Place of Supply of Services

The VAT rules regarding Place of Supply of Services impact transactions for sale or purchase of services in the European Union. The rules determine which country has jurisdiction to charge VAT in a given transaction.

Member nations use the data to accurately create reports and tax returns.

The Supply of Services is the supply of anything that is not a good. As of 2010, the place of supply of services in the EU will be where the taxable customer of the service is established. Generally, the place of supply is where the supplier of the service is established. Rules affecting the place of supply of services include the need to:

• Specify where services are used and enjoyed.
• Report intra-community supply of services subject to reverse charge. This refers to the shifting of liability to pay VAT for services supplied in the buyer's country by a seller in a different EU member state. In these cases, a statement appears on each invoice indicating that VAT liability is reversed to the recipient. (Reverse charge is comparable to the Consumer's Use Tax in the United States).

There are exceptions to the main rule regarding the place of supply of services as the country where the buyer is established. Briefly, they include:

• Business to Consumer (B2C) transactions are generally taxed by the country where the Seller is established. In addition:
• For B2C intra-community transport of goods, the place of supply is the place of departure;
• For B2C ancillary transport services (such as loading and unloading) and work on movable tangible property, the place of supply is the country where the services are performed.
• Services to immovable property are taxed in the country where the immovable property is located.
• Passenger transport is taxed according to the distances covered. For example, VAT on a bus ticket for a trip through multiple countries would be apportioned according to the distance traveled in each country.
• Educational, cultural, entertainment, sporting, scientific or artistic services are taxed in the country where the services are performed.
• Intermediary services are generally taxes in the country where the main transaction in which they intervene is taxable.

Evaluating B2B and B2C

ONESOURCE Indirect Tax Determination determines whether the transaction is B2B (Business to Business) or B2C (Business to Consumer) based on the presence or lack of a valid VAT registration number associated with the buyer role. A sell-side transaction is treated as B2B if a valid VAT registration number is supplied for the Buyer; otherwise the transaction is treated as B2C.

If you prefer, you can set a company option to set the Business Supply flag to indicate B2B or B2C instead of VAT registration for supply of services in the EU. If enabled, a sell-side transaction is treated as B2C if the Business Supply flag is set to No. If the Business Supply flag is set to None (default) or Yes, the transaction is treated as B2B.

The absence of Buyer registrations automatically causes ONESOURCE Indirect Tax Determination to treat the transaction as B2C, unless the company configuration is enabled to override the registration criteria, in which case the Business Supply flag is required.

Because a sell-side transaction sets the Business Supply flag on a transaction to B2B by default, you can use a TransEditor to set the Business Supply Flag to No for a B2C transaction. For example, you can create a TransEditor where:

• A condition evaluates the INVOICE.COMPANY_ROLE=S and the LINE.SELLER_PRIMARY.COUNTRY=ES and
• An action where LINE.IS_BUSINESS_SUPPLY = false.

The TransEditor will evaluate the transaction. If the company role is Seller and the seller's primary location on the line is ES, the TransEditor action is applied and sets the Business Supply on the line to false. The business supply is set as B2C.

For transactions originating in Oracle or SAP that will be evaluated by ONESOURCE Indirect Tax Determination for taxation, you must use a TransEditor to set the Business Supply Flag.

For related information:

• See the "EC Sales" report in ONESOURCE Indirect Tax Reporting. This report lists transactions where services are sold from one EU country to a different EU country where the seller has no tax liability and the buyer is required to reverse charge. The report uses the seller’s tax result associated with the registration number for the seller primary location. The EC tax type identifies these transactions in the report.
• See Configuration for a description of a system-wide parameter to specify the desired tax result to return in output XML and to be stored in the audit database for reporting purposes.
• See Company Options to specify a company-specific setting to specify the desired tax result to return in output XML and to be stored in the audit database for reporting purposes. Note that where both a configuration parameter and company option are set, the company option takes precedence.