Luxembourg Tax: Value-Added Tax (VAT) authorities provide guidance on Luxembourg's implementation of EU VAT Package

The Luxembourg VAT (Value-Added Tax) authorities have published guidance clarifying some of the practical consequences resulting from the 1 January 2010 implementation of the EU VAT Package into Luxembourg's VAT legislation (Circulars 745bis and 745ter).

The EU VAT Package introduces major changes to the place of supply of services rules. The place of supply rules establish where a supply is made, where VAT is payable and, if VAT (Value-Added Tax) is due, whether it should be accounted for by the service provider or the customer. The new rules are designed to simplify the system and primarily ensure that VAT on services accrues to the country where the services are used.

Previously, the general rule (subject to numerous exceptions) was that services were deemed to be supplied at the place where the service provider was established. As from 2010, however, services provided to businesses (B2B) will take place where the customer is established or where the establishment is based for which the services are provided. Services provided to non-business customers (B2C) will take place where the service provider is established or where the establishment is based from which the services are provided. Some exceptions to these rules apply (e.g. transport of goods, hiring of vehicles, passenger transport, services rendered by intermediaries working for nontaxable persons, etc.).

In practice, the new place of supply of services rules mean – in the B2B context – that services will be exchanged cross border without VAT being applied on the invoice. To ensure that services supplied to VAT-registered EU businesses (to which the reverse charge mechanism applies) are identified, a new reporting obligation is introduced. All services provided to other taxpayers under the general B2B rule will need to be reported by the service provider in an EC Sales List.

The guidance issued by the Luxembourg authorities specifically addresses issues relating to the place of supply of services, as well as new obligations regarding the EC Sales Lists for both goods and services.


Place of supply of services

A B2B supply of services takes place:

- Where the recipient has established its business;
- Where the fixed establishment is located when the services are provided to the recipient; or
- In the absence of the above, where the recipient has its permanent address or usual residence.

In most cases, B2C supplies of services remain taxable in the state where the supplier is established. A B2C supply of services takes place:

- Where the supplier has established its business;
- Where the fixed establishment is located when the services are provided from the supplier; or
- In the absence of the above, where the supplier has its permanent address or usual residence.

As a result of the new rules, it is now essential to determine the identity of the customer and its VAT (Value-Added Tax) status (i.e. a taxable or non-taxable person), as well as the place where the supplier (for B2C supplies) or the customer (B2B supplies) is established.

When the customer is established in the EU, a supplier will be deemed to have acted in good faith in determining the customer's identity if the following requirements are met:

- The customer is identified for VAT purposes on the basis of the VAT identification number provided to the supplier;
- The supplier has confirmed the validity of that VAT number; and
- The supplier has taken reasonable steps to ensure the accuracy of the information that it has been provided by using existing secured procedures.

When the customer is established outside the EU, the supplier will be deemed to have acted in good faith if it has obtained sufficient evidence to prove the taxable status of the customer, such as:

- A certificate issued by the tax authorities where the customer is established in the context of a reimbursement of VAT according to the 13th Directive;
- A VAT or similar number of the customer issued by the country where the customer is established to identify it;
- A print out from the website of the tax authorities that are responsible for the customer showing proof of the customer's taxable status;
- A purchase order showing the customer's business address and registry number; or
- Other material from the customer's website confirming that the customer exercises an economic activity.

Where intangible services are provided to a customer outside the EU, it is not necessary to ascertain the taxable status of the customer. The simple proof of the client's establishment outside the EU is sufficient to shift the place of taxation of the services to the place where the customer is established.

A partially taxable person should be treated as a taxable person for all services it receives, with the services subject to the place of supply rules relating to B2B services.

A non-taxable legal person is considered a taxable person subject to the place of supply rules relating to B2B services when it is registered for Value-Added Tax (VAT). Even though not qualifying as a taxable person, a customer that is a non-taxable legal person remains liable for Value-Added Tax (VAT) due, for example, on its intra-community acquisitions of goods that are either fully subject to VAT or subject to Value-Added Tax (VAT) upon the customer's election.

The guidance also makes several clarifications with respect to the place where the supplier or customer is established:

- To be considered a fixed establishment, the establishment should have a sufficient degree of permanence and an adequate structure (human and technical resources) to be considered capable of receiving or supplying the services.

- In the absence of a fixed establishment, the "domicile" of the supplier is the address on the national population or similar register, or, in absence of such a register, the address provided to the tax authorities.

- In the absence of a fixed establishment and domicile, the "usual residence" of the supplier or customer is the place where the person normally resides due to personal or professional attachments. In absence of a professional attachment, it is the place of usual residence as per the personal attachment or other strong links to the place where the person lives.

- If a customer has a number of establishments, the supplier should consider the seat of the recipient's economic activities as the relevant establishment unless the services are provided to a fixed establishment located in a place other than the seat of the recipient's economic activities. In that case, the services will be taxable where this fixed establishment is located.

- It is up to the taxable person receiving the services to determine the place where the services are supplied (provided there is no abuse of law involved). In practice, to establish whether the services are actually provided to a fixed establishment, it is necessary to determine:
     - Whether the contract and/or purchase order identifies the relevant establishment as the recipient of the service;
     - Whether this establishment pays for the services or bears the cost; and
     - The nature of the services if this can determine the relevant establishment or establishments to which the services are rendered.

If none of these determine where the services are provided, if the VAT number on an invoice is the number provided by the country of the recipient's fixed establishment, there is a presumption that the services have been rendered to that fixed establishment, unless proof exists to the contrary.


EC Sales Lists

In principle, as from 2010, EC sales lists for goods must be submitted on a monthly basis, although quarterly submissions will be allowed if the total amount of intra-community deliveries of goods and/or triangular transactions does not exceed EUR 100,000 during the quarter concerned or in respect of the four previous quarters. There is no formal procedure for making this election and it is not necessary to inform the Value-Added Tax (VAT) authorities. If the EUR 100,000 threshold is exceeded in a single quarter, the taxpayer will automatically be required to submit listings on a monthly basis for the remaining months of the quarter and for at least the four following quarters.

With respect to services, the taxpayer can make submissions on a monthly or quarterly basis. There is no threshold, no formal procedure for the election and no requirement to inform Luxembourg VAT authorities. The taxpayer can also change the frequency for filing these listings at any time. The frequency for EC Sales Lists for services is not linked to the period for filing EC Sales Lists for goods (and vice versa).

In the case of monthly submissions for goods and services, the EC Sales Lists must be submitted electronically, using the "eTVA" system of the Luxembourg VAT authorities. For quarterly submissions, the EC Sales Lists can be submitted either on paper or via the internet, at the taxpayer's election. The deadline for filing the listings is the 15th day of the month following the reporting period if the listing is submitted in paper format and the 25th day of the month following the reporting period if filed electronically.