Briefing Document & Podcast: EU VAT Directive 2006/112/EC – Place of Supply (Art. 31-61)

VAT Place of Taxable Transactions: Detailed Briefing

The VAT place of supply rules in Directive 2006/112/EC are crucial for determining where transactions are taxed across the EU. They ensure consistency, prevent double taxation or non-taxation, and help businesses comply with cross-border VAT obligations. These rules are essential for allocating taxing rights between Member States, ensuring fair revenue distribution and smooth functioning of the internal market. In this episode, we’ll unpack how they work and why they matter for EU businesses.

I. Core Principles of Place of Supply

The “place of supply” is the crucial geographical location where a supply of goods or services is deemed to occur for VAT purposes. This determination is fundamental as it dictates which Member State has the right to tax the transaction. The overarching principle is to ensure that VAT is accounted for effectively, preventing both double taxation and non-taxation, and avoiding distortion of competition.

II. Place of Supply for Goods

The rules for determining the place of supply for goods vary significantly depending on whether the goods are transported and, if so, the nature of that transport and the parties involved.

A. Goods Without Transport

For goods that are not dispatched or transported, the place of supply is straightforward: it is “the place where the goods are physically situated at the precise moment the supply occurs.” This applies to transactions where goods are handed over or made available without any associated movement by the supplier or customer (Article 31).

B. Goods With Transport

The general rule for goods that are dispatched or transported is that “the place of supply shall be deemed to be the place where the goods are located at the time when dispatch or transport of the goods to the customer begins” (Article 32). However, there are several key derogations and specific scenarios:

• Distance Sales: A major exception applies to “intra-Community distance sales of goods” and “distance sales of goods imported from third territories or third countries.” In these cases, the place of supply is the “place where the dispatch or transport of the goods to the customer ends (i.e., the destination)” (Article 33(a) and (b)). This ensures VAT is collected in the Member State of consumption.
  • Imported Distance Sales: If dispatch begins in a third territory/country, the place of supply by the importer (liable for VAT) and any subsequent supplies are deemed to be within “the Member State of importation of the goods” (Article 32, second paragraph). This rule aims to account for VAT at the Community’s point of entry.
  • Exceptions to Distance Sales Rules: The specific rules for distance sales (Article 33) do not apply to certain goods like “second-hand goods, works of art, collectors’ items or antiques, as defined in points (1) to (4) of Article 311(1), nor to supplies of second-hand means of transport, as defined in Article 327(3), subject to VAT in accordance with the relevant special arrangements” (Article 35).
  • Threshold for Distance Sales: A significant derogation (Article 59c) exists for small suppliers. If a supplier is established in only one Member State and their total value of intra-Community distance sales and electronically supplied services to non-taxable persons in other Member States does not exceed EUR 10,000 (or equivalent) in the current or preceding calendar year, the standard rules apply (place of origin for goods, supplier’s location for services). Once this threshold is exceeded, the destination/customer location rule applies. Member States can grant the right to opt for the destination rule even below the threshold.
• Installed or Assembled Goods: If goods are “installed or assembled by or on behalf of the supplier, with or without a trial run,” the place of supply is “the location where the installation or assembly takes place” (Article 36). This rule applies even if the installation occurs in a different Member State than that of the supplier, with provisions for preventing double taxation.
• Successive Supplies (Chain Transactions): For successive supplies of the same goods where they are “dispatched or transported from one Member State to another Member State directly from the first supplier to the last customer in the chain,” the dispatch or transport is generally “ascribed only to the supply made to the intermediary operator” (Article 36a(1)). An “intermediary operator” is a supplier in the chain (other than the first) who dispatches or transports the goods. However, if the intermediary operator provides their supplier with a VAT identification number from the Member State of dispatch/transport, the transport is ascribed to the supply by the intermediary operator (Article 36a(2)).
• Goods on Board Ships, Aircraft, or Trains: For goods supplied during a passenger transport operation within the Community, the place of supply is “at the ‘point of departure’ of that passenger transport operation” (Article 37(1)). The “point of departure” is defined as “the first scheduled point of passenger embarkation within the Community for that journey” (Article 37(2)). This standardises the taxation point for such mobile sales.

C. Gas, Electricity, Heat, or Cooling Energy

The determination for these energy products depends on the customer’s status:

• To a “Taxable Dealer”: When supplied to a “taxable dealer” (defined as a “taxable person whose principal activity… is reselling those products and whose own consumption… is negligible”), the place of supply is “where that dealer has established their business or a fixed establishment receiving the goods” (Article 38(1)).
• To Other Customers: For supplies not covered by the “taxable dealer” rule, the place of supply is “where the customer effectively uses and consumes the goods” (Article 39, first paragraph). If the goods are not fully consumed, the unconsumed portion is deemed used at the customer’s business establishment or permanent address (Article 39, second paragraph).

III. Place of Supply for Services

The rules for services differentiate based on whether the recipient is a “taxable person” or a “non-taxable person.”

A. General Rules

• Services to a Taxable Person: The “general rule for the place of supply of services to a taxable person acting as such is where that person has established their business” (Article 44). A key exception applies if the services are provided to a “fixed establishment” of the taxable person located elsewhere; in such cases, the place of supply is the location of that fixed establishment. If neither applies, it defaults to the taxable person’s permanent address or usual residence.
• Services to a Non-Taxable Person: The general rule for services to a non-taxable person is “the place where the supplier has established his business” (Article 45). Similarly, if provided from a fixed establishment of the supplier, that establishment’s location is the place of supply.

B. Particular Provisions for Services

Several specific provisions override the general rules for certain types of services, reflecting the principle of taxation at the place of consumption where appropriate.

• Immovable Property: Services “connected with immovable property” (including those of experts, estate agents, accommodation, or construction work preparation) are supplied “where the immovable property is located” (Article 47). This grounds the taxation to the physical location of the property.
• Passenger Transport: The place of supply for passenger transport is “the place where the transport takes place, proportionate to the distances covered” (Article 48).
• Goods Transport (Non-Taxable Persons):
  • For intra-Community transport of goods to non-taxable persons, the place of supply is the “place of departure” (Article 50), which means “the place where transport of the goods actually begins” (Article 51).
  • For other goods transport to non-taxable persons, it is “the place where the transport takes place, proportionate to the distances covered” (Article 49).
• Cultural, Artistic, Sporting, Scientific, Educational, Entertainment Events:
  • Admission to Taxable Persons: For admission and related ancillary services supplied to a taxable person, the place of supply is “where those events actually take place” (Article 53). However, this rule “does not apply if the attendance to these events is virtual” (Article 53, second paragraph).
  • Services to Non-Taxable Persons: For related services and ancillary services to a non-taxable person, the place of supply is also generally “the place where those activities actually take place” (Article 54(1)). Crucially, if these activities are “streamed or otherwise made virtually available,” the place of supply shifts to “the place where the non-taxable person is established, has his permanent address or usually resides” (Article 54(1), second subparagraph).
• Restaurant and Catering Services: Generally, these services are supplied “where the services are physically carried out” (Article 55). However, if carried out on board ships, aircraft, or trains during a Community transport operation, the place of supply is “at the point of departure of the passenger transport operation” (Article 57(1)), mirroring the rule for goods sold on board.
• Hiring of Means of Transport:
  • Short-term hiring (continuous possession/use for not more than 30 days, or 90 days for vessels) is supplied “where the means of transport is actually put at the disposal of the customer” (Article 56(1)).
  • Long-term hiring to a non-taxable person is supplied “where the customer is established, has his permanent address or usually resides” (Article 56(2)). An exception exists for pleasure boats, where the place of supply is where the boat is made available if supplied from a fixed establishment there.
• Telecommunications, Broadcasting, and Electronic Services to Non-Taxable Persons: For these services, the place of supply is “the place where that person is established, has his permanent address or usually resides” (Article 58(1)). This ensures taxation at the consumer’s location, particularly relevant for cross-border digital services.
• Services to Non-Taxable Persons Outside the Community: For a specific list of services (e.g., transfers of intellectual property, advertising, consultancy, banking, supply of staff, hiring out of movable tangible property excluding means of transport, and access/transmission/distribution of energy) supplied to a non-taxable person established or usually residing outside the Community, the place of supply is “the place where that person is established, has his permanent address or usually resides” (Article 59). This prevents Community businesses from having to charge VAT on services consumed outside the Community.

C. Prevention of Double Taxation or Non-Taxation for Services

Member States possess a critical mechanism to adjust the place of supply for certain services (specifically those governed by Articles 44, 45, 54(1) second subparagraph, 56, 58, and 59). This power allows them to “prevent double taxation, non-taxation or distortion of competition” (Article 59a).

• They can consider a supply situated within their territory as being outside the Community if the “effective use and enjoyment of the services takes place outside the Community” (Article 59a(a)).
• Conversely, they can deem services situated outside the Community to be within their territory if the “effective use and enjoyment of the services takes place within their territory” (Article 59a(b)).

IV. Place of Importation of Goods

The place of importation of goods is generally “the Member State within whose territory the goods are located when they enter the Community” (Article 60). However, there’s a derogation: if goods are placed under certain customs arrangements (e.g., transit or temporary importation with total exemption), the place of importation becomes “the Member State within whose territory the goods cease to be covered by those arrangements or situations” (Article 61). This prevents VAT from being charged prematurely while goods are still under customs control.

V. Key Terminology

Understanding the following terms is crucial for navigating VAT place of supply rules:

• Community: The territory covered by the EU Member States for VAT.
• Taxable Person: Any individual or legal entity engaged independently in economic activity and identified for VAT purposes.
• Non-Taxable Person: Typically a final consumer, not considered a taxable person for VAT.
• Fixed Establishment: A permanent place of business distinct from a main business establishment.
• Dispatch or Transport: The physical movement of goods.
• Distance Sales of Goods: Goods transported by the supplier from one Member State to a non-taxable customer in another.
• Intra-Community Acquisition of Goods: Acquisition of goods from one Member State by a person in another.
• Taxable Dealer: A taxable person primarily reselling gas, electricity, heat, or cooling energy with negligible own consumption.
• Intermediary Operator: A supplier in a chain transaction (not the first) who dispatches or transports goods.

This comprehensive framework aims to ensure consistent and fair VAT application across the European Union, adapting rules to the diverse nature of goods and services transactions and the different statuses of customers and suppliers.

See also – in this serie

• Taxable Person (Art. 9-13)
• Taxable Transactions (Art. 14-30)
• Invoicing (Art. 217 – 240)

TITLE V

PLACE OF TAXABLE TRANSACTIONS

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