VAT and e-publishing A briefing paper by Deloitte LLP

Transcription

1 VAT and e-publishing A briefing paper by Deloitte LLP

2 Contents Introduction and VAT treatment of e-publishing 1 VAT treatment of bundled supplies 2 Impact of 2015 changes 4

3 Introduction and VAT treatment of e- Publishing On 9 September 2014 Deloitte, as an associate member of the Professional Publishers Association ( PPA ), held a VAT seminar for PPA Members at its office in London with the aim of explaining HMRC s current approach to the VAT treatment of bundled supplies and providing an update on other relevant VAT issues to the publishing industry. The seminar was led by members of Deloitte s London Indirect Tax team, specialising in Technology, Media and Telecommunications. This paper provides an overview of the discussion during the seminar, as well as some general background on the VAT liability of e-publishing. 1.1 VAT treatment of e-publishing In the UK the supply of the following items is eligible for zero-rating by virtue of Group 3, Schedule 8, VAT Act 1994: 1. Books, booklets, brochures, pamphlets and leaflets. 2. Newspapers, journals and periodicals. 3. Children s picture books and painting books. 4. Music (printed, duplicated or manuscript). 5. Maps, charts and topographical plans. 6. Covers, cases and other articles supplied with items 1 to 5 and not separately accounted for. HMRC s Public Notice 701/10 confirms that other forms of publication e.g. maps and journals, among others, are eligible to be included within this zero-rating. However, HMRC (and tax authorities in some other EU Member States) consider that the supply of online/digital material must be treated as a supply of electronically supplied services, which is specifically excluded from reduced rating under current EU VAT legislation. As a result of increasing sales of e-publications, a number of EU Member States have been considering the VAT rates applicable to e-publishing, and the overall approach is inconsistent. In particular: The French and Luxembourg tax authorities have allowed the application of super-reduced rates of VAT (which are equivalent to zero-rating in the UK) to e-books and e-newspapers since 2012; The German government is currently in discussions with the European Commission regarding the application of the reduced rate of VAT to e-books in Germany; and A UK taxpayer has submitted an appeal to the First-tier Tribunal against HMRC s decision to disallow zerorating on certain types of e-books. VAT and e-publishing A briefing paper by Deloitte LLP 1

4 Further litigation is also ongoing at the Court of Justice of the European Union ( CJEU ) in respect of the VAT treatment of e-publishing. This includes: A reference from the Finnish tax authorities to the CJEU in the K Oy case regarding the application of the reduced rate of VAT to electronic books on physical means of support e.g. CD ROMs, DVDs and USB keys, in Finland. The CJEU judgment, which was released on 11 September 2014, states that: it is for the referring court to ascertain... whether books published in paper form and books published on other physical supports are goods which are liable to be regarded by the average consumer as similar if, what matters for [the average] consumer is essentially the similar content of all books, regardless of their physical support or characteristics, the selective application of a reduced rate is not justified. The European Commission commenced infraction proceedings against France and Luxembourg in respect of their aforementioned application of reduced rates to e-books and e-newspapers. We understand that a hearing date has not yet been set in respect of these infraction proceedings. VAT and e-publishing A briefing paper by Deloitte LLP 2

5 2 VAT treatment of bundled supplies 2.1 The issue As noted above, the supply of (traditional) books, newspapers, journals, etc. is subject to UK VAT at the zero rate. However, any other supplies that are provided along with the publication (e.g. access to the electronic version of a newspaper when the physical copy is purchased), will be subject to VAT at the standard rate. Therefore, where a UK business supplies a mixture of paper and online/digital content to customers in the UK, the business will need to consider whether it is making: i. a single supply of goods which are zero-rated and where the electronic content is ancillary to (or simply a means of better enjoying) the zero-rated element; ii. a single supply of electronic content which is currently standard rated and where the zero-rated element is ancillary to the electronic content; or iii. a mixed supply of both zero-rated and standard-rated items. 2.2 What VAT rate should apply? There are no prescriptive rules in the UK or EU VAT legislation as to what determines whether a supply should be treated as a single supply or a mixed supply for VAT purposes. There has, however, been extensive VAT litigation around the issue (e.g. Card Protection Plan C-349/96), which should be taken into account when considering single vs. multiple supplies. 2.3 Apportionment methods If it is established that there is a mixed supply, then suppliers will need to apportion the price charged to the zerorated and standard-rated elements and account for VAT on the standard-rated element. There is no set method of apportioning the price, and HMRC do not formally approve such apportionment methods. Instead, each supplier is responsible for ensuring that the consideration charged is apportioned in a fair and reasonable manner. Apportionment methods should therefore be updated, where necessary, to reflect changes to the nature of supplies. Broadly, businesses tend to use cost-based methods (which apportion the sale price based on the cost of producing individual elements of a mixed supply) or use methods based on selling price of individual items (if available for purchase separately). In addition, other EU Member States may have issued similar guidance on the VAT treatment of bundled supplies. Businesses would need to make a commercial decision as to whether or not local advice should be sought. 2.4 Current market activity HMRC is approaching businesses that supply printed media with electronic content to enquire about how bundled supplies are treated for VAT purposes, with the aim of ascertaining whether apportionment methods in use are fair and reasonable. As things stand, we are not aware of HMRC issuing assessments/penalties, but assessments could be issued if the apportionment methods in place do not provide a fair and reasonable result. VAT and e-publishing A briefing paper by Deloitte LLP 3

