This is the second 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 services rules, while the first article explained the place of supply of goods 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.
General rule
The general place of supply rule for supplies of services depends on whether the recipient of the service is a taxable person or not. For the purposes of the place of supply of services rules1, a taxable person who also carries out activities or transactions that are not considered to be taxable supplies of goods or services is regarded as a taxable person in respect of all services rendered to him. Therefore, if the recipient of the services carries out both taxable supplies and exempt supplies, he would be deemed to be a taxable person for the application of the place of supply rules. In addition, a non-taxable legal person who is identified for VAT purposes is also considered to be a taxable person.
1. General rule for supplies of services to taxable persons (B2B general rule)
The place of supply of services to a taxable person acting as such, is the place where that person has established his business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the taxable person who receives such services has his permanent address or usually resides. This general place of supply rule is generally referred to as the B2B general rule.
By way of an example, if a Maltese taxable person (A) provides consultancy services to an Italian taxable person (as defined), the place of supply of such services is in Italy where the customer is established. In such case, A would pass on the obligation to account for, and if applicable pay, the VAT on the supply to the Italian taxable person.
However, if the consultancy services provided by A to the Italian taxable person relates to a fixed establishment that the Italian taxable person has in France, the place of supply of such consultancy services would be shifted to France where the fixed establishment is situated.
2. General rule for supplies of services to non-taxable persons (B2C general rule)
The place of supply of services to a non-taxable person is the place where the supplier has established his business. However, if those services are provided from a fixed establishment of the supplier located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the supplier has his permanent address or usually resides. This general place of supply rule is generally referred to as the B2C general rule.
By way of an example, if a Maltese taxable person (A) provides consultancy services to an Italian non-taxable person (for example an individual), the place of supply of such services would be in Malta, where A, as a taxable person, is established.
The VAT Act 1998, provides for a number of exceptions to the general place of supply rules, in particular to the B2C rule.
1. Supplies of services by intermediaries
When intermediary services are provided to taxable persons, the general B2B place of supply rule will apply. However, the place of supply of services rendered to a non-taxable person by an intermediary acting in the name and on behalf of another person shall be the place where the underlying transaction is supplied in accordance with the applicable place of supply rules.
Example:
M, a taxable person in Malta, assists a non-taxable person S, established in Spain, in obtaining consultancy services from I, an Italian taxable person. M is acting in the name and on behalf of I in the provision of intermediary services. The underlying supply by I to S is deemed to take place in Italy under the general B2C rule. Therefore, the intermediary services are also deemed to take place in Italy.
2. Supplies of services connected with immovable property
Services connected with immovable property are deemed to take place where the immovable property is located. Such services include the services of experts and estate agents, the provision of accommodation in the hotel sector or in sectors with a similar function, such as holiday camps or sites developed for use as camping sites, the granting of rights to use immovable property and services for the preparation and coordination of construction work, such as the services of architects and of firms providing on-site supervision. This exception to the general rule applies for both B2B and B2C supplies.
For the purposes of Advanced Taxation Malta the detailed explanatory notes with respect to the place of supply rules for immovable property services are excluded topics. However, candidates are expected to be aware that when a service is related to a specific immovable property, the exception to the general rule applies.
3. Supply of transport
The place of supply of transport services rules distinguish between passenger transport services and goods transport services.
Passenger transport
The place of supply of passenger transport is the place where the transport takes place, proportionate to the distances covered. The rule applies to the provision of passenger transport services to both taxable and non-taxable persons. On any international passenger transport services, the service is deemed to take place in each of the countries and is calculated based on the distance of each journey in each country.
Goods transport
The place of supply of the transport of goods, depends on whether such transport services are intra-community2 or otherwise and whether such services are provided to a taxable or a non-taxable person. When the goods transport service is provided to a taxable person, the general B2B place of supply would prevail. However, when the goods transport service is provided to a non-taxable person, the following rules apply:
4. Supply of cultural, artistic, sporting, scientific, educational, entertainment and similar services, ancillary transport services and valuations of and work on movable property
The place of supply of services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and of ancillary services related to the admissions, supplied to a taxable person, shall be the place where those events actually take place. On the other hand, when such services do not involve an admission, and are provided to another taxable person, the place of supply of such services would remain under the general B2B rule.
Therefore, if a taxable person is organising a scientific fair in Malta, any attendance/admission/fair fee charged to a taxable person established in Spain, would be deemed to be taking place in Malta, where the fair actually takes place. If on the other hand, the same taxable person is also providing to the Spanish taxable person, advertising services (such as adverts in a magazine or social media) connected with the scientific fair, the place of supply of such services would be deemed to be in Spain where the customer as a taxable person is established and under the general B2B place of supply rule.
The place of supply of services and ancillary services, relating to cultural, artistic, sporting, scientific, educational, entertainment or similar activities, such as fairs and exhibitions, including the supply of services of the organisers of such activities, supplied to a non-taxable person shall be the place where those activities actually take place. Therefore, in case of such services provided to non-taxable persons, the place of supply is always where the event takes place, irrespective of whether there is an admission or otherwise.
The place of supply of ancillary transport activities such as loading, unloading, handling and similar activities and valuations of and work on movable tangible property, is deemed to be where the services are physically carried out when provided to a non-taxable person. However, when provided to a taxable person the place of supply such services remains under the B2B general place of supply rule.
By way of an example, if a Maltese taxable person carries out repair works in Malta on a piece of equipment, the place of supply would be:
5. Supply of restaurant and catering services
The place of supply of restaurant and catering services other than those physically carried out on board ships, aircraft or trains during the section of a passenger transport operation effected within the EU, shall be the place where the services are physically carried out. This place of supply rule applies to both B2B and B2C supplies.
