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VAT on electronic services

The new legislation

Council Directive 2002/38/ECpdf on the VAT arrangements applicable to radio and television broadcasting services and certain electronically supplied services was adopted on 7 May 2002 and entered into effect on 1 July 2003. By Council Directive 2006/58/ECpdf adopted on 27 June 2006, Council Directive 2006/138/ECpdf adopted on 19 December 2006 (for further information see COM(2006) 210 pdf(208 kB) Choose translations of the previous link  see also press release IP/06/621 Choose translations of the previous link  ) and Council Directive 2008/8/ECpdf adopted on 12 February 2008, these VAT arrangements were extended until 31 December 2009. As far as electronically supplied services are concerned, these measures are explained below.

Council Regulation (EC) 792/2002pdf, temporarily amending Regulation (EEC) 218/92 on administrative co-operation in the field of indirect taxation (VAT) subsequently included in Regulation (EC) 1798/2003, introduces additional measures necessary for the registering for VAT purposes of e-service traders not established within the Community and for distributing the VAT receipts to the Member States where the services were actually used.

Under these new rules, EU suppliers are no longer obliged to levy VAT when selling on markets outside the EU, thereby removing a significant competitive handicap. Previously under tax rules drawn up before, EU suppliers had to charge VAT when supplying digital products even in countries outside the EU.

The changes eliminate an existing competitive distortion by obliging non-EU suppliers to charge VAT as EU suppliers when they are providing electronic services to EU non taxable persons, something which EU businesses had been actively seeking for some time.

The VAT rules for non-EU suppliers selling to business customers in the Union remain unchanged, with the VAT paid by the importing company under reverse charge arrangements.

It follows from Directive 2008/8/EC pdfthat the rules introduced by the Directive 2002/38/EC pdfwill be extended from 1st January 2010 as a permanent measure. From 1st January 2015, this Directive also provides that VAT on telecommunications, radio and television broadcasting and electronic services supplied by a supplier established within the Community to non-taxable persons also established within the Community will be charged in the Member State where the customer belongs (see also the Regulation on administrative co-operation 143/2008 pdfconcerning the inclusion of these services in the one stop shop scheme)

Frequently Asked Questions 

OECD principles

These measures mean that the EU became the first significant tax jurisdiction in the world to develop and implement a simplified framework for consumption taxes on e-services in accordance with the principles agreed within the framework of the Organisation for Economic Co-operation and Development (OECD). The Directive therefore complements the international process at the OECD. The OECD principles on the taxation of e-commerce were agreed at a 1998 conference in Ottawa. These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place. The OECD also agreed that a simplified online registration scheme, as now adopted by the Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders.

Background documents

Report on the operation of the Directive and proposal to extend the period of its application: COM(2006) 210pdf(208 kB) Choose translations of the previous link 

Text of Council Directive 2002/38/ECpdf

Text of Council Regulation (EC) 792/2002pdf

Interim report on the implications of electronic commerce for VAT and customs. 1998pdf(159 kB) Choose translations of the previous link 

COM(1998) 374 final "E-commerce and indirect taxation". Communication by the Commission to the Council of Ministers, the European Parliament and the Economic and Social Committee

Working Party no. 1 Harmonisation of Turnover Taxes, 1999pdf(83 kB) Choose translations of the previous link 

The proposal was submitted by the Commission on 7 June 2000 .

The Press releases and Memoranda issued at various stages: