NTT Communications implements 2015 EU VAT Directive

To this purpose, NTT Communications has rolled out a solution that supports client merchants with the compliant delivery of their digital services. The solution uses a number of data points to identify the customer location, such as data captured as part of the payment process, and manages VAT calculation, evidence collection, EU MOSS settlement and audit services.

The new rules, introduced by The European Commission and agreed by all 28 EU Member Startes, aim to reverse the trend of losing out on digital VAT recepits. More specifically, the rules imply changes regarding the calculation of Value Added Taxes (VAT) for B2C supplies of telecommunications, broadcasting and electronically supplied services. These changes relate to how merchants collect and declare their VAT when selling electronic services (‘e-services’) within and into Europe.

These changes create challenges for e-service merchants in that not only do they have to capture customer location evidence, but they also have to process, report and store the data they collect. In the equation, there is also the issue of e-invoicing requirements varying by state and the complexity of allowing for currency variations within the Eurozone.

Another decision facing businesses impacted by the rule change is whether their pricing model (post-2015) will be the same for all of their EU customers (‘universal pricing’), or a price that varies depending on the VAT rate (‘dynamic pricing’) in a specific EU country.

Until January 2015, VAT charges to e-services was based on the merchant’s location. However, starting from the 1st of January, 2015 VAT on e-services must be calculated based on customer location. The EU VAT directive has set out complex guidelines on how a merchant must determine the location of their customer, store the information, and pay the tax authorities.

An estimated 250,000 EU e-service merchants will be affected by new rules. When the net is spread beyond the borders of the 28 EU member states that figure quickly rises to an estimate of 500,000 online merchants with B2C sales in the EU.

A recent KPMG survey on the 2015 rule change reported that 75% of respondents are considering raising their prices as a result of these new tax rules. More than half predict price rises of between 2% and 3%, while 26% indicate increases of 5% or more.