New VAT Rules for 2015 Will Impact Foreign Firms

Stephen Yagielowicz

LOS ANGELES — The European Union has modified how the value-added tax (VAT) will be applied to the digital media and telecommunication services industry.

According to the European Commission, beginning on January 1, 2015, suppliers of telecommunications, broadcasting and electronic services, regardless of where they are located, will be taxable at the place where the customer belongs — or taxable in the “country of effective use and enjoyment,” if this is not the country where the customer belongs.

“In order to ensure the correct taxation of these services, EU and non-EU businesses will need to determine the status of their customer (a taxable or a non-taxable person) and the place (which country of the EU or outside the EU) where that customer belongs,” states a Commission report. “The underlying reason for these changes was to bring the VAT treatment of these services in line with one of the main principles of VAT that, as a consumption tax, revenues should accrue to the Member State in which goods or services are consumed.”

The Commission explains that for non-EU businesses supplying telecommunications, broadcasting or electronic services to customers in the European Union, current rules already ensure taxation in the country where the customer belongs.

“Until the end of 2014, business to final consumer (B2C) supplies by EU businesses are taxed in the country of the supplier. This means that for supplies made to final consumers, businesses established in Member States applying lower VAT rates have a competitive advantage over businesses established in other Member States,” the report adds. “The new rules of taxation based on the country where the customer belongs will provide, as from 2015, a level playing field and should also ensure that the VAT receipts accrue to the Member State of consumption.”

The new regulations will apply equally to businesses located within as well as outside of the EU, and will impact adult entertainment website operators among other digital media companies, even if those firms are based in the U.S. or elsewhere.

For more information, visit the European Commission website, and download the PDF below.

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