Value Added Tax and the Digital Economy The 2015 EU Rules and Broader Issiies Edited by Marie Lamensch Edoardo Traversa Servaas van Thiel Wolters Kluwer
Contributors Preface v xix CHAPTER 1 VAT on Online Supplies: A Brief Outline of Current Issues Servaas van Thiel 1 1.1 The VAT Success-Story 1 1.2 The EU VAT Framework for Online Supplies: Neutrality Concerns, Compliance Burdens and Combating Fraud 3 1.3 The EU VAT Framework for Online Supplies: Topical Issues 6 1.4 Outlook 9 CHAPTER 2 VAT and Taxation of the Digital Economy from the Perspective of the EU Policy Maker Donato Raponi & David O'Sullivan 11 2.1 Introduction 11 2.2 The First Steps towards the Destination Principle 12 2.3 Further Progress: Adoption of the VAT Package in 2008 13 2.4 The Successful Introduction of the 2015 Place of Supply Rules and MOSS 14 2.4.1 Legislative Framework 15 2.4.2 Guidance for Member States and Business 16 2.4.2.1 Explanatory Notes on the Place of Supply Rules 16 2.4.2.2 MOSS Guidelines 16 2.4.3 Communication 16 xi
2.4.4 MOSS IT Implementation 17 2.4.5 Coordination of Audits 17 2.5 A Roadmap to a Destination Based VAT System for B2C Transactions 17 2.6 Conclusions 20 CHAPTER 3 Value Added Tax 3.0 Chartern Adline Herbain 21 3.1 Introduction 21 3.2 Across the Ocean 22 3.2.1 The Sixth Directive 23 3.2.2 Outcome versus Intentions 24 3.3 In Luxembourg 25 3.3.1 The E-Commerce Directive 25 3.3.2 Outcome versus Intentions 27 3.4 In Switzerland 30 3.4.1 VAT Package 31 3.4.2 Outcome versus Intentions 32 3.5 A Little Further on, Past the Future 36 CHAPTER 4 Tax Assessment in a Digital Context: A Critical Analysis of the 2015 EU Rules Marie Lamensch 39 4.1 Introduction 39 4.2 Identifying and Locating Customers of Electronically Supplied Services: A Summary and Critical Analysis of the Current Rules 41 4.2.1 General 41 4.2.2 Customer Identification 42 4.2.3 Customer Location 45 4.2.3.1 The General Rules of Council Regulation 282/2011 45 4.2.3.2 The Specific Rules of Council Regulation 1042/2013 49 4.2.3.2.1 General 49 4.2.3.2.2 The Presumptions 49 4.2.3.2.3 Analysis 53 4.2.3.2.4 Intermediate Conclusion and Final Remarks 65 4.3 Conclusions 65 xii
CHAPTER 5 VAT Fraud and the Digital Economy within the European Union: Risks and Opportunities Edoardo Traversa & Emanuele Ceci 67 5.1 Introduction 67 5.2 The Fight against Fraud as a Focal Point of EU Digital VAT Policy 68 5.3 Identifying and Locating Digital Supplies in Order to Minimize VAT Fraud: The Destination Principle as a Panacea? 73 5.3.1 An Internationally Recognized and Implemented Principle 73 5.3.2 Obstacles to Implementing the Destination Principle in a Borderless Economy 74 5.3.2.1 Excessive Compliance Costs for Tax Administrations and Taxable Persons 75 5.3.2.2 Excessive Bürden of Proof for Suppliers 76 5.3.3 The Limits of the Proposed Solutions 77 5.3.3.1 The Presumptions regarding the Place of Supply of E-Services in Regulation 1042/2013/EU 77 5.3.3.2 The OECD Guidelines 80 5.4 Fighting VAT Fraud in the Area of Digital Supplies: The Need for Comprehensive and Innovative Solutions 83 5.4.1 Using Information Technology to Better Trace and Identify VAT Taxable Persons and Transactions 84 5.4.2 Enhancing Administrative Cooperation and Developing Simple Mechanisms for the Assessment and Collection of VAT on Cross-Border Transactions 85 CHAPTER 6 The VAT One Stop Shop System: An Efficient Way to Collect VAT on Digital Supplies into the EU Consumer Market? Ine Lejeune & Sophie Ciaessens 89 6.1 Introduction: VAT Compliance and Collection in a World in Beta 89 6.2 The VAT MOSS System Explained 91 6.2.1 What Is the VAT MOSS System? 92 6.2.2 Who Can Use It? Union versus Non-union VAT MOSS Schemes 92 6.2.3 Key Features of the EU VAT MOSS 95 6.3 First Six Months of the EU 2015 VAT MOSS Go-Live 97 6.3.1 VAT MOSS Registration Numbers 97 6.3.2 VAT MOSS Redistribution of Revenues 98 6.3.3 National Contact Points 99 xiii
