EU notice to stakeholders withdrawal of the United Kingdom and EU rules in the field of VAT for services

As you know, Since 1 February 2020, the United Kingdom has withdrawn from the European Union and has become a “third country”. (1) The Withdrawal Agreement (2) provides for a transition period ending on 31 December 2020 (3). Until that date, EU law in its entirety applies to and in the United Kingdom (4).

During the transition period, the EU and the United Kingdom will negotiate an agreement on a new partnership, providing notably for a free trade area. However, it is not certain whether such an agreement will be concluded and will enter into force at the end of the transition period. In any event, such an agreement would create a relationship which in terms of market access conditions will be very different from the United Kingdom’s participation in the internal market,(5) in the EU Customs Union, and in the EU Customs Union, and in the VAT and excise duty area.

Therefore, all interested parties, and especially economic operators, are reminded of the legal situation after the end of the transition period (Part A below). This notice also explains certain relevant separation provisions of the Withdrawal Agreement (Part B, below)(6).

1) A third country is a country not member of the EU.

2) Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, OJ L 29, 31.1.2020, p. 7 (“Withdrawal Agreement”).

3) The transition period may, before 1 July 2020, be extended once for up to 1 or 2 years (Article 132(1). The UK government has so far ruled out such an extension.

4) Subject to certains exceptions provided for article 127 of the Withdrawal Agreement, none of which is relevant in the context of this notice.

5) In particular, a free trade agreement does not provide for internal market concepts (in the area of goods and services) such as mutual recognition, the “country of origin principle”, and harmonisation. Nor does a free trade agreement remove customs formalities and controls, including those concerning the origin of goods and their input, as well as prohibitions and restrictions for imports and exports.

6) The IE/NI Protocol provides that EU VAT rules concerning goods apply to and in the United Kingdom Protocol). Transactions involving services are not covered by the IE/NI Protocol.

The attention of the stakeholders is in particular drawn on the following consequences:

• (i) Taxable persons established in Northern Ireland will not be able to use the special scheme for declaring and paying the VAT due in the EU on their B2C supplies of services (the MOSS “Union scheme”). They will instead have to change their MOSS identification to the “non-Union scheme” unless they are also established in one of the Member States (see point A.1.2 of this notice);
• (ii) Taxable persons established in Northern Ireland, who are not also established in one of the Member States, will have to request a refund of the VAT paid in a Member State on their acquisitions of services under the conditions provided for in the 13th Council Directive 86/560/EEC (see point A.2 of this notice).

Advice to stakeholders

To address the consequences set out in this notice, stakeholders are in particular advised to:

• − when they are established in the EU, familiarise themselves with the rules applicable to services supplied to and received from third countries/territories;
• − when they are established in the United Kingdom, examine whether new liability rules will apply to them with regard to their services supplied in the EU;
• − take the necessary steps as regards services covered by the Mini One-Stop-Shop; (7) and
• − pay attention to the changes in the VAT refund request procedures

Please note:

This notice does not address:

• - EU VAT rules for the treatment of goods;(8)
• - EU legislation (other than VAT legislation) for the cross-border provision of certain services, such as digital services, creative services, or business services.

For these aspects, other notices are in preparation or have been published (9).

It has to be noted that the purpose of this notice is to give a general explanation on the main consequences of the Withdrawal Agreement on the EU VAT rules applicable for services in relation to the United Kingdom.

It is not intended to explain in detail each specific VAT rule, in particular the special schemes that will enter into force in 2021 for

specific VAT rule, in particular the special schemes that will enter into force in 2021 for services (10).

General information is available on the Taxation and Customs Union Commission website (11).

7) https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services/

8) A separate notice on the VAT treatment of goods has been published. See: https://ec.europa.eu/info/european-union-and-united-kingdom-forging-new-partnership/future-partnership/getting-ready-end-transition-period_en

9) https://ec.europa.eu/info/european-union-and-united-kingdom-forging-new-partnership/future-partnership/preparing-end-transition-period_en

10) https://ec.europa.eu/taxation_customs/business/vat/modernising-vat-cross-border-ecommerce_en

11) https://ec.europa.eu/taxation_customs/business/vat_en