Cristina Trenta
European Commission, January 21st 2009
VAT and Communication Servicesin the European Tax System and in the Italian and Swedish Experience
Cristina Trenta – VAT and Communication Services
This talk examines European regulations in the field of VAT for communication services as modified by Directives 1999/59/EC and 2002/38/EC, currently contained in Directive 2006/112/EC as implemented within the national system in both Sweden and Italy
About this Talk
Cristina Trenta – VAT and Communication Services
Goals
identification and classification of communication services
territoriality in the field of communication services
applicable VAT rates and the impact of these rates on national tax systems
Cristina Trenta – VAT and Communication Services
Framework
Sixth Council Directive 77/388/EEC Council Directive 1999/59/EC Council Directive 2002/38/EC Council Directive 2006/112/EC Council Directive 2008/8/EC
Cristina Trenta – VAT and Communication Services
Main Issues
Lack of harmonization connected with the national implementation of Directives 1999/59/EC and 2002/38/EC
The new course of Directive 2008/8/EC seems to perpetuate current defects
Cristina Trenta – VAT and Communication Services
Lack of Harmonization
Double taxation and non-taxation issues may rise in transactions between Member statesThese might depend on:
Generic ambiguities in the text of the Directives
Implementation errors at the national level
Cristina Trenta – VAT and Communication Services
Perpetuation of Current Defects
Simplifications following the application of the new art. 58 are not enoughThe scope of the option on effective use and enjoyment will become broader because of art. 59aMember states are allowed more freedom in the implementation of this rule
Cristina Trenta – VAT and Communication Services
Classifying Supplies
Supplies of goods are the transfer of the right to dispose of tangible property as the owner [art. 14 (1) RVD ex Art. 5 (1) Sixth Directive]Supplies of services are those transactions which do not constitute a supply of goods [art. 24 (1) RVD ex Art. 6 (1) Sixth Directive]
Cristina Trenta – VAT and Communication Services
(SE) Changes in National Tax Law
Sweden (SE)Act (2003:220)
Implemented Directive 2002/38/EC
Changes to the VAT Act (ML) were required, especially in respect to the rules on the territoriality of radio-television and electronic services (Ch. 5, 7§ ML)
New indents were added as par. 11, concerning services of radio and television broadcasting, and par. 12, concerning electronic services
These were classified as supplies of services
Cristina Trenta – VAT and Communication Services
(IT) Changes in National Tax Law
Italy (IT)Legislative Decree (DLgs) 273/2003
Implemented such services within the frame of Presidential Decree (DPR) 633/72, art. 7, par. 4 as new letters d), f), f-ter) and f-quater)Effectively classified them as supplies of services
Cristina Trenta – VAT and Communication Services
(IT) Issues in VAT Law
The definition of supply of goodsIs so broad it may be considered to cover any type of goods
Drops the distinction made at the EU level between on-line and off-line operation
Is in partial contradiction with Community provisions, as it defines supplies of goods “acts upon consideration that involve the transfer of property or the creation or transfer of rights of use or enjoyment for goods of any kind” (art. 2)
Cristina Trenta – VAT and Communication Services
(IT) Issues in VAT Law
The definition of supply of servicesDiffers from the one given at the Community level
Positively and non residually defines supplies of services as “transactions upon remuneration which depend on a specific set of contracts and on bonds to do, not to do, to allow” (art. 3)
Cristina Trenta – VAT and Communication Services
(IT) An Example
“The providing of meals on the part of a company that operates restaurants (...) is to be considered a supply of goods”(Corte di Cassazione, Dec 3 1997, n. 3953)
“Consequently, restaurant transactions are characterized by a cluster of features and acts, of which the provision of food is only one component and in which services largely predominate. They must therefore be regarded as supplies of services within the meaning of Article 6(1) of the Sixth Directive”(ECJ, Case C-231/94, Faaborg-Gelting Linien)
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Cristina Trenta – VAT and Communication Services
(EU) Definitions
Communication Services
Telecommunication services Radio and Television broadcasting services
Electronically supplied services
Cristina Trenta – VAT and Communication Services
(EU) Telecommunication Services
“(...) services relating to the transmission, emission or reception of signals, words, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception, with the inclusion of the provision of access to global information networks”
[Art. 24(2) RVD, ex Article 9(2)(e), 10th indent, 2nd sentence]
Cristina Trenta – VAT and Communication Services
(EU) Telecommunication Services
“Services whose provision consists wholly or partly in the transmission and routing of signals on a telecommunications network by means of telecommunications processes, with the exception of radio broadcasting and television”
[Council Directive 90/387/EEC]
Cristina Trenta – VAT and Communication Services
(EU) Radio-TV Broadcasting Services
Radio and Television broadcasting services are only mentioned in art. 56 (1) (j) RVD, ex art. 9 (2) (e) 11th, Sixth DirectiveBut Com (2000) 349 expressly recalls Directive 89/552/EC in respect to the definition of radio- and tv broadcasting
Cristina Trenta – VAT and Communication Services
(EU) Radio-TV Broadcasting Services“Television broadcasting means the initial transmission by wire or over the air, including that by satellite, in unencoded or encoded form, of television programmes intended for reception by the public. It includes the communication of programmes between undertakings with a view to their being relayed to the public. It does not include communication services providing items of information or other messages on individual demand such as telecopying,electronic data banks and other similar services”
[Council Directive 89/552/EC]
Cristina Trenta – VAT and Communication Services
(EU) Electronically Supplied Services
Annex II Directive 2006/112/EC, ex Annex L1. Website supply, web-hosting, distance maintenance of programmes and equipment;
2. Supply of software and updating thereof;
3. Supply of images, text and information, and making databases available;
4. Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;
5. Supply of distance teaching.
Council Regulation (EC) No. 1777/2005
Cristina Trenta – VAT and Communication Services
(EU) Electronically Supplied Services
Directive 2000/31/EC, on legal aspects of information society services
Recalls Directive 98/48/EC amending Directive 98/34/EC, which lays down a procedure for the provision of information in the field of technical standards and regulations
Cristina Trenta – VAT and Communication Services
(EU) Electronically Supplied Services
service any information society service provided for remuneration, at a
distance, by electronic means and at the request of a recipient at a distance without the parties being simultaneously present by electronic means sent initially and received at its destination by means of electronic
equipment (...) and entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means
at the individual request of a recipient of services provided through the transmission of data on individual request
Cristina Trenta – VAT and Communication Services
(EU) Electronically Supplied Services
Services not falling under the definition given by Directive 98/48 follow Annex V, Directive 98/34/EC:
1. Television broadcasting services (including near-video on-demand services), covered by point (a), art. 1, Directive 89/552/EEC
2. Radio broadcasting services
Cristina Trenta – VAT and Communication Services
A Small Difference
The VAT Committee (2003) distinguished between electronically supplied services and television broadcasting services when they are provided simultaneously over different broadcast mediaThe ECJ confirmed the distinction between information society services and television broadcasting services in Case C-89/04 (Mediakabel BV vs Commissariaat voor de Media)
Cristina Trenta – VAT and Communication Services
A New Concept of Media
