Place of Supply Rules for VAT

Created on 9th of November 2005

The Commission's recent proposal for changes to the rules governing the place of supply of services to consumers presented a major threat to mobile operators, as it proposed the application of VAT to restaurant and catering services on board ships and aircraft. However, it now appears that this threat has been averted, at least for the time being.

In July 2005, the Commission issued a proposal for a Council Directive amending the 6th VAT Directive regarding the place of supply of services. The draft Directive incorporated the results of a consultation on VAT on the place of supply of services to non-taxable persons (known as b2c supplies), and included a proposal to apply VAT to restaurant and catering services on board ships and aircraft. This was a major concern for mobile operators, particularly those in the maritime sector; the ETRC had already submitted a response to the Commission consultation to stress the problems it would cause.

However, at a meeting with the Commission on 27 October 2005, they confirmed that the Council was planning to publish a declaration that this new proposal is 'without prejudice' to the current Article 8.1.c of the 6th VAT Directive. This Article states that the Commission will produce a report, accompanied by proposals if appropriate, on VAT on goods and services for consumption on board ships and aircraft, including restaurant and catering services. At an ECOFIN meeting on 5 June 2007, political agreement was reached on a compromise proposal on the provisions of the draft Directive; however, it was confirmed that this agreement was "without prejudice" to the Commission review on the taxation of goods for consumption on board ships, aircraft or trains. Thus the immediate threat appears to have been averted, although this issue will still need to be closely monitored.

To see the relevant Commission documents, click on the link below to the ETRC website.

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