What is the place of supply rule and how does it determine which country's VAT applies?
The place of supply rule determines which country has the right to levy VAT on a transaction. For goods, the general rule is the place where goods are located at the time of supply (or where transport begins for dispatched goods). For services, the place of supply depends on whether the customer is a business (B2B) or consumer (B2C) and the type of service. These rules prevent double taxation and ensure VAT is collected once in the appropriate jurisdiction.
How do place of supply rules apply to services?
EU VAT place of supply rules for services: (1) B2B general rule - taxed where the customer is established (Article 44 EU VAT Directive); (2) B2C general rule - taxed where the supplier is established (Article 45); (3) Specific rules override the general rule for: land-related services (where the land is); admission to events (where event takes place); short-term vehicle hire (where vehicle placed at disposal); restaurant services (where physically performed); digital services B2C (customer's member state via OSS).
Frequently Asked Questions
- How do place of supply rules affect invoices for cross-border services?
- For B2B services under the general rule, the supplier invoices without VAT and annotates the invoice with 'Reverse charge - Article 44 EU VAT Directive' (or equivalent reference). The customer's VAT number must appear on the invoice. For B2C services taxed in the customer's country, the supplier either registers in each customer country or uses OSS, and charges VAT at the customer country's rate.
- What are use-and-enjoyment rules in place of supply?
- Use and enjoyment override rules allow tax authorities to move the place of supply to where a service is actually used if application of the standard rule would result in no VAT being charged or lead to distortion of competition. For example, some services supplied to non-EU customers but used within the EU may be taxable in the EU under use-and-enjoyment rules. These rules vary by jurisdiction and are more commonly applied to telecoms, broadcasting, and electronic services.