Therefore, if a Maltese taxable person is engaged to provide a catering service during an event in Spain, irrespective of whether the catering services are provided to another taxable person or to non-taxable persons, the place of supply of the services is deemed to be in Spain where the catering services are physically carried out.
The place of supply of restaurant and catering services which are physically carried out on board ships, aircraft or trains during the section of a passenger transport operation effected within the EU3, is at the point of departure of the passenger transport operation. Therefore, by way of an example, the supply of catering services on board a flight departing from Malta to another EU Member State would be deemed to take place in Malta, at the point of the departure. Supplies of such services on the return flight would be deemed to take place in such other EU Member State, because the return leg is regarded as a separate transport operation.
6. Supply of hiring of means of transport
The place of supply rules with respect to the provision of hiring of means of transport depend on whether the hiring is for a short-term or otherwise. For the purpose of the rules, short-term is deemed to be a continuous possession or use of the means of transport throughout a period of not more than 30 days. However, in the case of sea vessels, short-term is defined as a period of up to 90 days.
Short-term hiring of a means of transport
The place of supply of short-term hiring of a means of transport is the place where the means of transport is actually put at the disposal of the customer, and this rule applies to both B2B and B2C supplies. For example, if a Maltese car hiring company rents out a car for a week to any person (taxable or non-taxable) and puts the car at the customer’s availability in Malta, the short-term hire is deemed to take place in Malta. On the other hand, if the same car is rented out to the same person but made available to the customer in Italy, the place of supply would shift to Italy.
Long-term hiring of a means of transport
The place of long-term hiring4, of a means of transport to a non-taxable person is the place where the customer is established, has his permanent address or usually resides.
Therefore, if a Maltese company is hiring out a car for more than 30 days, the place of supply will be as follows:
Hiring of a pleasure boat
However, the place of hiring a pleasure boat to a non-taxable person, other than short-term hiring, shall be the place where the pleasure boat is actually put at the disposal of the customer, where this service is actually provided by the supplier from his place of business or a fixed establishment situated in that place. For example, if a Maltese taxable person were to hire a yacht for 100 days to a non-taxable person, the place of supply of such a service would be in Malta, where the taxable person is established for VAT purposes.
7. Supply of telecommunications, broadcasting and electronic services (ESS) to non-taxable persons
The place of supply of the following services to a non-taxable person shall be the place where that person is established, has his permanent address or usually resides:
(a) telecommunications services
(b) radio and television broadcasting services
(c) electronically supplied services, in particular services relating to websites supply, web-hosting, distance maintenance of programmes and equipment, supply of software and updating thereof, supply of images, text and information, and making available of databases, supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events, and supply of distance teaching.
Where the supplier of a service and the customer communicate via electronic mail, that shall not of itself mean that the service supplied is an electronically supplied service.
For example, if a US business where to provide a music streaming service to a non-taxable person in Malta, the place of supply of such services would be deemed to be in Malta and Maltese VAT would apply on such services. The US business can satisfy its Maltese VAT obligations through either a VAT registration in Malta or through the application of the one-stop-shop mechanism.
It is to be noted that although the application of the above-mentioned place of supply rule is within the included syllabus topics at the Advanced Taxation Malta level, any knowledge of the one-stop-shop system and application thereof is an excluded topic and will not be assessed in the exam.
Moreover, there is an exception to the above-mentioned place of supply for the provision of ESS where, amongst other conditions to be satisfied, the total value, exclusive of VAT, of the supplies does not in a particular, and in the preceding, calendar year exceed €10,000. This exception will also not be assessed at the Advanced Taxation Malta level.
8. Supply of certain services to non-taxable persons outside of the EU
The VAT law provides that the place of supply of certain services to a non-taxable person who is established or has his permanent address or usually resides outside the EU, is the place where that person is established, has his permanent address or usually resides:
(a) transfers and assignments of copyrights, patents, licences, trademarks and similar rights
(b) advertising services
(c) the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information
(d) obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right referred to in this item
(e) banking, financial and insurance transactions including reinsurance, with the exception of the hire of safes
(f) the supply of staff
(g) the hiring out of movable tangible property, with the exception of all means of transport
(h) the provision of access to a natural gas system situated within the territory of the EU or to any network connected to such a system, to the electricity system or to heating or cooling networks, or the transmission or distribution through these systems or networks, and the provision of other services directly linked thereto.
Therefore, when such services are provided to a non-taxable customer established in the EU, the general B2C place of supply rule would apply, but when the customer is a non-taxable person established outside of the EU, the place of supply changes to the country where the non-taxable person is established.
The most common example of such services would be the provision of professional services (consultants, engineers, consultancy firms, lawyers, accountants and other similar services) to a person outside of the EU. Another example would be the provision of either financial, banking or insurance services by a Maltese taxable person to a customer established outside of the EU. In both examples the place of supply of such services would be outside the EU, where the customer is established and as such outside the scope of EU VAT and therefore when provided by a Maltese taxable person would not attract any Maltese VAT.
9. Prevention of double taxation and non-taxation
In order to prevent double taxation, non-taxation or distortion of competition, the VAT Act grants the Commissioner with the power to deem the place of supply of certain services to be different than otherwise provided under the place of supply rules. The purpose behind such discretion is to avoid a transaction from being subject to VAT twice or prevent a supply from not being subject to VAT in any country. Under such discretionary powers, the Commissioner can:
Given the exceptional nature of the effective use and enjoyment rules, this specific discretionary power afforded to the Commissioner will not be assessed at the Advanced Taxation Malta level.
Summary of excluded topics:
all references to and application of one-stop-shop rules.
Written by a member of the ATX-MLA examining team
References