Recently, the European Union Council passed the Council Implementing Regulation (EU) No. 282/2011 (VAT Regulation) laying down implementing measures for Directive 2006/112/EC (VAT Directive) on the common system of value added tax.
Most provisions of the VAT Regulation become effective on 1st July 2011. We find important to note that provisions of the VAT Regulation shall be applied obligatorily and directly from this date without any decision of the Hungarian Parliament or any legislation.
The VAT Regulation was created in order to apply the framework rules of the VAT Directive in a unified way. Principles formulated in the decisions of the Court of Law of the European Union in the relevant fields are asserted, rules of the previous VAT directives are refined, as well as explanatory provisions are included here.
The following issues are in focus:
- distinguishing criteria concerning taxable person's status;
- explanations related to economic residence;
- determination of the place of supply of services in respect to fixed establishment;
- tasks of invoice issuers concerning partner identification.
The VAT Regulation is superior to the national legislations, in the case of conflicts, rules of the Union prevail.
In the VAT Regulation, specification of services supplied to abroad for VAT purposes is in focus. Cases are unambiguously defined where an invoice excluding VAT can be issued and where an invoice with inland VAT shall be issued. Deciding and documenting these issues mean enormous administration burdens for the businesses. You should be careful when billing because issuing an invoice excluding VAT illegally, not only the VAT deficit stated during a possible tax revision but also tax penalty, default penalty and late fee shall be paid.
Issues to be considered when billing:
Status of the customer for VAT purposes: If a customer communicates his intra-Community tax number, the supplier may regard this customer established within the Community as a taxable person. However, the validity of the tax identification shall be documented even in this case by a query in system VIES.
In the case of a third-party partner (outside the European Union), a certificate issued by the customer's competent tax authorities as confirmation that the customer is a taxable person shall be obtained from the tax authority of the given country. If there is no such certificate, the supplier shall check the tax number's validity "reasonably".
Whether the customer uses the services for private purposes or as a taxable person: If the services are used for private purposes by a taxable person, no invoices excluding VAT can be issued. The VAT Regulation states that if the customer provides its intra-Community tax identification, a purchase for business purposes may be assumed.
Existence and concern of company seat or fixed establishment: In respect of place of supply, economic residence of the taxable person shall be reviewed.
When determining place of establishment of a business, account shall be taken of the place where essential decisions concerning the general management of the business are made; the place where the registered office of the business is located; and the place where management meets. Where these criteria do not allow the place of establishment of a business to be determined with certainty, the first criterion shall take precedence. The mere presence of a postal address may not be taken as to be the place of establishment of a business of a taxable person.
'Fixed establishment' shall be any establishment characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to receive/supply services.
'Permanent address' of a natural person shall be the address entered in the population register, while the place where a natural person 'usually resides' shall be the place where that natural person usually lives as a result of personal and occupational ties, based on their priority order.
What said above practically means that due to the above determination of place of establishment of a business, and considering fixed establishment, the place of supply of services may change. Therefore, the billing practice shall be reviewed before the VAT Regulation becomes effective.
For example, if essential decisions of a company registered in Slovakia are made in Hungary, Hungary is to be deemed as company seat for VAT purposes. Accordingly, the service provider has to issue the bill for services used in Hungary including value-added tax. Again the Hungarian VAT is to be applied when the fixed Hungarian establishment of a company with seat within the EU purchases a service from a Hungarian partner.
If the customer's company seat is in inland, in transactions performed in inland always the company seat is to be deemed concerned by the fulfilment. Accordingly, the Hungarian value-added tax has to be charged even if a foreign fixed establishment of a company with seat in Hungary supplies services to a Hungarian company.
As an essential change, assembly of machines is deemed from now on as supply of services, and as work on a product, the place of supply of services is the member state where the assembly is carried out.
In addition, the VAT Regulation contains numerous refinements, detail rules, first of all, concerning services supplied electronically, restaurants and catering services, services in respect of admission to events, supply of services by intermediaries (agents), and hiring of means of transport.
You can find the full text of the VAT Regulation at the official website of the EU at, or contact us.