6 In light of increased focus from HMRC, businesses that supply zero-rated items along with standard-rated material should consider: Implementing apportionment methodologies Reviewing/updating agreed apportionment methodologies Impact of on-going litigation Submitting claims for any over-paid VAT over the last four years Disclosing under-declared VAT over the last four years Commercial implications Financial implications. VAT and e-publishing A briefing paper by Deloitte LLP 4

7 3 Impact of 2015 changes 3.1 The issue The final phase of the EU VAT package will come into force on 1 January 2015 and affects telecommunications, broadcasting and any other electronically supplied services, which includes supplies of e-publishing in most EU Member States, at present. This will change the VAT treatment of supplies to private individuals and non-business customers ( B2C supplies ) who are based in a different EU Member State to the Member State in which the supplier is established. 3.2 Current position For EU-based suppliers, B2C supplies of electronically supplied services are currently treated as supplied where the supplier is established, regardless of where the customer is located. Therefore, a supplier based in the UK accounts for UK VAT on all sales within the EU, regardless of where the customer is located. Suppliers based outside the EU need to account for VAT centrally under the VAT on eservices scheme based on the EU Member State where their customers are based (i.e. usually reside) changes With effect from 1 January 2015, Article 58 of Directive 2006/112 shall be amended, with the result that EU B2C supplies of telecoms, broadcasting and electronically supplied services will be treated as supplied where the recipient of the service is established or usually resides. Suppliers of such services will therefore need to determine where their customers are established or usually reside and will need to charge and account for VAT at the VAT rate applicable in the EU Member State where the customers are based. As part of the changes, B2C service providers may be able to account for VAT across the EU via a single electronic declaration under the Mini One-Stop Shop Scheme ( MOSS ), which will be similar to the One Stop Shop Scheme for non-eu suppliers. MOSS returns can be filed with HMRC or the tax authority where the supplier is established. The scheme is intended to simplify compliance requirements by avoiding the need for multiple-country VAT registrations, which would otherwise be necessary. Alternatively, businesses could register and account for VAT in each individual EU Member State, where its B2C customers are based. Note that if a business has an existing VAT registration in an EU Member State, the business is precluded from accounting for VAT in that particular Member State through MOSS. For example, if a UK business has a VAT registration in France, it would not be able to account for French VAT through the MOSS. However, in all EU Member States where a business does not have a VAT registration, it is able to account for VAT through MOSS. VAT and e-publishing A briefing paper by Deloitte LLP 5

8 As a result of the changes above, affected businesses may need to consider local VAT rules in the EU Member States, where their customers are based. In addition, where businesses sell via an intermediary (such as an agent or marketplace), the 2015 changes will mean that the intermediary may be treated as a principal. Therefore, there will be two elements to the supply: A B2B supply to the intermediary; and A B2C supply from the intermediary to the end consumer. 3.4 What do the changes mean? In advance of the changes coming in to effect, businesses will need to consider: Whether they make cross-border B2C supplies of electronically supplied services What is meant by the term where the recipients of the services are established or usually reside for VAT purposes How to determine where B2C customers are established and any additional contractual provisions and systems changes that may be required to capture this information Changes that may be necessary to invoicing procedures so that businesses are able to charge and account for VAT at the correct rate i.e. VAT invoices are required by some EU Member States on B2C supplies and specific invoicing requirements may vary between EU Member States Any additional VAT compliance obligations that may arise in other Member States The impact of different VAT rates on profit margins The impact of any changes to pricing structures on customer behaviour. VAT and e-publishing A briefing paper by Deloitte LLP 6

9 For further information on any of the issues above, please contact: Deloitte contacts Richard Vitou Partner Abi Briggs Director David Latief Director Vivien Pereira Manager Tel: Tel: Tel: Tel: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited ( DTTL ), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of DTTL and its member firms. Deloitte LLP is the United Kingdom member firm of DTTL. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication Deloitte LLP. All rights reserved. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) Fax: +44 (0)