New EU Regulation explains how to interpret the Sixth EU VAT Directive
Ine Lejeune – Leader Global VAT/GST Network – PricewaterhouseCoopers Belgium1
Bert Mesdom – Assistant Manager – PricewaterhouseCoopers Denmark2
Background of this Regulation
On 9 February 2004, a new article 29a of the Sixth EU VAT Directive entered into force3. This
article provides that, on a proposal from the Commission, the Council can adopt “measures
necessary to implement” the Sixth EU VAT Directive. This provision was introduced in order to
ensure a more uniform application of the current EU VAT system. This is because, although the EU
VAT system has a common frameset, i.e. the Sixth EU VAT Directive, each of the 25 EU Member
States still has the obligation to implement and apply this common frameset into its own national
legislation. While implementing the Sixth EU VAT Directive, EU Member States may have
different viewpoints on certain provisions of this Directive.
One of the ways to guarantee this uniform application is by providing EU Member States with
binding measures on the correct implementation of the Sixth EU VAT Directive, avoiding these
different interpretations. The “implementing measures” taken on the basis of article 29a should in
particular address the problem of double taxation of cross-border transactions which occur due to
divergences of EU Member States’ interpretation of the Sixth EU VAT Directive.
The scope of these measures should, however, remain limited. They should only clarify the Sixth
EU VAT Directive and may absolutely not amend it.
Regulation (EC) No 1777/2005 of 17 October 2005, published in the Official Journal of 29 October
2005 (L 288/1), is the first Regulation based on article 29a. It contains decisions of the EU VAT
Committee regarding the interpretation of the Sixth EU VAT Directive. The EU VAT Committee is
a body holding technical discussions about EU VAT. The EU VAT Committee is presided by the
EU Commission and all EU Member States are represented. Contrary to decisions or guidelines of
the EU VAT Committee, a Regulation is binding for Member States and for taxable persons.
Even though this is only the first Regulation laying down implementing measures, it would not
surprise us that the Commission and the Council will use this procedure more frequently in the
future. The reason for this is that the procedure is less burdensome than the one for adopting a VAT
Directive or Regulation, based on article 93 of the EC Treaty: an opinion of the European
Parliament and the Economic and Social Committee is not required. Furthermore, if the Regulation
is based on viewpoints unanimously agreed upon by the EU VAT Committee, difficult technical
discussions have already been dealt with. Consequently, the risk of multiple (technical) discussions
in the Council slowing down the legal process is reduced. However, unanimity in the Council is still
required and the scope of this type of Regulations is rather limited.
Ine.lejeune@pwc.be – tel: +32 9 268 83 00
bme@pwc.dk – tel: +45 39 45 33 85
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Inserted in the Sixth EU VAT Directive by COUNCIL DIRECTIVE 2004/7/EC of 20 January 2004 amending
Directive 77/388/EEC concerning the common system of value added tax, as regards conferment of implementing
powers and the procedure for adopting derogations, Official Journal, 30 January 2004, L 27/44
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Content of this Regulation
As mentioned above, Regulations based on article 29a of the Sixth EU VAT Directive should only
contain “implementing measures”. This Regulation gives an interpretation of 11 articles of the Sixth
EU VAT Directive (i.e. articles 4, 6, 9, 11, 13, 15, 18, 26b, 26c, 28a and 28b) and of Annex L
(electronic services).
Most of the interpretations have a rather limited practical use for most businesses. Therefore, we
will not explain all provisions in detail but merely list the topics covered by the Regulation in the
table below. Subsequently, we will describe only the most interesting topics in more detail.
Article of the Sixth
EU VAT Directive
Article 4
Article 6
Article 9
Implementing measures
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Article 11
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Article 13
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Article 15
Article 18
Article 26b
Article 26c
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Article 28a
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Article 28b
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Qualification of a European Economic Interest Grouping (EEIG)
Qualification of the sale of options
Qualification of the assembly of a machine
Place of supply of the organisation of a funeral
Place of supply of the assembly of a machine
Place of supply of translation services
Place of supply of the assignment of television broadcasting rights in
respect of football matches
Place of supply of applications for and receiving of 8th Directive VAT
refunds
Place of supply of certain agency services
Definition of forms of transport
Definition and non-exhaustive list of e-services and non-e-services is
included in the Regulation (including Annex L)
Definition of the taxable amount in case of payment with a credit or
debit card
Exemption for vocational training and retraining courses
No exemption for platinum nobles
Definition of means of transport for private use
Calculation of the value of goods exported in personal luggage of
travellers
Definition of import documents
Definition of investment gold
Explanation about the special scheme for non-EU providers of eservices
Determination of the competent countries in case of intra-Community
supplies or acquisitions
Clarification about the application of the distance sales regime
In our opinion, the following topics are the most interesting ones (highlighted in the above table):
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the definition of the taxable amount in case of payment with a credit or debit card (article 13
of the Regulation);
the definition of e-services (article 11, 12 and annex I of the Regulation);
the competence rules in respect of intra-Community supplies and acquisitions (article 21 of
the Regulation).
