Tax Alert, November 2019

On October 22, 2019, the Ministry of Finance adopted a new Rulebook on determining telecommunications services and services provided electronically, in terms of the Law on Value Added Tax, and on establishing criteria and presumptions for determining the seat, fixed establishment, place of residence or domicile of recipients of telecommunications, radio and television broadcasting services and services provided electronically (hereinafter: „the Rulebook“). The Rulebook will come into force as of 1 January 2020.

The key amendments in the new Rulebook relate to:

·        Defining telecommunications services and extending the definition of services provided electronically;

·        Prescribing the criteria and presumptions for determining the location of the recipient of services in the cases where the physical presence of the recipient of the service at a particular location of the service provider is necessary / not necessary for the service to be provided;

·        Evidence that could be used by the service provider to determine the location of the recipient of services and to rebut presumptions.

Defining telecommunication services and services provided electronically

Telecommunication services are services relating to the transmission, broadcasting or reception of signals, word, images and sounds or information of any kind by wire, radio, optical or other electromagnetic systems, including related transmission or assignment of the right to use capacity for such transmission, broadcasting or reception, as well as providing access services to global information networks.

On the other hand, the definition of services provided electronically was extended in such a way that prior to the list of such services (which also exists in the current rulebook) it is now specified that such services shall include services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.

Criteria and presumptions for determining the seat, fixed establishment, place of residence or domicile of the recipient of telecommunications, radio and television broadcasting services and services provided electronically, as well as how they are applied

The location where the recipient of these (so-called "digital services") services is physically located at the designated location of the service provider was taken as the criterion for determining this place.

Bearing in mind the above-stated criterion, the Rulebook prescribes two types of presumptions:

-       if the physical presence of the recipient of the service – a taxpayer or a non-taxpayer, in terms of Article 12 of the VAT law – is necessary at a particular location, the recipient of the service is considered to have a seat, fixed establishment, place of residence or domicile at that location.

-       in case that location is on a ship, aircraft or train carrying passengers, that location shall be deemed to be at the point of departure of the ship, aircraft or train.

-       if the physical presence of the recipient of the service – a non-taxpayer, in terms of Article 12 of the VAT law – is not necessary at the location of the service provider for the service to be provided, the presumption is that the recipient's seat, place of residence or domicile is in:

o   the location of the fixed–line connection – for services provided via a fixed network,

o   the country identified via the SIM card used to receive the service – for services provided via the mobile network,     

o   the location of the decoder or a similar device, or the place where the card reader was sent, if there is no fixed network in that location,

o   the place designated by the provider based on at least two non-conflicting pieces of evidence.

Evidence that could be used by the service provider to determine the location of the recipient of services and to rebut presumptions

Evidence that can be used by the service provider to determine the location of the recipient and to rebut presumptions: billing address, IP address of device used or place determined through geolocation, bank details, SIM card country code, location of fixed land line and other information relevant for making a supply (such as unique payment mechanisms, earlier transactions of the recipient of services, etc.).

the Rulebook provides the service providers with the opportunity to rebut the above stated presumptions, provided that they offer at least three non-conflicting pieces of evidence indicating that the place in which the recipient of the service has seat, fixed establishment, place of residence or domicile differs from the place of supply established by the presumptions of this Rulebook.

In addition to the new Rulebook, Explanatory Notes, which provide further insight and guidance as regards the application of the Rulebook, are being prepared.

The aforementioned innovations are of particular importance to VAT payers providing telecommunications, radio, and television broadcasting services and services provided electronically, in order to accurately determine the location of the recipient of those services and, consequently, to properly determine the appropriate VAT treatment.