Directive 2007/65/EC art. 1 (a) replaces Directive 89/552/ECIntroduces audiovisual media servicesThese can be supplied by electronic communications networks as per art. 2 (a) of Directive 2002/21/ECElectronic communications network are defined as transmission systems and they include the Internet
Cristina Trenta – VAT and Communication Services
The New Way of the Commission
COM (2006) 210 Final
“The growth of podcasting, video-on-demand, streaming and digital broadcasting means that content can be accessed in several ways”
“It will be increasingly difficult to justify differences in tax treatment as broadcasting, telecommunications and e-services converge”
Cristina Trenta – VAT and Communication Services
A Visual Comparison
IT EU
ITALY SWEDEN
EU
Cristina Trenta – VAT and Communication Services
(SE) Communication Services
Defined in the Mervärdesskattelag (ML, 1994:200) when dealing with territoriality (Ch. 5, 7§10)
Ch. 5, 7§10 ML defines telecommunication services
Ch. 5, 7§12 ML defines electronic services
Overlap with praxis as Skatteverket defined telecommunication services in Dnr 4743-98/900
Cristina Trenta – VAT and Communication Services
(SE) TV Broadcasting Services
ML offers no definition of tv broadcasting services, but Prop. 1996/97:81 distinguishes telecommunication services and television services:
“Also the transfer of data, radio messages and television programmes are covered by the definition, since only the transferring is relevant. The message itself, for example radio or television programmes, aren't covered by the definition”
Cristina Trenta – VAT and Communication Services
(IT) Communication Services
DPR n. 633/72 gives no definitions of communication servicesDM n. 388/2000 is not harmonizedResolution n. 196/2002 confirms Italian definitions to be different from those of the EU
Cristina Trenta – VAT and Communication Services
(IT) Telecommunication Services
“The transmission, emission, or reception of signs, signals, writing, images and sounds or information of any nature, supplied by wire, cable, radio, optical or other electronic or electromagnetic systems and instruments or similar, made available for the purposes by technology, the assignment or granting of the right to use the above cited means to provide telecommunications services; the distribution of radio-television signals by wire or satellite; the letting available of wire or satellite network; access to global information network; as well as any other operation ancillary to, or in any case connected to, the above mentioned services, when the same are regarded as an integral part of the services as per the contract agreement”.
[Decreto Ministeriale 24 October 2000, n. 366]
Cristina Trenta – VAT and Communication Services
(IT) A Brief Recap
The Italian definition of telecommunication services: includes television services includes services that are simply linked with telecommunication services
goes directly against the ECJ Case Laws
Cristina Trenta – VAT and Communication Services
(IT) TV Broadcasting ServicesThe Italian VAT Act does not define TV broadcasting servicesThe Gasparri Broadcasting Act, May 3 2004, no. 112, defines the Integrated System of CommunicationsLegislative Decree July 31 2005 no. 177, Testo Unico della RadiotelevisioneThe Italian definition of TV broadcasting services is not harmonized with the EU regulations, impacting taxation
Cristina Trenta – VAT and Communication Services
(IT) The TV Act and the ECJ
ECJ Case C-380/05, Centro Europa 7 Srl v Ministero delle Comunicazioni e Autorità per le garanzie nelle comunicazioniThe Gasparri Act 112/2004 is not aligned with the EU legislation and the definition of TV broadcasting plays an important role
Cristina Trenta – VAT and Communication Services
(IT) Electronically Supplied Services
The Italian Vat Act did not implement Annex L Directive 2002/38/EC now Annex II of the RVD DirectiveAn incomplete definition can be found in the praxis in RM 15/11/2004, n. 133120:
“An electronically supplied service is first of all a service delivered via the Internet or an electronic network or a service which is strictly dependent from information technology (that is, it is essentially automatic and involving minimal human intervention, and in the absence of information technology does not work)”
Cristina Trenta – VAT and Communication Services
A Widespread Issue?
