EU VAT Issues
VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the Community.
VAT is applied in each Member State according to a common legal framework, although Member States do enjoy derogations from the VAT Directive which provides a degree of flexibility (e.g. zero-rate for food in Ireland).
Value added tax is
- a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services.
- a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.
- charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
- collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved.
- paid to the revenue authorities by the seller of the goods or services, who is the "taxable person", but it is actually borne by the consumer as part of the final price. It is thus an indirect tax.
The essential piece of EU VAT legislation since 1 January 2007 has been Directive 2006/112/EC - a recast of the Sixth VAT Directive which was agreed in 1977. Any amendments to the VAT Directive arise from proposals by the European Commission which are then discussed by a Council Working Party. Proposals are generally adopted into law by Ecofin Council. The VAT Directive is transposed into Irish legislation through the Value-Added Tax Consolidation Act 2010 (as amended) and the VAT Regulations 2010.
In 2008, major reforms of the place of supply rules for services were agreed by Council along with the introduction of an electronic system for the refund of intra-Community VAT and changes to the reporting requirements for intra-Community trade.
The majority of changes came into effect in 2010. Further information on the three elements is below:
- the Intra-Community VAT Rules on Place of Supply for Services ,
- a new system for intra-Community refunds of VAT,
- the requirement for Recapitulative (VIES) statements for intra-Community supplies of services and the requirement for monthly VIES statements for goods ( PDF, 84KB).
There were further changes to the place of supply rules in 2011 concerning admissions to events. Please see information leaflet for further information.
There will be changes to the rules for hiring out of means of transport in 2013 and a significant change in 2015 to the place of supply for certain Business to Consumer services (eServices including software, games, ebooks etc. telecommunications and broadcasting) which will change the place of taxation from the place of the supplier to the place of the customer i.e. from 2015 such services will be taxed where consumed.
VAT Directive Implementing Regulations
Council Implementing Regulation No. 282/2011 was adopted in March 2011 by the Council of Ministers and came into effect on 1 July 2011. This implementing regulation provides detailed rules for the application of the VAT Directive particularly in respect of the place of supply rules for services. To assist taxpayers, Revenue has prepared notes for guidance on the Council Implementing Regulation (EU) No 282/2011 (PDF, 169KB).
New VAT Invoicing Rules
Council Directive 2010/45/EU of 13 July 2010 amends the VAT Directive as regards the rules on invoicing. It aims to simplify invoicing rules by removing existing burdens and barriers and it establishes equal treatment between paper and electronic invoices without increasing the administrative burden in relation to paper invoices. It aims to promote the use of e invoicing by creating freedom of choice for business in ensuring the authenticity, integrity and legibility of invoices. The directive also sets out which Member States rules will apply in relation to cross-border supplies.
The provisions of Council Directive 2010/45/EU will apply from 1 January 2013. The directive will be transposed into Irish legislation during 2012 to take effect from 1 January 2013. Guidance on the new invoicing rules will be issued following publication of the new legislation in 2012.