What about the taxable amount if the customer pays with a credit or debit card?
In the EU, the fee for the use of a credit or debit card falls in principle under the VAT exemption for
financial services4. By making use of this exemption a retailer could reduce the taxable amount of
the underlying taxed supply.
This can easily be explained by means of an example.
Suppose a retailer wants to sell a television set of EUR 500 to a private individual that has no right
to deduct VAT. Depending on the country in which the sale takes place, the customer will pay VAT
of 15% up to 25% on EUR 500. If we take an average EU VAT rate of 19%, the total price paid by
the customer will be EUR 595 (EUR 500 taxable amount + EUR 95 of VAT).
However, the customer could, besides concluding an agreement with the retailer in respect of the
sale of the television, also conclude an agreement in respect of the use of a credit or debit card with
the retailer or a third party. Assume the customer agrees to pay a fee for credit card handling to the
retailer of EUR 25. If the customer still pays a total price of EUR 595 for the television and the use
of the credit card the retailer will receive EUR 504 instead of EUR 500 as consideration exclusive
of VAT. This is because the total amount paid by the customer is constituted as follows: EUR 479
(taxable amount for the TV) + EUR 91 (VAT on the TV) + EUR 25 (credit card fee). The retailer
receives as taxable amount EUR 479 + EUR 25.
The Regulation now provides that the credit or debit card fee paid to the supplier or another
undertaking forms an integral part of the taxable amount for the underlying supply of goods or
services if the total price payable by the customer is unaffected irrespective of how payment is
accepted.
This provision could have a significant impact on retailers that have own payment cards. Prior to
the adoption of this Regulation, the tax authorities could basically only make use of one decision of
the European Court of Justice (Chaussures Bally, C-18/92) to include the fee for the use of the
payment card in the taxable amount of the underlying supply. However, in most situations, the
underlying facts were different from the facts of the Chaussures Bally case. Now, the tax authorities
can refer to the new Regulation.
There are, however, two important remarks to be made in respect of this particular provision of the
Regulation. The first remark relates to the conditions mentioned in order to fall within the scope of
the provision, while the second one relates to the qualification of the provision.
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Article 13(B)(d) of the Sixth EU VAT Directive
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A condition to be met in order to integrate the credit or debit card fee into the taxable amount of the
underlying supply is that “the total price payable by the customer is unaffected irrespective of how
payment is accepted”. In its proposal5, the Commission states that the provision does not apply
where an additional charge for paying by means of a credit or debit card is made. However, the
Commission does not provide any information on the treatment when the total price paid by the
customer is decreased when paying with a credit card. On the basis of a strict reading of the
provision, the credit card fee should not be integrated in the taxable amount of the underlying
supply if the total price payable by the customer is lower if the payment is made by means of the
credit or debit card.
The second remark is a procedural one. We doubt whether this provision is an “implementing
measure”. It is, in our opinion, fair to state that the scope of article 13 of the Regulation goes
beyond clarifying article 11 of the Sixth EU VAT Directive with a view to guaranteeing a uniform
application in all EU Member States. This is in particular true if the sale is performed by a retailer
and the credit or debit card service is provided by a different taxable person. We are of the opinion
that article 11 of the Sixth EU VAT Directive had to be amended in order to realise what is now
stated in article 13 of the Regulation.
If our opinion is valid, the incorrect legislative procedure has been followed. The Sixth VAT
Directive can only be changed by means of a Directive in accordance with article 93 of the EC
Treaty. This article requires, besides unanimity of the Council, also an opinion of the EU Parliament
and of the Economic and Social Committee.
A retailer who does not agree with the content of this provision of the Regulation could, in our
opinion, apply article 11 of the Sixth EU VAT Directive while refusing to apply the interpretation
of article 13 of the Regulation. Eventually, the European Court of Justice will give its opinion on a
preliminary question raised by a national court. It is rather unlikely that a retailer could invoke
article 230 of the EC Treaty to institute proceedings before the European Court of Justice directly.
Article 230 of the EC Treaty requires the provision concerned to be of a direct and individual
concern to the retailer. However, as article 13 of the Regulation is a general measure, it could be
difficult to argue that the measure is of an “individual concern” to the retailer.