"Telecommunication services" means services relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems (...)"Telecommunication services" shall also include radio and television broadcasting services
[Rep. Of Malta VAT Act, Chapter 406 (11) (3)]
Cristina Trenta – VAT and Communication Services
Place of Supply
Directive 1999/59/ECDirective 2002/38/EC Directive 2008/8/EC, for the place of supply of servicesTwo general cases: Communication service is supplied to a taxable person
Communication service is supplied to a non-taxable person
Cristina Trenta – VAT and Communication Services
Rules of Territoriality
31/12/2009 31/12/2014
TELECOMMUNICATIONSERVICES ANDRADIO AND TVBROADCASTINGSERVICES
ELECTRONICALLYSUPPLIEDSERVICES
Art. 56(1) Dir. 2006/112/EC [ex art. 9(2)(e)] and the destination principle are to be applied
COMMUNICATIONSERVICES
The rule in art. 44, Dir. 2008/8/EC is to be applied. The destination principle stands. Art. 59 (a) on the effective use and enjoyment can be applied as well
B2B Transactions
B2C Transactions
Art. 45 of Directive 2008/8/EC applies (origin principle)
Art. 58 of Directive 2008/8/EC (destination principle) applies
Art. 43 (ex art. 9 (1)) Directive 2006/112/EC applies (origin principle) B
2CB
2B
Art. 57(1) (ex art. 9 (3) (f)) RVD applies
The place of supply is the place where the non-taxable person is established, has a permanent address or usually resides. It is not possible to apply art. 58(b) for the mandatory disposition in art. 58
New art. 58, Directive 2008/8/EC applies.
Art. 59 applies if the consumer is not an EU citizen
The criterion of effective use and enjoyment does not apply obligatorily, following art. 59. The residence criterion applies
All consumers fall under the provisions of the new art. 58 Directive 2008/8/EC (residential criterion)
Rule of the effective use and enjoyment contained within the new art. 59a is optionally appliable
B2C
Art. 59 (1) (2) on the effective use and enjoyment is to be applied mandatorily
Art. 59 a on the effective use and enjoyment applies mandatorily (ex art. 59b)
Art. 59 applies for non-EU consumers (residential criterion)
All consumers fall under the provisions of the new art. 58 Directive 2008/8/EC (residential criterion)
Rule of the effective use and enjoyment contained within the new art. 59a is optionally appliable
B2C
Cristina Trenta – VAT and Communication Services
Issues Pertaining to the Effective Use and Enjoyment
Art. 59 (1) (2) of Directive 2006/112/EC applies [ex Art. 9 (4) of the Sixth Directive]Effective Use and Enjoyment for Telecommunication and Radio and Television Broadcasting Services for a non-EU supplier and a non-taxable resident customerGeneral lack of compliance between the two Member states could lead to risks of double taxation
Cristina Trenta – VAT and Communication Services
Examples of Double Taxation
NON-EU SUPPLIERNON-TAXABLE RESIDENT CUSTOMER
Non Eu operator
Swedish non taxableresident person
buys here a service
And uses and enjoys the service
in Italy
TELECOMMUNICATION AND RADIO AND TELEVISION BROADCASTING SERVICES
Cristina Trenta – VAT and Communication Services
Examples of Double Taxation
NON-EU SUPPLIERNON-TAXABLE NON-RESIDENT CUSTOMER
Legal presumption of use if the service
is provided in Sweden through a stable
network connection
Legal presumption of use if the service is originating there
Non EU operator
Non taxable personnon resident customer
TELECOMMUNICATION AND RADIO AND TELEVISION BROADCASTING SERVICES
SWEDEN ITALY
Cristina Trenta – VAT and Communication Services
Examples of Double Taxation
NON-EU SUPPLIERNON-TAXABLE RESIDENT CUSTOMER
Non Eu operator
Swedish non taxableresident person
Non taxable person on the territory of the State
ELECTRONICALLY SUPPLIED SERVICES
Cristina Trenta – VAT and Communication Services
Effective Use and Enjoyment
Bulgaria, art. 21(4)residence and effective use and enjoyment of the service within the country
Belgium, art. 21§5Réputée se situer en Belgique dès qu'une des parties à l'opération y a établi un siège d'activité économique ou un établissement stable
Latvia, art. 4 (7)(73) Shall be inland if a third country person provides such services to a non-taxable person
Cristina Trenta – VAT and Communication Services
Rates on Communication Services
A reduced VAT tax rate can't be applied to electronically supplied services, as per Directive 2002/38/ECA reduced VAT tax rate for TV broadcasting services can be applied, as per Annex III Directive 2006/112/EC point 8
Cristina Trenta – VAT and Communication Services
Changes
COM (2000) 348 final, Review and rationalization of the rules and derogations applying to the definition of reduced VAT rates
COM (2003) 397 final, Proposal for a Council Directive amending Directive 77/388/EEC as regards reduced rates of Value Added Tax
COM(2008) 428 final Council Directive
Cristina Trenta – VAT and Communication Services
Unchanged ScenariosCOM(2008) 428 final Council Directive, amending Directive 2006/112/EC as regards reduced rates of Value Added Tax
Annex III to Directive 2006/112/EC after the future amendments still contained the provision for the reduced tax rate for television broadcasting services
Small change for audio books, CDs, CD-ROMs or any physical support that predominantly reproduce the same informational content as printed books
Intention at the Communitarian level is to maintain the preexisting scenario without any substantial change regarding television services
Annex III of Directive 2006/112/EC point 8 still outlines the possibility to apply a reduced tax rate for television services
Cristina Trenta – VAT and Communication Services
Specific VAT Rates Issues
An uneasy correct classification and identification of electronically supplied services
A large discrepancy in VAT tax rates within Member states: from a low 14% in the Azores, Madeira, a 15% in Cyprus and Luxembourg, to a high 25% in Sweden and Denmark
Cristina Trenta – VAT and Communication Services
SE: Case Study
Case 6845-04 rotel 11461The large gap in the VAT tax rate progression influences the location of the company
Sweden applies the highest VAT tax rate in the whole EU
Cristina Trenta – VAT and Communication Services
IT: Case Study
Italy applies reduced VAT rates for Radio-TV broadcasting servicesBefore D.L. November 29 2008, no. 185:
TV license fee 4%Coded digital monthly and yearly subscription fees for cable and satellite services, inc. near VoD 10%Extensible to electronic services, but reduced VAT rates for electronic services are not allowedTV license fee for terrestrial services, inc. near VoD 20%
Cristina Trenta – VAT and Communication Services
IT: Case Study
TV license fee 4%
TV license fee via mobile 4%
TV license fee via internet 4%
Coded digital TV license fee via cable, via satellite, via digital terrestrial, Near VoD included 20%
Uncoded Radio-Tv broadcasting services with a variety of different goals 4%
Tv advertisement 20%
Books 4%
Audio book 20%
Audio books for the blind or the almost blind 4%
DVD, CD-Rom 20%
DVD, CD-Rom if sold as part of a magazine 4%
TV lic
ense
fee
via
mobile
TV lic
ense
fee
via
inte
rnet
Coded
dig
ital
TV lic
ense
fee
via
cab
le,
sate
llite
, dig
ital
ter
rest
rial
, nea
r VoD
Unco
ded
Rad
io-T
v bro
adca
stin
g
serv
ices
with d
iffe
rent
goal
s
Tv a
dve
rtis
emen
t
Books
Audio
books
Audio
books
for
the
blin
d
or
the
alm
ost
blin
d
DVD
, CD
-Rom
DVD
, CD
-Rom
if so
ld
as p
art
of a
mag
azin
e
TV lic
ense
fee
4% 4% 4% 4% 4% 4% 4%
20% 20% 20%20%
A B C D E F G H I L M
VAT rates after DL 185/2008
Cristina Trenta – VAT and Communication Services
Conclusions
EU concepts and definitions do not find direct correspondence in national Acts
Callbacks to national Acts are used Terminological differences are common This leads to double taxation, non-taxation, and harmful tax competition
EU regulations are weakened and often abolished by national, domestic rules
Cristina Trenta – VAT and Communication Services
Thank You
Cristina TrentaPhD, European Tax [email protected]@ihh.hj.se
With many thanks toProf. Björn Westberg, JIBS (SE)Skattenytt Foundation