Location, Location, Location: Untangling Place of Supply Rules for Online Service Provision
The UK place of supply rules The general rule for the place of supply of services to a non-business consumer (business to consumer ‘B2C’) is where the supplier belongs. For general rules services, local VAT rates applicable to the supplier are used. However, there are some exceptions to the general rule, such as services relating to land and to work on goods, which are subject to VAT where the land/goods are located. Another exception is for the supply of digital services. Where a UK-based software publisher sells a download to a customer based in Ireland, the supply is outside of the scope of UK and the VAT rules in Ireland apply. Taking Ireland as an example, the supply would create a compulsory Irish VAT registration (see also, section about the One-Stop-Shop later) and would be subject to 23% Irish VAT. Whilst these rules are part of UK legislation, they are similar worldwide. For example, a US tech firm supplying digital downloads to the UK would be liable to register for UK VAT and account for 20% UK VAT on its income.
Business to business (B2B) supplies The B2C rules above relate to non-business consumers. Different jurisdictions define ‘consumer’ in different ways. In the UK, proof of being in business (such as a document from Companies House or HMRC) is generally accepted, but in most EU Countries, a VAT number must be acquired to treat a supply as B2B. Some countries (such as Russia, South Africa, Nigeria etc.) have chosen to interpret the digital services rules even wider and tax B2B supplies in-country too. Supplies made through platforms It is likely the responsibility for VAT on sales made through Google, Apple, Amazon etc are that of the platform. The terms and conditions of the agreement with the platform will confirm, but the rest of this article will assume sales are made in your own name, for example on your own website only.
The invention of smartphones and other digital devices has led to a huge increase in the demand for the supply of digital services, such as:
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Software, music, and film downloads
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Webinars and training courses
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e-books*
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PDFs and other documents
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Photographs and other images, etc.
This has not gone unnoticed by tax authorities around the world. Indeed, most countries have introduced rules which subject sales of digital services supplied by overseas providers to consumers, to indirect taxes in-country. This can result in the need for multiple VAT (and other indirect taxes, such as Goods and Services Tax ‘GST’ in Australia) registrations across the world. Daniel May, VAT Manager, explores the place of supply where the supplier is established.
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