PRINCIPLES OF VAT TAXATION OF SERVICES IN EUROPE
Intra-European services are divided into two broad categories:
- Services performed between taxable persons (B to B) located in the matter of tax at the place of establishment of the user of service,
- Benefits provided to non-taxable persons (B to C) located in the provider's place of business.
I- GENERAL PRINCIPLE OF TERRITORIALITY:
1. Services rendered to a taxable person acting as such (B to B):
The place of taxation is in the country where the beneficiary has its registered office or a permanent establishment for which the services are rendered.
This concerns the following services:
- Services rendered by an intermediary acting on behalf of another taxable person,
- Transportation of movable properties,
- Expertise or work on movables properties,
- Intangible benefits (see Code General des Impôts art 259B),
- Storage services which constitute the supply of a complex service,
- Renting of long-term means of transport, particularly in the context of a lease,
- Services in cultural, artistic sports etc ...
There are also exceptions. Benefits that do not comply with the above rule will be considered in Part II.
Throughout this article the term "taxable person" means any person subject to VAT by operation of law as well as persons benefiting from a derogation regime (PBRD) or from the franchise in basic.
The user of service must provide his VAT identification number to his supplier before the intervention if he wants to be subject to VAT in his state.
VAT must be self-liquidated by the customer.
2. Services rendered to a non-taxable client (B to C):
In this case, the taxable place of VAT is in the state where the service provider has its head office, or in the state where he has a permanent establishment that has rendered the service.
The self-liqidation regime is not applicable.
II- DEROGATORY REGIMES APPLICABLE WHATEVER THE QUALITY OF THE CLIENT:
1. Travel agent services:
Their benefits are taxable in the state where the seat of their economic activity is located whatever the situation of the client under VAT (subject or not).
The additional services provided by the travel agencies follow the territoriality rules specific to each service.
2. Services related to a building:
These services are always taxed on the location of the building situation.
It is mainly works, surveillance, expertise, management of the building etc ...
3. Transport of persons:
The cost of transportation is taxable in each state in proportion to the distance traveled in that state.
4. Sales to consume on the spot:
This concerns the provision of food or beverages accompanied by related services for immediate on-site consumption.
Taxation is where the service is performed.
5. Rental of means of transport:
-Short term, less than 30 days (or 90 days for a means of sea transport): They are taxed at the place where the mean of transport is made available.
-Long duration: As we saw above, the taxation is in the state where the tenant has an establishment which is the beneficiary of the lease. If he is subject to VAT, he will pratice self-liquidation.
6. Cultural, artistic, sports, scientific, educational services:
When the customer is subject to VAT, the tax is due in the state of the customer's establishment.
When the beneficiary of the service is not subject, the taxation takes place in the state where it is executed.
7. Rights of access to a cultural, artistic, sporting, scientific, educational event:
Taxation is usually located where the event takes place.
III- DEROGATIONS APPLICABLE TO CERTAIN SERVICES PROVIDED TO NON-TAXED PERSONS (B to C):
1. Intra-Community transports of goods:
These benefits are taxable at the place of departure of the transport when the customer is not subject to VAT.
The services incidental to the transports of goods are taxable in the state in which they are executed.
2. Work and expertise on tangible personal property:
These transactions are taxable in the state where they are physically executed.
3. Intangible services:
This concerns the following services:
- Assignment and grant of patents and copyrights,
- Rental of tangible personal property (other than means of transport),
- Advertising services,
- Advice, engeneering, etc ...
- Data processing (ex : translation),
- Banking and insurance operations.
It should be noted that the definition of each of these operations is summarized and that the list contains only the most common operations. We are at your disposal to provide you with more details.
The tax rules for these services fall into three categories as follows:
- The recipient of the service is non-taxable and not established in a state of the EEC : Non-taxation,
- The customer is a non-taxable person established in a state of the EEC : Taxation in the state where the provider is established,
- The service provider is established outside the EEC and the customer is established in the EEC : Taxation in the state where the service is used.
There are, moreover, peculiarities concerning:
- Transfer of movable property for works and expertise on these properties,
- International transports.
These two chapters will not be discussed in this article, but one of our English speaking chartered-accountants can, at your request, provide all the details.