Since 1 January 2015, for VAT purposes, the place of supply of an electronic service, which is provided to private individuals, is where the customer lives. Electronic services include, for example, the supply of films, music and e-books by downloading files from the internet, sending them by e-mail or other electronic means. When the film, music or book is supplied on a physical medium (CD, paper and the like), for VAT purposes it is not a service but the supply of a good.
The new rules for determining the place of supply of electronic services mean that traders providing such services to private individuals resident in other EU member states will have to pay VAT in the relevant member state. To avoid such entrepreneurs having to report to the tax authorities of each member state, the so-called Mini One Stop Shop (MOSS) system was created. This system allows the trader to declare and remit VAT due in other member states for electronic services to private individuals to the tax authorities of the member state where the trader is established. The Member States mutually ensure the payment of the VAT due to them.
Despite MOSS, changing the place of supply of services imposes considerable administrative burdens on (especially) small Internet entrepreneurs. This is because the VAT to be paid must be determined per Member State on the basis of the laws and regulations of that Member State, and operators who have registered for MOSS must periodically declare their supplies, including in periods when no electronic services have been supplied to individuals from other Member States. To reduce this burden on small online shops, it is proposed to introduce a threshold. As long as the total electronic services provided by a trader do not exceed the threshold, the trader would be liable for VAT in the Member State where he is established (a similar scheme has been in place for years for so-called distance sales). The place of supply of services would then be placed for VAT purposes where the performing trader is established (as it was until 2014). It is expected (unfortunately) that the introduction of this threshold will not take place before 2016.