Decoding the New EU Place of Supply Rules for Live Virtual Events

Key Takeaways

• Significant changes to the EU place of taxation rules for live virtual events are set to take place on January 1, 2025.
• For B2C supplies to private customers in the EU, suppliers will need to charge VAT based on where the customer resides. Currently VAT does not need to be charged in the customer country.
• EU member states have been empowered to apply reduced VAT rates to some or all live virtual events.
• This rule change not only creates significant complexity with respect to tax calculation, but also requires suppliers to validate VAT IDs and respect local digital reporting requirements.

Background

The surge in virtual or hybrid events, concerts, training sessions, and conferences in the past decade has shined a light on gaps in the current VAT place of supply rules.

There has been significant uncertainty around whether the place of taxation of these virtual events should follow the general place of taxation rules, or should follow the rules specific to “electronic services”.

The key difference is that the general EU place of taxation rules would not require the supplier to charge VAT in the customer country. The EU rules for electronic services would require the supplier to charge VAT on sales to private customers in the country where the customer resides.

The EU Court of Justice decided in Geelen (Case C-568/17) that the general place of taxation rules should apply. From a financial standpoint, this meant that EU member states would be missing out on a valuable source of revenue. From a tax technical standpoint, EU member states felt that the true place of consumption of these services were the member states where the customers viewed the content, and therefore they should have a right to require that local VAT is applied on these sales.

As a consequence, the EU has implemented Council Directive (EU) 2022/542, which establishes new rules on how these live virtual events should be taxed.

What has changed exactly

New place of taxation rules

Previously, suppliers of live virtual events never needed to charge VAT in EU member states for these supplies. Now these same suppliers will need to charge VAT in up to 27 EU member states if they make sales to private consumers (e.g. consumers that are not registered for VAT).

Reduced rates

EU member states already apply reduced rates to the sale of admission to various types of events. The new EU rules clarify that member states can also apply reduced rates where the admission is to a virtual event.

Keep in mind that there can be significant complexity in which events actually qualify for a particular reduced rate. A particular EU member state may open the reduced to cultural events but not concerts. Indeed there are extreme examples of complexity in this area; France applies a super reduced rate to certain types of live events, but only for the first 140 showings!

Implications for Tax Departments

Tax calculation has become far more complex

Suppliers of virtual events making sales to EU customers currently don’t have to manage the different VAT rates and rules in the 27 EU member states when making these sales. This will change as of January 1, 2025.

27 member states does not mean 27 rates. Reduced rates and complex rules on their application will also need to be followed and implemented by these suppliers. EU member states may also have different regions with variable VAT rates which need to be kept track of, for example Corsica or the French overseas departments.

This results in a significant new burden for tax departments in businesses selling live virtual events where tax calculation is managed internally. These tax teams need to gather the necessary tax and IT resources to take these new rules into account. The rules and rates will need to be tracked going forward, and any changes will require additional IT resources to implement.

Validating customer VAT numbers is more urgent than ever

The rule is fairly simple; the supplier needs to charge the VAT of the customer country for B2C sales but not for B2B sales. The complicated part is validating whether your customer is a private individual (B2C) or a taxable business (B2B).

If a supplier does not charge local VAT, it needs to be able to prove the status of the customer to the tax authority. This means validating the VAT ID number of the customer.

To validate VAT numbers, the EU has created the VIES database. However, this database comes with significant drawbacks that can prevent accurate and timely VAT number validation. For example VIES does not contain all valid VAT numbers in many EU member states and is often unavailable due to maintenance or technical issues,

If the supplier is not able to provide validated tax ID numbers to the tax authorities, the tax authorities may simply view those customers as private individuals. In other words, the supplier will be assessed all of the VAT that should have been charged to those customers, along with penalties and interest. This will likely be a net cost to the supplier, as recovering unpaid VAT from customers after a reassessment is often impractical.

More business may fall in scope of new digital reporting rules

A common misconception is that e-invoicing and digital reporting rules in the EU only apply to businesses that are locally established. This could not be further from the truth.

Many countries apply some requirements to most locally taxable sales in their country. For example, the upcoming French e-invoicing and digital reporting rules state that nearly any taxable B2C sale must be reported to the tax authorities in real time.

In other words, the new place of taxation rules don't just make tax calculation more difficult. They also put applicable businesses in the scope of complex new reporting rules that may not have applied to them previously.

How can Fonoa help?

Fonoa provides a unified tax technology platform that provides powerful solutions throughout the entire transaction life cycle.

Our tax engine provides tax calculation coverage in 190+ countries and regions, and our tax ID validation tool allows businesses to validate tax ID in 110+ countries. Fonoa is also the only fully standardized solution to electronically report transactions and generate tax compliant invoices globally, in real-time. Integration is a breeze with our easy to use API - many of our customers go live in only weeks.

If you are interested to learn more about our capabilities just reach out to our teams who can provide you with more information.