Electronic and internet telephone services are usually provided by multiple participants collectively, by so-called supply chains in which companies from several countries co-operate to provide the services: content providers (app and game developers, musicians, etc.) content aggregators (e.g. ringtone creators),platform or portal providers, payment aggregators, and possibly many more – with technology constantly developing, it is almost impossible to provide an exhaustive list. This is why understanding the provisions of Article 9a, as well as the notions it uses and refers to is crucial: this is the single rule based on which the supplier, who will be liable to apply the VAT of the country where the non-taxable consumer belongs – the 2015 VAT changes will affect only B2C services, but these will be affected significantly.
Article 9a is a presumption, really. A presumption that from a VAT perspective, every taxable person who takes part in the supply of electronic or internet telephone services is acting in their own name but on behalf of the provider of these services. The presumption may be rebutted by any taxable member of the supply chain, claiming to be qualified (from a VAT perspective) as an intermediary: the services of intermediaries are not affected by the 2015 VAT changes, even if they are provided B2C. Rebuttal of the presumption has conditions, though: the intermediary must explicitly indicate the provider of the service as such and identification of the service and its supplier must also be reflected in the contractual arrangements.
Members of the supply chain providing electronic or internet telephone services who
- authorize the charge to the customer,
- authorize the delivery of the services or
- set the general terms and conditions of the supply
cannot rebut the presumption of Article 9a and thus are deemed, from a VAT perspective, providers of the service.
So, if no member of the supply chain rebuts the presumption, every participant qualifies as a supplier – members may only rebut the presumption and qualify as intermediaries in case at least one supplier remains in the chain.
The above rule needed the extra 22-page explanation because it is full of notions that are not entirely or not easily understood. The below chart and explanations will hopefully make things clearer
1: Article 9a may only be applied to services which are closely related (as defined in the Implementing Regulation) to the electronic and internet telephone services. Practically, this means that providers of services which are not closely related to these are not considered, from a VAT perspective only, participants of the supply chain and thus Article 9a is not applied/tested on them. Closeness of the relationship between the services of a member of the supply chain and the electronic/internet telephone services collectively provided must be assessed through the facts and the nature of the contractual relationship between the members of the supply chain (including the final consumer). Authorizing the charge to the customer and/or the delivery of the services and/or setting the general terms and conditions of the supply (either of these, even in itself) means strong relationship. Also, the following elements are usually indicative that the company carrying out/providing these is a supplier, not a ‘mere’ intermediary (again, from a VAT perspective only):
- Owning or managing the technical platform over which the services are delivered;
- Being responsible for the actual delivery;
- Being responsible for collecting payment unless the only involvement of the taxable person is the processing of payment;
- Controlling or exerting influence over the pricing;
- Being the one legally required to issue a VAT invoice, receipt or bill to the end user in respect of the supply;
- Providing customer care or support in relation to queries about or problems with the service itself;
- Exerting control or influence over the presentation and format of the virtual market place (such as app stores or websites) such that the brand and identity of the taxable person are significantly more prominent than those of other persons involved in the supply;
- Having legal obligations or liabilities in relation to the service provided;
- Owning the customer data related to the supply in question;
- Being in a position to credit a sale without the supplier’s permission or prior approval in cases where the supply was not properly received.
2: Some services are not closely linked to the electronic or internet telephone services – such as providing payment services (e.g. credit card companies),or providing internet (via wi-fi, cable, satellite, etc.). Companies providing only such services will not be affected by the 2015 VAT changes. Naturally, in case in addition to such ‘auxiliary’ services other, closely related services, too, are provided, the company will be captured by the presumption.
3: The presumption of Article 9a may be rebutted in case all of the following conditions are met:
(1) the provider of the service is explicitly indicated as the supplier which means that:
- the invoice issued or made available by each taxable person taking part in the supply identifies (i.e. there is a sufficiently clear indication) the service in question and its supplier (in normal commercial transactions a VAT invoice is issued between two taxable persons); and
- the customer’s bill or receipt identifies the service in question and its supplier (the taxable person must issue or make available a bill or receipt to the final customer stating what has been supplied and providing details of the supplier e.g. business name, VAT identification number); and
- the taxable person taking part in the supply does not authorise the charge to the customer (it means for instance that the app store is not responsible for the payment between the final consumer and the content owner of the app); and
- the taxable person taking part in the supply does not authorise delivery (it means that the delivery for instance of the app from the content owner via the app store is not authorised by the app store); and
- the taxable person taking part in the supply does not set the general terms and conditions of the supply (it means by way of example that the terms of the sale of an app via an app store are not set by the app store);
(2) this is reflected in the contractual arrangements:
all points from 1(a) to (e) must be reflected in the contractual arrangements for instance between the app store and the app content owner. If this is not the case the rebuttal of the presumption cannot take place.
4: In case a company taking part of the supply chain carries out at least one of the following activities, the presumption of Article 9a cannot be rebutted and thus if this company invoices to non-taxable consumers, it must raise a VAT invoice for the electronic or internet telephone services, applying the VAT of the country where the consumer belongs. Further explanations for these three service/activities:
- Authorisation of the charge to the customer
The phrase ‘authorises the charge to the customer’ is not the same as taking payment or collecting payment. It refers to the situation where the taxable person can influence whether, at what time, or under which preconditions the customer pays. A taxable person authorises payment when he decides that the customer’s account, credit or bank card, or similar, can be debited/charged as payment for the service. In practice, the person who authorises payment is likely to be the person who controls the technical platform (e.g. app store, portal) over which the services are offered or provided.
- Authorisation of the delivery of the services
The phrase ‘authorises … the delivery of the services’ is a broader concept than making the delivery. It refers to the situation where the taxable person can influence whether, at what time, or under which preconditions the delivery is made. A taxable person authorises the delivery when he either sends approval to commence the delivery of the service, delivers the service himself or instructs a third party to make the delivery. In practice, the person who authorises delivery is likely to be the person who controls the technical platform (e.g. app store, portal) over which the services are provided.
- Setting the general terms and conditions of the supply
In the context of application of Article 9a the phrase ‘the general terms and conditions of the supply’ covers any general terms and conditions that are set by a taxable person taking part in the supply and with which a final customer has to agree before purchasing the service. For example it includes the terms and conditions set by market places and similar platforms requiring users to agree to general terms and conditions for using that website or platform (that could be to maintain an account) as well as the general terms and conditions (including license agreement) which the final customer has to agree to before receiving any access to a app or content.
- As for the meaning of ‘setting’ the general terms and conditions of the supply it covers the situation where a taxable person takes the decision on the general terms and specific conditions (e.g. rights and obligations such as price, payment terms, delivery conditions, warranty rules, etc.) and can impose them on other participants (by formally accepting them).
The provisions of Article 9a are extremely important for parties participating in supply chains providing electronic or internet telephone services, because from 2015 the supplier providing these services to non-taxable end consumers will have to charge VAT applicable in the Member State where the customer belongs. The answer to the question raised in the title starts with the good old ‘it depends’, but how it ends will depend on the provisions of the agreement signed with the app store as well the other aspects discussed above.