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HMRC addresses place of supply in two new bulletins on its Spotlights web pages.
The first concerns the relocation of telecommunication service providers, internet service providers and broadcasters. HMRC explain that the place of supply of telecommunications, internet service provision and broadcasting services, when provided to non- business customers in the EU, is the place in which the supplier is established.
Some suppliers to the UK market claim to have reorganised their businesses so that the place of supply is no longer in the UK but in another member state to take advantage of more favourable VAT rates.
HMRC explained their approach in Revenue & Customs Brief 58/09. As a result, a number of suppliers have agreed their supplies are made in the UK. HMRC say they will continue to challenge robustly any existing or future arrangements of this nature.
The second spotlight relates to supply splitting avoidance. Where a single supplier provides a customer with a package of goods and/or services that, if supplied separately, would be subject to different rates of VAT, it will be taxed at the rate applicable to the main supply.
Supply splitting occurs when the different elements are provided by different business entities creating separate supplies. HMRC say the arrangements should be taxed as if a single supply had been made where:
- elements of what would constitute a single supply if made by the same person are supplied by different suppliers; and
- the customer has no real opportunity to decline to take an element of the package either because of the contractual terms or pricing structure.
Legislation in the Finance Bill 2011 will counter supply-splitting avoidance involving printed matter where the supply of printed matter is connected with a supply of services and the supplies referred to are made by different suppliers.
For the purposes of the legislation, a supply of printed matter will be defined to be connected with a supply of services if it is ancillary to that supply, such that, had they been made by the same supplier, the two supplies would have been treated as a single standard-rated, reduced-rated, or exempt supply.
HMRC say they will continue to take action to counter instances of supply-splitting in other areas involving the supply of packages of goods and services where the constituent elements are subject to different rates of VAT and where there is evidence of value shifting between the elements to ascribe a higher value to those that are subject to lower rates at the expense of those taxed more highly.
