EU – Options exercised in the EU VAT Directive 2006/112 – Use & Enjoyment (Art. 59a)

Article in the EU VAT Directive 2006/112

Section – Place of Supply of services

Article 59a

In order to prevent double taxation, non-taxation or distortion of competition, Member States may, with regard to services the place of supply of which is governed by Articles 44 and 45, Article54(1), second subparagraph, and Articles 56, 58 and 59:
(a) consider the place of supply of any or all of those services, if situated within their territory, as being situated outside the Community if the effective use and enjoyment of the services takes place outside the Community;
(b) consider the place of supply of any or all of those services, if situated outside the Community, as being situated within their territory if the effective use and enjoyment of the services takes place within their territory.

Use & Enjoyment (U&E) Principle – Overview: Under EU VAT law (Article 59a of the VAT Directive), Member States can optionally adjust the place-of-taxation for certain service supplies to match where they are effectively “used and enjoyed.” This mechanism serves two main purposes:

Prevent Non-Taxation: Tax a service locally if, under normal rules, it would escape VAT (e.g. a service between an EU and a non-EU party that is consumed in the EU). This is often called “negative” U&E – bringing a transaction into VAT scope to avoid a tax gap.
Avoid Double Taxation: Do not tax a service domestically if it is consumed outside the EU and likely taxed elsewhere. This is “positive” U&E – moving a transaction out of local VAT scope to prevent double taxation.

In practice, Member States vary widely on U&E implementation. Roughly half of the EU-27 have no U&E rules at all, while others apply U&E only to specific sectors or scenarios (notably telecommunications, broadcasting, certain transport services, and some leasing arrangements). Very few countries apply U&E broadly.

Key Point (Who Uses U&E): 14 out of 27 Member States do not apply any U&E overrides in their VAT system – they strictly follow the standard EU place-of-supply rules. The remaining states have adopted U&E rules in a targeted way, mostly for telecom/media services and transport/hiring services. Historically, Spain was an outlier with very broad U&E (taxing many exports of services), but it significantly narrowed its U&E scope in 2023.

Service Types Commonly Affected by U&E: In countries that do implement U&E, the rules typically target specific services where the risk of non-taxation or double-taxation is highest:

Telecommunications & Broadcasting Services: For example, mobile phone roaming charges can trigger U&E. Some countries levy VAT if such services are used on their territory by non-residents (a negative U&E approach), or conversely, do not charge VAT if their resident’s telecom service is used entirely outside the EU (positive U&E).
Electronically Supplied Services (Digital Services): Notably, EU law forbids applying U&E to B2C electronic services provided to non-EU customers (to keep digital exports VAT-free). Thus, no Member State taxes digital services (like downloadable software, streaming) for customers outside the EU via U&E.
General B2B Services (“Intangibles” like consulting, advertising): Normally taxed where the business customer is located (or not taxed if the customer is outside the EU). Only in rare cases have countries used U&E to tax these differently. (Spain was one, taxing many B2B services used in Spain even if the client was non-EU – now mostly ended.)
General B2C Services (professional services to private individuals): Normally taxed where the supplier is (or outside EU if the customer is outside for certain listed services). Again, few countries alter these via U&E – Spain now does for some cases, while others do not.
Transportation of Goods (Freight): Several countries use U&E to handle cross-border freight: e.g. if a goods transport occurs wholly within one country for a client abroad (which ordinarily might be outside scope), they tax it domestically; and if a transport for a local client occurs entirely outside the EU, they treat it as outside scope (no VAT). This ensures freight moving entirely within a country isn’t untaxed and freight entirely outside isn’t double-taxed.
Hiring of Means of Transport (Leasing of cars, boats, etc.): U&E can apply to long-term rentals. For instance, Spain taxes the rental of vehicles to non-EU customers if the vehicle is used in Spain, and Ireland taxes any hire of goods used in Ireland even if the lessee is abroad (negative U&E). Conversely, some countries do not tax rentals to their residents if the item is used outside the EU (positive U&E). Malta and Cyprus historically had popular yacht leasing schemes effectively taxing only the portion of use in EU waters (a form of U&E logic), now requiring proof of usage.