E-commerce – VAT Case Study Malta, Carsten Franke, Hamburg 1

2 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

3 Legal structure & history Shareholder - 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 %

4 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

5 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

6 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

7 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 German clients of art Co. German clients

8 VAT issues of the case study Shareholder - individuals Germany USA : 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 of EU taxation/tax evasion. art holding Co. art Co. 100 % Clients ?

9 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.

10 Survey/internet screen shots xxx

11 Survey Auswählen Your Choice Prüfen Proof your choice Daten eingeben Your Data Bestellen Your order Login Bestätigung Affirmation 5 name and firm user name and password data for credit card billing address place of residence name and firm user name and password data for credit card billing address place of residence Do you use the service of artnet for private or for business purposes? Before surveyAfter survey

12 Survey

13 Survey results 08/201009/201010/201011/2010 1UK230xxyyzz 2Germany800xxyyzz 3France400xxyyzz 4Finnland100xxyyzz … 16Italy50 Σ Turn over of private clients in € Small turnover per country. Increasing turnover in total. Turnover very widespread over 16 countries.

14 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.

15 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

16 Problems that are still existing No invoicing Invoicing mandatory: this applies to e-commerce services to German business clients Restriction: fine up to €, § 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! 17

18 Carsten Franke certified tax consultant partner Phone: Fax: Professional background reading economics tax consultant at KPMG, Hamburg tax consultant at Moenning & Partner, Hamburg partner at Ebner Stolz Mönning Bachem, Hamburg Field of expertise German Taxation International Taxation Cross border VAT