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Finance Focus
Amanda Tickel Tel: 020 7694 3780
Email: amanda.tickel@kpmg.co.uk
EU VAT 2015:Are You Prepared?
“For most consumer businesses VAT is the biggest single cost to be deducted from gross revenue. The penalties for accounting incorrectly for VAT are severe in many countries, as much as 100-200% of the mistake you make” KPMG’s Amanda Tickel highlights next years changes to EU VAT in a bid to help companies avoid costly mistakes.
advising on how to manage multiple taxes across the entire value chain of international businesses.
A Q
Amanda has a particular interest in tax policy and is a member of the OECD advisory group developing guidelines for tax law around e-commerce and international services. She is currently focused on the VAT policy and system changes that will be required across Europe to tax B2C supplies under the EU’s 2015 proposals.
What are the specifics of next year’s changes to EU VAT rules?
The place of supply rules relating to where VAT is both collected and remitted for certain services (broadcasting, telecommunications and electronically supplied services) supplied business to customer (“B2C”), is changing within the 28 countries of the European Union from 1 January 2015. This is a big change. Currently these services are taxed where the business supplier is established. After 1 Jan 2015, businesses will need to account for VAT in the EU country where the customer is resident or where the service is being consumed.
manda Tickel is a Tax Partner in
KPMG UK and advises
clients on VAT in the e-commerce, telecoms and technology sector. She also leads a specialised team
Q
Who will be impacted by these changes and how?
The changes affect three sectors: Telecommunications (all fixed and mobile telephone services, videophone services, satellite and internet service providers); Broadcasting (TV and radio programmes transmitted over a radio or television network and live broadcasts over the internet); and Electronic Services (a broader category including video on demand, apps, music downloads, web hosting, distance learning, gaming and e-books to name a few).
The fact that the VAT chargeable will change according to where the customer belongs means either business
Current example of UK price per download (including Luxembourg VAT)
Song download E-book
£0.99 £4.50
Smartphone App £1.99 Antivirus 12
month software
*Assuming UK standard VAT rate is 20% on 1 January 2015. **Assuming prices increase in line with the VAT changes.
£39.99
will see margins change, customers will see the price they pay change, or both if the impact is shared. This is because the rates vary across Europe, from a 3% rate available for e-Books if a company trades from Luxembourg, to 27% if a company is trading from Hungary. Pricing to consumers is on a VAT inclusive basis, so the VAT is the first cost to be subtracted from gross margin.
The following table shows how the cost to consumers in the UK might change if suppliers pass the whole amount on. Current prices are shown inclusive of Luxembourg VAT as that is where most e-services suppliers are based.
Luxembourg VAT rates
15% 3%
15% 15%
Price from 2015 once UK VAT applied
£1.03 £5.24 £2.08 £41.73
UK VAT rate*
20% 20% 20% 20%
Comparative price increase to UK consumers from 1 January 2015**
£0.04 £0.74 £0.09 £1.74