E-commerce – VAT Case StudyE-commerce – VAT Case StudyMalta, 5.02.2010Malta, 5.02.2010

Carsten Franke, HamburgCarsten Franke, Hamburg

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• This case study deals with VAT aspects of e-commerce.

• An overseas service provider offers services via internet.

• The provider is located in the USA.

• The clients are located in the EU.

• The clients are entrepreneurs and non entrepreneurs.

Introduction

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Legal structure & historyShareholder - individuals

Germany

USA

• There is a German holding existing that is listed at the stock exchange. Through the IPO, 10 years ago, the German holding collected cash to finance its business.

• The operational business is located in the US-subsidiary art Co.

• art Co. is providing e-commerce services in the way that it is granting access to art data bases and price analyses in an electronic form via internet.

art holding Co.

art Co.

100 %

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Business & clients Shareholder - individuals

Germany

USA

• The services are provided worldwide via the homepage art.com.

• Clients are to be found mainly in Europe.

• Clients are mainly business customers that are mostly galleries, but private persons and private art collectors too.

art holding Co.

art Co.

100 %

Clients: • worldwide and EU

• entrepreneur and non entrepreneur

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VAT situation 2009/2010 – B2B

Non-EU/USA

art Co.

E-commerce service

• place of service where the recipient is located

• reverse charge

• local VAT burden

EU/Germany

business clients

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VAT situation 2009/2010 – B2C

Non-EU/USA

art Co.

E-commerce service

• place of service where the recipient is located

• no reverse charge

• VAT registration in the country of the private client

EU/Germany

private clients

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German VAT on client handling

Germany

USA

• Art holding Co is servicing the German/ European clients of art Co.

• This servicing is partly subject to German VAT.

• Art Co. recovers German Input VAT via refund procedure under 13 th EU-Directive in Germany

• German input VAT refund procedure under 13th EU-Directive does not apply if art Co. is providing supplies that are subject to German VAT – problem: art Co. is supplying e-commerce services to German non-entrepreneurs

art holding Co.

art Co.

100 %

Servicing Germanclients of art Co.

German clients

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VAT issues of the case studyShareholder - individuals

Germany

USA

• 1.7.2004: B2C rule is implemented – place of service where the customer is located.

• Client status unknown.

• No invoicing of services.

• No written agreement on their services where the status of their recipient is defined.

• Client country unknown.

• From 2004 – 2009 risk ofEU taxation/tax evasion.

art holding Co.

art Co.

100 %

Clients ?

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Tax audit in 2009

• Tax audit at art holding Co.:Tax authorities review tax matters of the holding and get aware of a possible VAT matter of art Co.

• Contacting tax office in Bonn – competent tax office for US residents.

• Client status still unknown.

• Implementation of a “survey” to find out the client status.

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Survey/internet screen shots

• xxx

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Survey

AuswählenYour Choice

1 2 3 4

PrüfenProof your choice

Daten eingebenYour Data

BestellenYour order

Login

BestätigungAffirmation

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name and emailfirmuser name and passworddata for credit cardbilling addressplace of residence

name and emailfirmuser name and passworddata for credit cardbilling addressplace of residenceDo you use the service of artnet forprivate or for business purposes?

Before survey After survey

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Survey

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Survey results

08/2010 09/2010 10/2010 11/2010

1 UK 230 xx yy zz

2 Germany 800 xx yy zz

3 France 400 xx yy zz

4 Finnland 100 xx yy zz

…

16 Italy 50

Σ 3.000 4.500 7.000 16.200

Turn over of private clients in €

• Small turnover per country.• Increasing turnover in total.• Turnover very widespread over 16 countries.

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VAT solution

• Registration in each EU country?

• Small business relief? – No registration for small business entrepreneurs necessary? Limit of turnover?

• Expensive, time-consuming, high administrative burden

• Application for “Mini one stop shop” (= MOSS)

• Simplification• Electronic registration only in one EU state• German problem: application for MOSS is due prior

providing the service.

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Our advice

• MOSS recommended

• Get a ruling with tax office Bonn regarding “retroactive” application for MOSS

Putting complete turnover of 2009 into Q 1/2010 of MOSS-declaration

• Single EU country registration if MOSS does not work/is not allowed

• Client position is to be considered:

• VAT burden is not welcome• Risk of tax evasion• Not finalised yet

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Problems that are still existing

• No invoicing• Invoicing mandatory: this applies to e-commerce services to German

business clients• Restriction: fine up to 5.000 €, § 26a Abs. 2 UStG

• Client status not verified• Verification of B2B: business clients give their VAT tax office number

– but no verification of this number• rest is private

• VAT treatment of private non EU clients, e.g. Switzerland, unclear

Thank You for your attention!

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Carsten Frankecertified tax consultantpartner

carsten.franke@ebnerstolz.dePhone: +49 40 37097-169Fax: +49 40 37097-699

Professional background1993 - 1997 reading economics1997 - 2001 tax consultant at KPMG, Hamburg2001 - 2008 tax consultant at Moenning & Partner, Hamburg2009 - partner at Ebner Stolz Mönning Bachem, Hamburg

Field of expertise German TaxationInternational TaxationCross border VAT