The Value Added Tax (Reverse Charge) (Amendment) Order 2003 amends the VAT Act 1994 to include all electronically-supplied services following implementation of the VAT on E-Commerce Directive (2002/38/EC)...
Who is affected by the Order?
- UK businesses supplying electronically supplied services.
- Non-EU businesses supplying electronically supplied services to EU customers.
- UK businesses and non-business organisations receiving electronically supplied services from outside the UK.
The VAT on E-Commerce Directive (2002/38/EC) amends Article 9 of the EC Sixth VAT Directive (Directive 77/388). In particular, electronically supplied services are added to Article 9(2)(e) and a new Annex L is added to the Sixth Directive to provide an illustrative list of those services.
These changes have been implemented into UK law, by the addition of a new paragraph 7C to Schedule 5 of the Value Added Tax Act 1994 as amended by The Value Added Tax (Reverse Charge) (Amendment) Order 2003.
Electronically supplied services
An 'electronically supplied service' is one that:
- in the first instance is delivered over the Internet or an electronic network (in other words reliant on the Internet or similar network for its provision)
- the nature of the service in question is heavily dependent on information technology for its supply (in other words the service is essentially automated, involving minimal human intervention and in the absence of information technology does not have viability).
Therefore, on the basis of this two step test, an ‘electronically supplied service’ includes:
- digitised products generally, such as software and changes to or upgrades of software;
- a service which provides, or supports a business or personal presence on an electronic network (for example website or webpage);
- a service automatically generated from a computer, via the Internet or an electronic network, in response to specific data input by the customer;
- services, other than those specifically mentioned in Annex L, which are automated and dependent on the Internet or an electronic network for their provision.
Telecommunications and radio and television broadcasting services, covered respectively in the ninth and penultimate indents of Article 9(2)(e) of the Sixth VAT Directive, are not regarded as electronically supplied services for purposes of this Directive.
In general, the use of the Internet or other electronic networks by parties to communicate with respect to transactions or to facilitate trading does not, any more than the use of a phone or fax, affect the normal VAT rules that apply.
For example, where parties simply use the Internet to convey information in the course of a business transaction (for example email), this does not change the nature of that transaction. This differs from a supply that is completely dependent on the Internet in order to be carried out (for example searching and retrieving information from a database with no human intervention).
In all instances, electronically supplied services will be taxable at the standard rate established by a Member State (in accordance with Article 12(3)(a) of the Sixth Directive), unless an exempting provision in a Member State applies. For example, when considering the supply of gambling, if the supply in the traditional manner is exempt in a Member State, it would also be exempt if it constituted a supply of an electronically supplied service.
The attached tables illustrate the above approach by classifying a range of supplies to provide clear examples of those that are regarded as being electronically supplied services and those that are not. This guidance is not intended to be exhaustive.
Supplies shown as excluded are treated in accordance with other place of supply rules. Particular care should be taken where a service includes both electronic and other elements. Such composite transactions must generally be considered on a case-by-case basis.
|Annex L reference||Supplies covered by the legal text||Example of a service that is an electronically supplied service|
|Item 1||A. Website supply, web hosting and distance maintenance of programmes and equipment.||Website hosting and web page hosting. Automated, online distance maintenance of programmes. Remote systems administration. Online data warehousing (in other words where specific data is stored and retrieved electronically). Online supply of on demand disc space.|
|Item 2||A. Software and updating thereof.||Accessing or downloading software (for example procurement/ accountancy programmes, anti-virus software) plus updates. Bannerblockers (software to block banner adverts showing). Download drivers, such as software that interfaces PC with peripheral equipment (for example printers). Online automated installation of filters on websites. Online automated installation of firewalls.|
|Item 3||A. Images.
B. Text and information.
C. Making databases available.
|Accessing or downloading desktop themes. Accessing or downloading photographic or pictorial images or screensavers. The digitised content of books and other electronic publications. Subscription to online newspaper and journals. Weblogs and website statistics. Online news, traffic information and weather reports. Online information generated automatically by software from specific data input by the customer, such as legal and financial data (for example continually updated stock market data). The provision of advertising space (for example banner ads on a website/webpage). Use of search engines and Internet directories.|
|Item 4||A. Music.
C. Broadcasts and events - political, cultural, artistic, sporting, scientific and entertainment.
D. Games, including games of chance and gambling games.
|Accessing or downloading of music onto PCs, mobile phones, and so on. Accessing or downloading of jingles, excerpts, ringtones, or other sounds. Accessing or downloading of films. Web-based broadcasting that is only provided over the Internet or similar electronic network and is not simultaneously broadcast over a traditional radio or television network, as opposed to Item 4, Table 2. Downloads of games onto PCs, mobile phones, and so on. Accessing automated online games which are dependent on the Internet, or other similar electronic networks, where players are remote from one another.|
|Item 5||A. Distance teaching.||Teaching that is automated and dependent on the Internet or similar electronic network to function, including virtual classrooms, as opposed to Item 2(b), Table 2. Workbooks completed by pupil online and marked automatically, without human intervention.|
|Item 6 Other services included||A. Those not explicitly listed in Annex L.||Online auction services (to the extent that they are not already considered to be web hosting services under Item 1) that are dependent on automated databases and data input by the customer requiring little or no human intervention (for example an online market place or online shopping portals), as opposed to Item 3(f), Table 2. Internet Service Packages (ISPs) in which the telecommunications component is an ancillary and subordinate part (in other words a package that goes beyond mere Internet access comprising various elements (for example content pages containing news, weather, travel information; games for a; web hosting; access to chatlines and so on)).|
|Example of a transaction not considered to be a supply of an 'electronically supplied service'||Rationale|
|1) A supply of:
(a) A good, where the order and processing is done electronically.
(b) A CD-Rom, floppy disc and similar tangible media.
(c) Printed matter such as a book, newsletter, newspaper or journal.
(d) A CD, audio cassette.
(e) A video cassette, DVD.
(f) Games on a CD-Rom.
|These are supplies of goods.|
|2) A supply of:
(a) services of lawyers and financial consultants and so on, who advise clients through email.
(b) interactive teaching services where the course content is delivered by a teacher over the Internet or an electronic network (in other words via remote link).
|This is a supply of service that relies on substantial human intervention and the Internet or electronic network is only used as a means of communication.|
|3) A supply of:
(a) Physical repair services of computer equipment.
(b) Offline data warehousing services.
(c) Advertising services, such as in newspapers, on posters and on television.
(d) Telephone helpdesk services.
(e) Teaching services involving correspondence courses such as postal courses.
(f) Conventional auctioneers’ services reliant on direct human intervention, irrespective of how bids are made (for example in person, Internet or telephone), as opposed to Item 6(a), Table 1.
|These are supplies of services that are not delivered over the Internet and rely on substantial human intervention.|
|4) A supply of a radio and television broadcasting service provided over the Internet or similar electronic network simultaneous to the same broadcast being provided over traditional radio or television network, as opposed to Item 4(c), Table 1.||This is a supply of a radio and television broadcasting service, which is covered by the penultimate indent of Article 9(2)(e).|
|5) A supply of:
(a) Videophone services (in other words telephone services with a video component).
(b) Access to the Internet and world wide web.
(c) Telephony (in other words telephone service provided through the Internet).
|These are supplies of telecommunication services and are covered by the place of supply rules for such services under the ninth indent of Article 9(2)(e).|