VAT (Value Added Tax) Refunds / Reclaim for Europe, Japan, South Korea & Australia

The 2010 European VAT Directive - The New EU VAT Package

New rules on the place of supply of services and a new procedure for VAT refunds - Two Directives, one on the place of supply of services, the other on VAT refunds, were adopted by the EU Council of Ministers on 12 February 2008. They will ensure that VAT on services will accrue to the country of consumption, and will establish a new procedure for claiming VAT refunds to ensure quicker processing.

From 1 January 2010, the new rules on the place of supply of services will mean that business-to-business supplies of services will be taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established.

However, in certain circumstances, the general rules for supplies both to businesses and to consumers will not be applicable and specific rules will apply to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers.

Also from 1 January 2010, the current procedure for reimbursement of VAT incurred by EU businesses in Member States where they are not established will be replaced by a new fully electronic procedure, thereby ensuring a quicker refund to claimants. The current paper-based procedure is slow, cumbersome, and costly. It also lacks in legal certainty. The new procedure will better facilitate businesses and improve the functioning of the internal market. A new feature is that businesses will be paid interest if Member States are late making refunds.

Use of reduced VAT rates in certain sectors

The Council adopted a directive allowing - on a permanent basis - the optional use of reduced rates of value-added tax (VAT) for certain labour-intensive local services, including restaurant services, for which there is no risk of unfair competition between service providers in different member states. Reduced rates on labour-intensive local services have so far only been allowed on a temporary basis.

Under the directive adopted by the Council, member states that so wish may apply reduced VAT rates, on a permanent basis, to the following labour-intensive local services:
  • minor repairs of bicycles, shoes and leather goods, clothing and household linen (including mending and alteration);
  • window cleaning and cleaning in private households;
  • domestic care services such as home help and care of the young, elderly, sick or disabled;
  • hairdressing;
  • the renovation and repair of private dwellings, excluding materials which account for a significant part of the value of the service supplied;
  • restaurant and catering services;
  • books, on all physical means of support.

In addition, Portugal may apply a reduced VAT rate to tolls on bridges in the Lisbon area, Cyprus is allowed to apply a reduced VAT rate to the supply of liquid petroleum gas in cylinders, and Malta may maintain a zero VAT rate for the supply of foodstuffs and pharmaceuticals.

To view an eLearning course on the new EU Directive, developed by the EU Commission, click here. (note: this is a ZIP PDF file)

To view the complete text of the new 2010 VAT Directive, click here.