Indirect Tax. Changes to the place of supply rules in How do they affect egaming?

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1 Indirect Tax Changes to the place of supply rules in 2015 How do they affect egaming?

2 The place of supply rules relating to where VAT is both collected and remitted for certain services will be changing within the European Union with effect from 1 January This change will affect businesses providing telecommunications, broadcasting or electronically supplied services to non-taxable or private customers in EU Member States. Currently, these services are taxed where the business supplier is established. However, going forward, businesses will need to charge and account for VAT in the EU country where the customer belongs/where the service is consumed.

3 Who will be affected? The changes will not affect businesses supplying services on a business-to-business ( B2B ) basis. The rules regarding B2B supplies of services will not change. The changes will affect EU businesses supplying Telecommunications, Broadcasting and E-services direct to a customer that is not in business. Examples of services that will be affected include the following.

4 Why is this important for egaming suppliers? The changes to the VAT rules relating to the place of supply of services to be introduced from 1 January 2015, could potentially have a significant effect on businesses established in the EU that provide on-line gaming services. From 1 January 2015 the place of supply of electronically supplied services provided by a business established in the EU to a person (other than a business) will change from being the place where the supplier belongs to the place where the customer belongs. Currently an EU supplier providing egaming services to EU players only has to consider the VAT regulations in the country in which the supplier is established and, if the services are subject to VAT under the local regulations, the supplier only has to apply VAT at the rate applicable in the country in which it is established. From 1 January 2015, that will all change. The place of supply of such services will become the place where the customer belongs rather than where the supplier belongs. This means that the supplier will need to know whether the service they are supplying is subject to VAT under the VAT legislation in the country where the customer belongs and, if the supply is subject to VAT, apply the rate of VAT applicable in the EU country where the customer belongs. This would not be such an issue if the VAT regulations were the same in each EU country but unfortunately they are not. The legislation in each country should be consistent with the EU VAT Directive but there is scope within the EU VAT Directive for Member States to determine what is exempt from VAT and what is not. A provision already exists under the EU Directive that provides for the exemption from VAT for transactions of betting, lotteries and other forms of gambling, subject to limitations laid down by each Member State. However, the gaming services which this exemption covers vary from Member State to Member State. For example, the VAT exemption may apply to Lotteries and Betting but not to Poker, Bingo or Casino. So potentially the exemption may apply in some countries but not in others.

5 What will this mean for an EU supplier of these services? From 1 January 2015, an egaming company that has players in the EU will need to consider whether the services they provide will be subject to VAT in any of the EU countries where they have players. If so there may be a requirement to register for VAT in the country in which taxable supplies are being made or it may be possible to use the Mini-One-Stop-Shop ( MOSS ) system in the country in which the egaming country is established. The MOSS system is a means whereby a supplier that is registered for VAT can declare, through their local VAT registration, any VAT they owe the authorities in other EU jurisdictions without having to register for VAT in another EU jurisdiction. egaming companies therefore need to consider the following questions: In which countries do I have players? Are the services I provide in those countries covered by the VAT exemption for betting and gaming? If the VAT exemption does not apply, what is VAT chargeable on? What VAT rate is applicable? Can my systems cope with the information I need? Is there an obligation to register for VAT in any other EU countries? Will I be better off using the MOSS system?

6 What will the changes mean for non-eu suppliers of these services? Since 1 January 2010, non-eu suppliers of Business-to-Consumer ( B2C ) supplies of electronically supplied services have had an obligation to register for VAT in the country where their customer belongs if the value of their taxable supplies has exceeded the VAT registration threshold for a nonestablished supplier (although there is the option for a non-eu established supplier to create an establishment in one specific EU country and declare VAT in that country on all the supplies it makes in other EU countries). A non-eu supplier of electronically supplied services will be in exactly the same position following the changes to be introduced in There may however, be more scrutiny of electronically supplied services by the authorities. Now may be an opportune time for a non-eu supplier to ensure they are compliant with the EU VAT regulations relating to the supplies they make.

7 What will the changes mean for non-eu suppliers of these services? Since 1 January 2010, non-eu suppliers of Business-to-Consumer ( B2C ) supplies of electronically supplied services have had an obligation to register for VAT in the country where their customer belongs if the value of their taxable supplies has exceeded the VAT registration threshold for a non-established supplier (although there is the option for a non-eu established supplier to create an establishment in one specific EU country and declare VAT in that country on all the supplies it makes in other EU countries). A business in the EU providing telecommunications, broadcasting or eservices on a B2C basis will need to consider some of the following questions: Are the supplies I make subject to VAT in the country where my customer belongs? Do the use and enjoyment rules apply to the services I provide? Are my customers in business or not (for example, charities or foundations may not be in business)? How do I determine where my customers belong for VAT purposes? How should I document where my customers belong for VAT purposes? Is there a requirement to register for VAT in the EU country where I have customers? Can my systems determine where the customer belongs and the value of services provided to customers in each country? Will my systems deal with charging VAT at different rates depending on where the customer is located? Would I be better off using the MOSS system rather than registering for VAT in each individual EU country where I have customers? If I am in a supply chain what obligations fall on me?

8 How can KPMG help? KPMG can help you by taking a step-by-step approach to make sure you are ready for the implementation of the changes by 1 January We have already taken some preliminary steps to establish the scope of the VAT exemption for betting and gaming in a number of EU jurisdictions. This will help us narrow down the number of jurisdictions where you may have a potential issue. KPMG can: Undertake a full review of the services you provide to determine whether the changes will affect your business; Identify your obligations in each EU country; Advise on the best method of compliance for you; Use the KPMG global network to obtain specific advice in other EU jurisdictions in which you operate; Help you decide whether to use the MOSS system or register for VAT in each EU jurisdiction in which an obligation arises; Assist you with testing your systems and making sure you have all the data necessary for compliance; and Help you with your VAT compliance through registration in the Isle of Man or through our EU VAT compliance centre. If you think these changes may affect you, please contact us for an initial discussion. There will be no charge for this.

9 Our Team We believe that the most important asset at KPMG is our people. Our business and the way we work with clients is all about people and the relationships they develop. We conduct our business in line with a deeply embedded set of values which pervade the culture of our organisation. Fundamental to the development of our future relationship with you is the confidence and trust you can place in our team from the beginning. Sandra Skuszka Head of VAT Services KPMG Isle of Man Sandra started her career in VAT as a visiting officer for Isle of Man Customs and Excise joining KPMG in She now heads up a dedicated Indirect Tax team and is responsible for overseeing the VAT advisory services and VAT compliance services provided by KPMG in the Isle of Man. During her career Sandra has gained practical experience in providing advice on all aspects of the VAT legislation to a wide variety of industries and has liaised with other KPMG offices throughout Europe to provide comprehensive advice on crossboarder transactions. Particular areas of expertise include VAT issues for the finance sector which often provide services that are exempt from VAT. She has particular expertise in respect of advising on partial exemption methods within the e-gaming, insurance and finance sectors. Sandra has the experience to provide completely independent advice on the most suitable structure. Sandra also regularly speaks at KMPG tax and VAT seminars and continued professional development events for the ACCA and CIOT. Sandra studied at Manchester University, is a qualified accountant (ACCA) and has obtained the professional tax qualification (CTA) via the VAT route. Paul Cawley Manager KPMG Isle of Man Paul joined KPMG in March 2010 after 5 years with Customs and Excise. Whilst in his previous role he completed training with HMRC in VAT and Customs and International trade. Since joining KPMG he has provided advice on VAT issues in respect of funds, supplies of goods and services, and the holding of assets such as Intellectual Property. Paul is also the main driving force behind KPMGs Gateway to the EU offering which provides a solution for non-eu trading organisations to route their supply of goods to the EU market through the Isle of Man.

10 Archie Watt Director Head of egaming and IT Advisory KPMG Gibraltar Darren Anton Senior Manager KPMG Gibraltar Archie is a qualified Chartered Accountant with over 25 years experience in advising companies in their control and use of IT systems. He has been with KPMG since 2006, moving to the Isle of Man in 2010 to lead the firm s IT advisory work stream, working on advisory, security assurance and a number of due diligence projects in that time. Over the course of his career Archie has advised companies in a number of industries, all of which have been intensive users of complex IT systems in the online gaming, retail and financial services sectors. Darren trained in UK personal and corporation tax before he qualified as a member of the UK Chartered Institute of Taxation. Since 2008, Darren has practised tax in Gibraltar and by advising on all aspects of tax in Gibraltar, has developed a deep understanding of the Gibraltar tax system and Gibraltar within the international tax sphere. In particular, Darren has advised Archie also has wide experience of advising clients on the advantages that can be achieved through the appropriate use of information technology and systems in retail, gaming and financial services, as well as considerable experience of designing costeffective controls and control processes. In addition, Archie has also, over the past 20 years, been heavily involved in the IS Audit & Control Association, the leading body representing specialists in the field of IT audit and security. He has held a number of senior positions within this body, most recently chairing the Finance Committee. companies on the Income Tax Act 2010, which became effective in Gibraltar on 1 January 2011and how Gibraltar as a tax jurisdiction can be utilised within cross border structuring, together with assisting with the new tax compliance requirements. Contact us Sandra Skuszka Head of VAT Services KPMG LLC Heritage Court, 41 Athol Street Douglas, Isle of Man, IM99 1HN Tel +44 (0) Fax +44 (0) sskuszka@kpmg.co.im The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG International Cooperative ( KPMG International ) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.