Icy response to VAT Package

Tax experts are reserving judgement on how sweeping changes imposed by the EU
on how VAT is charged for cross border services will work in practice.

On 12 February 2008 the European Council published a new package of measures
,known as the VAT Package, setting out radical changes to the rules on the place
of supply of cross-border services.

The changes affect multinational companies, and in the UK, banks, insurance
companies, charities, universities, and any business acquiring services from
abroad, and came into force on 1 January 2010 across the European Union.

The changes are expected to trigger additional costs, in particular on
changes to systems and training, according to Richard Woolich, a partner at law
firm DLA Piper

“The VAT Package is in my view a combination of ‘The Good, the Bad and the
Let’s Wait and See,'” said Woolich.

“The ‘Good’ is the fact that many business to business services are now taxed
where the customer is based under the reverse charge, or tax shift, eliminating
the need to have foreign registrations and eliminating the need to pay and
reclaim foreign VAT in some cases.

“The ‘Bad’ is the fact that certain UK businesses such as charities,
universities, banks and insurance companies, which buy in outsourced services
from outside the UK, will have an increased VAT cost and may have to register
for VAT for the first time. All businesses making cross border services also
have increased administrative burdens.

“The ‘Let’s Wait and See’ is the fact that confusion and complication will
only be averted if Member States apply and interpret the rules, such as which
establishment should be treated as making or receiving given services, in a
consistent way.

“What is certain is that all businesses involved in cross border services
should review how the changes impact on them.”

Further reading:

Commission welcomes the cross border VAT changes

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