th Directive refunds of VAT, improving the timeliness and efficiency of requesting and receiving refunds. Prima facie, this promises to be a major headache for the tax authorities but a boon for taxpayers.

Most troubling is that, while most of the changes are due to take effect on January 1, 2010, many of the details on exactly how the changes are to be implemented have yet to be outlined. This makes planning for the changes difficult, though conducting a risk assessment or investing in new technology. are examples of steps that companies can take now to ensure their readiness.

To read about the changes and practical implications, review the full article at: The VAT Package: Assessing Readiness for 2010 (PDF).

Chris Walsh, VAT Practice Leader for Vertex Inc., Berwyn, Pa., and Andrew Hallsworth, European Manager, Client Solutions for Vertex Global Tax Solutions Ltd., Stockley Park, U.K. Vertex is the leading provider of tax technology products and process management services for over 10,000 customers worldwide. Walsh has more than 20 years of indirect tax experience. Prior to Vertex, he held tax management positions at PricewaterhouseCoopers, Rothmans International, Foster’s Brewing Group Europe, Scottish & Newcastle, Midland Bank Group, Clark Whitehill, and U.K. H.M. Customs & Excise. He has been active in value added and indirect taxes in more than 30 countries, including the U.K., Kenya, Ireland, and the United States. At Vertex, Walsh serves as a VAT resource expert to both internal and external clients and has responsibility for managing the Vertex VAT product. Hallsworth has been consulting enterprises on VAT issues for over 10 years. He has held positions at PricewaterhouseCoopers in London, advising a wide range of sectors on European VAT issues, served as an in-house VAT manager at Oxford University, where he offered both VAT advice and VAT configuration within the University’s Oracle system, and worked at niche VAT advisory firm SOC VAT Consultants.