6.4 Auditing under MOSS 99 6.4.1 MOSS Records 99 6.4.2 Audit Code of Practice 100 6.4.3 Standard Audit File for MOSS ('SAF-MOSS') 101 6.4.4 Issues That Are Likely to Be Examined during a MOSS Audit 101 6.4.5 Penalties and Statute of Limitations 101 6.5 Summary Conclusions: Is the VAT MOSS the Start of Something Big? 102 6.5.1 What Works? What Not? What Should Be Reviewed for the Future? 102 6.5.2 What Is Next? 104 CHAPTER 7 Internet and the Concept of 'Fixed Establishment' of the Recipient of a Supply of Services: Case C-605/12 Welmory Ben Terra 107 7.1 Introduction 107 7.2 Opinion of the Advocate General 109 7.2.1 Case Law regarding Fixed Establishments 109 7.2.2 Implementing Regulation 110 7.2.3 Outsourced Personnel, Permanence and Identical Use 110 7.2.4 The Sale of Bids 111 7.2.5 Third Party Payment 111 7.3 Decision by the Court 111 7.3.1 Preliminary Observation, Subject Matter of the Question 112 7.3.2 The Relevance of Previous Case Law 112 7.3.3 The Primary Point of Reference 113 7.3.4 The Concept of Fixed Establishment 113 7.4 Conclusions 114 CHAPTER 8 Internet Search Engines: A VAT Analysis Cristina Trenta 117 8.1 Introduction 117 8.2 The Economics of Internet Searching 118 8.3 Advertising 119 8.3.1 Defining Advertising 119 8.3.2 Banner Advertisement 121 8.4 The Economic Role of Users 123 8.5 A VAT Perspective on the Role of Users 127 8.6 Conclusions 131 8.7 Further Research 131 xiv
CHAPTER 9 VAT and Virtual Reality: How Should Cryptocurrencies Be Treated for VAT Purposes? Oskar Henkow 135 9.1 Introduction 135 9.2 The Virtual Reality and VAT 136 9.3 Treatment of Money, Debts and Vouchers in EU VAT 140 9.4 Virtual Currencies and Their VAT Treatment 145 CHAPTER 10 Consumption Taxation of Cloud Computing: Lessons from the US Subnational Retail Sales Tax Experience Walter Hellerstein 149 10.1 Introduction and Preliminary Caveats 149 10.2 What Is Cloud Computing? 150 10.3 Lessons from the US RST Experience: The Dangers of 'Reasoning by Analogy' in Designing Consumption Tax Regimes for Cloud Computing 152 10.3.1 Introductory Note: The Role of 'Use' Taxes in the US RST Regimes 153 10.3.2 Jurisdiction over the Parties to a Cloud Computing Transaction 155 10.3.2.1 Purchaser's Nexus 155 10.3.2.2 Provider's Nexus 156 10.3.2.3 State Guidance 156 10.3.3 The US RSTs' Approach to the Taxability of Cloud Computing Transactions 158 10.3.3.1 'Sale' or 'Use' 158 10.3.3.2 Tangible Personal Property, Service, or Intangible? 159 10.3.3.2.1 Distinguishing between Sales of Tangible Personal Property and Sales of Services in the Cloud Computing Context 159 10.3.3.2.2 Cloud Computing as Canned/Prewritten Computer Software 161 10.3.3.2.3 Cloud Computing as Tangible Personal Property (without Regard to Whether It Constitutes Canned/Prewritten Computer Software) 162 10.3.3.2.4 Cloud Computing as a Service 162 10.3.3.3 In What State Does the 'Sale' or 'Use' Occur? 163 10.3.3.3.1 Location of the Server 163 10.3.3.3.2 Location of the User 164 10.4 Concluding Observations 166 xv
CHAPTER 11 Methodological Notes on a Changing Legislative Landscape Pernilla Rendahl 169 11.1 Introduction 169 11.2 International Coordination by Soft Law 170 11.3 Specific Demands in the Context of Electronic Commerce 173 11.4 Theoretical Comparison of Two Soft Law Tools 174 11.4.1 The EU Explanatory Notes on Digital Supplies 174 11.4.2 International VAT/GST Guidelines 177 11.5 Interpretation and Application by Authorities and Courts 178 11.6 Closing Remarks 179 Appendices 181 APPENDIX I Council Directive 2002/38/EC of 7 May 2002 Amending and Amending Temporarily Directive 77/388/EEC as Regards the Value Added Tax Arrangements Applicable to Radio and Television Broadcasting Services and Certain Electronically Supplied Services, O.J. 15 May 2002, L 128 183 APPENDIX II Council Directive 2008/8/EC of 12 February 2008 Amending Directive 2006/112/EC as Regards the Place of Supply of Services, O.J. 20 February 2008,L 44/11 191 APPENDIX III Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 Laying Down Implementing Measures for Directive 2006/112/EC on the Common System of Value Added Tax (Recast), O.J. 23 March 2011, L77/1 (Recast of Council Regulation (EC) No 1777/2005 of 17 October 2005 Laying Down Implementing Measures for Directive 77/388/EEC on the Common System of Value Added Tax) 203 APPENDIX IV Council Implementing Regulation (EU) No 1042/2013 of 7 October 2013 Amending Implementing Regulation (EU) No 282/2011 as Regards the Place of Supply of Services, O.J. 26 October 2013, L284/1 213 APPENDIX V Explanatory Notes on the EU VAT Changes to the Place of Supply of Telecommunications, Broadcasting and Electronic Services That Enter into Force in 2015 (Council Regulation 1042/2013) 219 xvt
APPENDIX VI Council Regulation 967/2012 of 9 October 2012 Amending Implementing Regulation (EU) No 282/2011 as Regards the Special Schemes for Non-established Taxable Persons Supplying Telecommunications Services, Broadcasting Services or Electronic Services to Non-taxable Persons 221 APPENDIX VII European Commission - Tax Administration and Fight against Tax Fraud: Information for Businesses Signing Up for the MOSS: Additional Guidelines on Auditing under the MOSS 235 Bibliography 237 Table of Cases 243 Index 245 xvii