E-services further clarified
In our article of January 2004 in this review6, we explained the practical implementation of the
Sixth Directive regarding e-services. In the above-mentioned article, the guidelines of the EU VAT
committee were an important element in order to define the exact scope of e-services. The current
Regulation confirms most of these guidelines, giving them binding power for tax authorities and (e)services providers. This means that most of the rules we described previously remain valid, but are
given a higher authority (being binding instead of being indicative).
First, the Regulation gives a general definition of e-services. Second, it contains two lists,
mentioning services that should be considered as e-services on the one hand and services that
5
EU Commission, Proposal for Council Regulation laying down implementing measures for Directive 77/388/EEC on
the common system of value added tax, COM(2004)641 final/2
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I. LEJEUNE, M. JOOSTENS, B. MESDOM, VAT on electronically supplied services: the rules are known, what is
reality, Tax Planning International Indirect Taxes, January 2004
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cannot qualify as e-services on the other. It should be borne in mind that these lists are not
exhaustive. It is thus possible that a certain service that is not mentioned in the list qualifies as an eservice. Of course, in that situation, the general definition will help to determine the nature of the
service provided.
The Regulation, however, does not help to find a solution for services that qualify both as e-services
and as radio and television broadcasting services, e.g. a service of showing text messages sent by
customers via mobile phone or computer on TV and on the internet. The place of supply rules are
different if the service is provided by a supplier established outside the EU. If the services qualify as
e-services, the place of supply is where the customer is established. If the services qualify as radio
and television broadcasting services, the use and enjoyment rules will be relevant for the place of
supply.
The initial EU Commission’s proposal gave a definition of radio and television broadcasting
services and took the view that, when broadcasting is done simultaneously over the Internet and via
“normal” television, the services should still qualify as broadcasting services. A similar view can
also be found in the guidelines of the EU VAT Committee, which have been published by several
EU Member States, including Ireland, the UK, Belgium and the Netherlands. This proposed
provision, however, has not been adopted by the Council. This means that discussion can still arise
in ambiguous cases, e.g. a service of showing simultaneously text messages sent by customers via
mobile phone or computer on TV and on the internet.
Intra-Community acquisition and intra-Community supply: no further help for taxpayers
Article 21 of the Regulation contains two logical provisions. On the one hand, the article states that
only the country of arrival of the goods is competent to determine taxation of an intra-Community,
irrespective of the qualification of the intra-Community supply in the country of dispatch. On the
other hand, only the country of dispatch is responsible in case corrections should be made where the
supplier initially charged local VAT on an intra-Community supply that was VAT exempt.
The provisions stated in Article 21 can, in our opinion, also be derived from a simple reading of the
Sixth EU VAT Directive. They do not help to counter the different interpretations of EU Member
States that may be encountered when doing intra-Community business. However, these different
interpretations exist within the EU. This is, for instance, the case where a taxable person wants to
make use of a simplified scheme for consignment stock. The country of dispatch and the country of
arrival can have other rules, leading to a mismatch between intra-Community supply and intraCommunity acquisition. Other examples of differences between EU Member States are the
requirements to provide proof of transport in order to exempt an intra-Community supply, the
definition of a deemed intra-Community supply and the requirements to be met in order to apply
triangulation.
By stating that each EU Member State is competent for his part of the shipment, i.e. dispatch and
arrival, the existing differences between EU Member States prevail.
When do the above rules enter into force?
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It is to be noted that, in many EU Member States, the rules mentioned in the Regulation have
already been implemented. However, the Regulation enters into force on 1 July 2006, except for the
provision regarding the taxable amount that enters into force on 1 January 2006. From these dates,
taxable persons and tax authorities can invoke the direct and binding effect of the Regulation.
Conclusion
At first sight, the Regulation contains merely “interpretations” of the Sixth EU VAT Directive,
guaranteeing a uniform implementation of the Directive in the 25 EU Member States. Needless to
say, this is a very welcome clarification that helps to come to a uniform implementation of the Sixth
EU VAT Directive.
However, a more in-depth review of the Regulation shows that, especially in respect of the
provision regarding the taxable amount in case of payment with a credit or debit card, the EU
Commission and the Council have a rather extensive interpretation of the term “implementing
measure”. It cannot be ruled out that the provision regarding the taxable amount will be challenged
by retailers and eventually be declared null and void by the European Court of Justice.
Whereas the Regulation contains an extensive implementing measure as regards the taxable
amount, it is not that far-reaching as regards intra-Community trade. Maybe a next Regulation
based on article 29a of the Sixth EU VAT Directive could cope with intra-Community trade and the
interpretation of electronic invoicing and archiving rules.
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