VAT SERVICES
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Forward planning can help businesses ensure they are not caught out by a wide-reaching new European Commission VAT implementing regulation which will come into effect on 1 January 2017.

The aim of the new rules is to ensure a uniform application of the special rule for services connected with land-related services (i.e. immovable property) and give clearer guidance on the place of supply of services.

The changes could impact on many businesses and organisations involved in cross border activities, possibly obliging a business to register for VAT in another EU Member State, so it is vital to act now and plan ahead to avoid being taken by surprise when the new rules come into effect at the start of 2017.

It is recommended that businesses and organisations involved in cross border activities listed below should read this article as the changes may have implications for them:

  • Construction of pipelines for gas, water or sewage;
  • Architects and surveyors;
  • Building contractors;
  • Cleaning services;
  • Equipment and machinery installation and/or maintenance;
  • Preparatory work on land including agricultural services;
  • Hotel operators, holiday camps, camping sites, and/or timeshare providers;
  • Property valuers;
  • Lawyers involved in property conveyancing;
  • Land and property letting and/or property management services;
  • Storage services;
  • Fishing and hunting licences and airport lounges;
  • Exhibition/fair stallholders; and
  • Hire of plant and equipment with an operator.

As we reported in our monthly VAT update for October 2015 (please see here) the European Commission issued explanatory notes on the EU VAT place of supply rules for services connected with immovable property (i.e. land and property) that shall come into force with effect from 1 January 2017.

The VAT rule changes have been passed by a VAT Implementation Regulation (i.e. Council Implementing Regulation (EU) No. 1042/2013) which amends the VAT Implementation Regulation (EU) No. 282/2011 in relation to the place of supply of services. That is, the new VAT rules give clearer guidance and examples for determining the place of supply of services.

The basic business to business ('B2B') VAT general rule is that services are taxable at the establishment of the business customer. This general rule has exceptions, one of which is supplies relating to immovable property, for which the basic place of supply rule is where the immovable property is located.

As an example, the provision of general VAT consultancy services by a UK Adviser to a French business customer is outside the scope of UK VAT under the reverse charge mechanism. However, the supply of UK legal services to the same French business customer could be liable to UK VAT where the services being provided specifically relate to the drawing up of a contract to sell or acquire immovable property located within the UK. The European Commission's reasoning is that the location of the property is a fairer representation for the place of consumption of the services and, therefore, the jurisdiction where the output tax (VAT) is due.

As we mentioned previously, the explanatory notes are not comprehensive but do provide good background information and explanations on how the new EU VAT provisions covered by Articles 13b, 31a and 31b of the VAT Implementing Regulation, that will enter into force on 1 January 2017, should be understood. The new rules and accompanying explanatory notes were necessary as the views, across the EU Member States, of what supplies consist of land-related and non land-related services differ greatly.

Examples of services relating to land which are subject to VAT where the land and/or property is situated

  • Construction of, or demolition, on a building or permanent structure (i.e. pipelines for gas, water or sewage);
  • Drawing up of plans for a building (or part of a building) designated for a particular plot of land;
  • Provision of on-site supervision and construction work performed on a building;
  • The maintenance, renovation and repair of a building, including work such as cleaning, tiling and decorating;
  • The maintenance, repair, inspection and supervision of equipment if the equipment is part of an immovable property;
  • Installation and assembly of machines which, upon installation, cannot be easily dismantled or moved and becomes part of an immovable property;
  • On-site supervision and security services, together with some remotely provided services;
  • Work on land including agricultural services (i.e. tillage, sowing, watering and fertilisation);
  • Provision of accommodation in hotels, holiday camps, camping sites, or timeshare accommodation;
  • Valuation of immovable property, including for insurance or loan purposes or to assess risk and damages in disputes;
  • Legal services relating to the conveyance, or the transfer of a title to immovable property such as notary work, or the drawing up of contracts of sale or leases;
  • The leasing or letting of immovable property, including the storage of goods for which a specific part of the land and/or property is designated for use by the customer;
  • Property management services, other than the management of a property investment portfolio;
  • The assignment/granting of rights to use all or part of a property (i.e. fishing or hunting rights and access to airport lounges);
  • The provision of a stand location on a fair, or exhibition site not accompanied by other related services such as electricity, stand design, transport, storage, provision of machines, cable laying, insurance and supply of publicity material;
  • The supply of space for the use of advertising bill-boards (i.e. the leasing of a plot of land, or the side of a building, to allow a billboard to be erected); and
  • The hire of plant and equipment together with an operator, to allow the customer to carry out work on land and/or property where the supplier has responsibility for the execution of work.

Examples of services not relating to land and/or property

  • The provision of property for the purposes of advertising services (i.e. the use of a billboard);
  • Legal advice and other information relating to land and/or property, or the drawing up of plans for a building that do not relate to a particular area of land and/or property;
  • The Installation, assembly, repair or maintenance, inspection or the supervision of machines or equipment which are not, and do not become, part of the land and/or property;
  • The hire of equipment, with an operator, where it can be shown that the supplier has no responsibility for the performance of the work;
  • The storage of goods where no specific part of an immovable property is designated for use by the customer;
  • The provision of a stand location on a fair or exhibition site where accompanied by other related services such as electricity, stand design, transport, storage, provision of machines, cable laying, insurance and supply of publicity material; and
  • Management of a property investment portfolio.

The explanatory notes can be a useful guidance tool when clarifying the practical implementation of the EU VAT rules on services connected with immovable property. However, these notes are not legally binding and do not prevent EU Tax Authorities adopting national guidance.

HMRC has implemented most of the new changes in its guidance (please see link to HMRC's Revenue & Business brief 22/12 here), however, the new rule changes could bring UK businesses within the scope of VAT in other EU jurisidictions.

In summary, for the services to relate to immovable property there must a direction connection to land and/or property and the connection must be to a specific area of land and/or property. That is, the new rules do not apply if the service involved only has an indirect connection with land, or if the land-related service is only an incidental/ancillary component of a more comprehensive supply of services.

Should you require any further information, or clarification, please do not hesitate to contact either Kevin MacGillivray or Gary Moore.

The information within this VAT update is intended to provide only general guidance of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of specific professional VAT advice. VAT Services (Scotland) Ltd accepts no responsibility for any loss arising from any action taken or not taken by anyone using this update.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.

 

Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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