This is the first article in a series of two technical articles produced by the Advanced Taxation Malta examining team to aid candidates in their understanding of the value added tax (VAT) place of supply rules. This article will examine the place of supply of goods rules, while the second article will explain the place of supply of services rules (see 'Related links').
Candidates are reminded that the articles are meant to provide a guide on the level of detail and extent to which the topics will be examined but are not a substitute for the legislation. Candidates are encouraged to refer to the appropriate sections of the law in their preparatory studies and use the articles as additional guidance on the examining team’s approach. Both articles are based on the legislation as at 30 September 2022.
The place of supply rules are a fundamental aspect of the VAT system. The rules determine which party to the transaction is required to account for and settle any VAT due, the jurisdiction where the supply is deemed to take place and, consequently, the potential VAT identification and registration requirements of the party allocated the place of the supply.
The VAT Act 1998 transposes into Maltese law a European Directive meaning that the VAT rules are consistent across the EU countries. The VAT Act provides for different rules with respect to the place of supply of goods and services, and in both cases the law provides for general place of supply rules and exceptions to such rules. When attempting to establish the place of supply of a particular transaction it is generally more efficient to first assess the applicability of the general rules and subsequently assess whether the supply falls under any exception to the general rules.
General rule
The general place of supply rule for goods is split into two main rules, dependant on whether the supply of the goods is with or without transport.
Supplies of goods without transport
For ease of reference, a supply of goods without transport generally refers to a transfer of the legal title (ownership) without the goods moving from one location to another. A supply of goods without transport is deemed to take place where the goods are when they are placed at the disposal of the person acquiring the goods. An example would be where a non-Maltese person (X) is renting out a machine to a Maltese person (Y) and subsequently the non-Maltese person transfers the title to the machine to a third party Z whilst the machine remains in Malta. In such a case, the transfer of the machine by the foreign person (X) would be deemed to make a supply of such machine in Malta.
Supplies of goods with transport
On the other hand, a supply of goods with transport requires that when the supply of the goods takes place, the goods are moved from on point to another. The supply of goods that are transported, takes place where the goods are at the time when the transport of those goods begins.
For example, a Maltese taxable person supplies a product, with transport, to an entity outside of the EU. Such a supply would be deemed to be an export of goods taking place in Malta, the country where the transport operation begins. As a further example, if the same Maltese taxable person supplies the same good with transport, but this time the transport operation commences in another EU Member State, the supply of such goods would be deemed to be in such other EU Member State where the transport starts.
When the transport of goods begins outside the EU and ends in an EU Member State, the supply of those goods by the importer, and any subsequent supply up to the acquisition of those goods by the end customer, takes place in the EU Member State where they are imported. Therefore, a Maltese taxable person importing, say, televisions from China into Malta would be deemed to be carrying out an importation of goods into Malta, followed by a domestic supply in Malta.
The VAT Act provides for specific rules on chain supplies of goods and call-off stock which are excluded from the Taxation Malta study guide and such exclusions are carried over into the Advanced Taxation Malta Paper.
1. Goods installed and assembled
A supply of goods that are installed or assembled, takes place where the goods are installed or assembled. The rule also applies when the goods are subject to a trial run, and when a third party (not the supplier of the goods) carries out the installation or assembly.
Therefore, if a German furniture manufacturer were to supply a kitchen with assembly and installation to a Maltese non-taxable person, the German taxable person would be deemed to make a supply in Malta and given that the recipient is not a taxable person, the supplier would need to properly account for and charge Maltese VAT on the supply. Similarly, if a Maltese taxable person supplies an air conditioner with installation to a person in Spain, the place of supply of the air conditioner would be where the installation takes place.
2. Goods supplied on board ships, aircraft or trains
Special place of supply rules apply for the supplies of goods on ships, aircraft or trains occurring during the part of a passenger transport operation within the EU1. Such supplies are considered to take place at the point of the departure of the passenger transport. However, a return trip is treated as a separate trip and supplies of goods during the return trip are allocated a separate place of supply.
A typical example of the application of this rule is the sale of a bottle of perfume on an outbound plane trip from Malta to Italy. This sale is deemed to take place in Malta. However, the sale of the same bottle of perfume on the return trip from Italy to Malta would be deemed to take place in Italy.
3. Distance sales rules
Generally, distance selling applies to online sales where the goods are physically supplied cross-border, business to customer (B2C). The place of supply of goods rules include very detailed provisions with respect to goods sold to non-taxable persons based in another country. This includes the intra-community distance sales of goods and distance sales of goods imported from third territories / countries, meant for non-taxable persons. The rules include the utilisation of a one-stop shop mechanism to simplify the VAT registration and compliance requirements resulting through the distance sales rules. The application and consequences of such rules results in a multitude of scenarios that would require candidates to dedicate considerable time to a specific area of VAT. Therefore, the distance sales rules including the application of any associated one stop shop mechanisms, are excluded in their entirety from the Advanced Taxation study guide.
4. Supplies of gas through a natural gas system, of electricity and of heat or cooling energy through heating and cooling networks
It is important to start this section by clarifying that the supply of energy is deemed to be a supply of goods and not a supply of services and therefore reference must be made to the appropriate place of supply rules for goods. The place of supply to a taxable dealer2 of:
is considered to be the place where that taxable dealer has established his business or has a fixed establishment for which the goods are supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.
Therefore, if an energy company in Malta acquires electricity or other energy sources through an interconnector or other gas pipeline, the place of supply of such energy goods would be deemed to be in Malta, where the energy company, as a taxable dealer, is established.
The place of supply rules also provide that the supply of energy goods to a person which is not a taxable dealer, is deemed to take place where the customer effectively uses and consumes the goods. However, given that such rules relate to a scenario which presently is not applicable to Malta (due to the acquisition of energy in Malta exclusively by a taxable dealer), the rules applicable to the supply of energy to non-taxable dealers will not be assessed at Advanced Taxation Malta level.
Summary of excluded topics:
Written by a member of the ATX-MLA examining team
References: