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Place of Supply: Goods vs. Services

Who must pay VAT and where?

An area of particular focus in the VAT world over the past number of years has been the ‘Place of Supply’ rules.  These rules essentially dictate which party to a transaction owes VAT, and where. This area of focus is a trend that is set to continue with further changes to be introduced in 2019 and 2021, predominantly for supplies in the ‘online’ market place as well as “distance sales” cross border supplies of goods to private consumers.  Should you have an interest in learning more about these particular changes, my colleagues have covered the 2019 changes in some detail in a previous edition of this newsletter, with an analysis of the 2021 changes to follow.

What we are looking to cover here is an overview of the current place of supply rules for goods and services, and why these rules are important.

Why should we be concerned about these rules?

These rules are vital for understanding where your VAT obligations lie. They will determine who in the supply chain in responsible for accounting for VAT and where that VAT is due. This is particularly important for cross-border transactions and these rules may well result in VAT registration or reporting obligations arising for you in jurisdictions outside of Ireland. As with just about everything in VAT, there are general rules and a series of exceptions that need to be understood in order to determine the place of supply for VAT purposes.

So where do I start?

As supplier, you first need to determine whether you are making a supply of goods or services. For VAT purposes, a supply of a service is generally any commercial activity other than a supply of goods. The VAT rate should also be considered and will be dependent on the underlying good/service being supplied.

Then look to whether you are supplying to a private consumer (B2C) or a business customer (B2B). The provision of a VAT number is generally the easiest way to identify a business customer, however there may be alternative indicators that can be considered also.

Next up, where is your customer located? Are you making a supply of goods/services within Ireland or is there a movement cross-border? Are the supplies made to customers located within the EU or outside the EU?

Now you have established the type of supply being made, who your customer is and where they are located. This will allow you to determine whether the place of supply for VAT purposes falls within a general rule or one of the exceptions to these general rules.

While the primary obligation for ensuring the correct VAT treatment is applied will rest with the supplier, customers should also be aware of the place of supply rules to avoid a situation where VAT may be incorrectly charged to you, or where you may have reporting obligations under the reverse charge mechanism which is covered in further detail below.

First things first, the general rules

Generally speaking, supplies of goods located in Ireland at the time of supply are subject to Irish VAT. The VAT rate to be applied will be dependent on the goods being supplied.

For services, the general rule for B2B supplies is that the place of taxation is the place where the business receiving the services is established. If services are supplied cross border this may trigger the reverse charge procedure for the business customer and no charge to Irish VAT on the outgoing invoice. Under the reverse charge procedure it is the customer rather than the supplier of the service which has the obligation to account for VAT on the supply, the customer essentially charges itself local VAT and will take a simultaneous input credit for that VAT (in line with its VAT recovery entitlement). For those with full recovery, this transaction will be VAT neutral.

For B2C supplies, the place of supply is the place where the supplier is established. As mentioned, these are the general rules but exceptions exist.

The exceptions

This article will look to highlight some of the main categories of supplies that may give rise to a specific place of supply rule, one differing from the general rules previously outlined. Our recommendation in all cases would be seek advice when entering into new transactions as errors in your VAT reporting can prove costly.

From a goods perspective, some of the main exceptions may be where goods are dispatched or transported outside of Ireland, goods are installed or assembled, goods are supplied on-board vessels, aircraft or trains, goods are being imported or exported into our out of the EU, goods are being supplied cross border to private consumers “distance sales”, goods are diverted to non- business use “self-supplies” and supplies of natural gas or electricity are being made which are also considered to be the supply of goods.

For supplies of services, the primary exceptions concern services relating to immoveable property, B2C supplies of telecommunications, broadcasting and e-services, passenger transport, restaurant and catering services and services in respect of or related to admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events. This list is not exhaustive but should give some idea of the number of exceptions which exist.

These exceptions may lead to VAT obligations arising in your country of establishment or potentially outside of it and care should be taken to ensure the correct VAT treatment is applied.

Anything else to be considered?

For B2B supplies, a valid VAT invoice must be issued with all required particulars. Where it is the customer’s responsibility to self-account for VAT, the customer’s VAT number as well as specific reference to the application of the reverse charge procedure should be shown on the face of the invoice.

You should always be mindful of VAT returns, and other reporting obligations such as VIES, Intrastat or MOSS where appropriate details of your supplies should be returned as required in the relevant returns.

As mentioned at the beginning of this article, there are further changes to this area coming down the line and we recommend that you keep this in mind for existing and future supply chain flows over the next number of years.

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