A VAT-registered engineering consultancy established in Poland supplies engineering advisory services to a VAT-registered manufacturing company established in Sweden, with the Swedish company acting as a business customer receiving the service for its own business use. Under Article 44 of the EU VAT Directive (2006/112/EC), which statement correctly describes where this supply is taxed and who accounts for the VAT?
- The supply is taxed in Sweden, where the customer is established, and the Swedish customer self-assesses the VAT under the reverse charge because the Polish supplier is not established there
- The supply is taxed in Poland, where the supplier is established, because VAT on services always follows the supplier's location regardless of the customer's status
- The supply is exempt from VAT entirely because it is a cross-border service between two EU member states
- The supply is taxed in Poland because the reverse charge under Article 196 only applies when the supplier is established outside the EU, not when both parties are EU businesses
Why A? And why not the others?
Correct answer: A. The supply is taxed in Sweden, where the customer is established, and the Swedish customer self-assesses the VAT under the reverse charge because the Polish supplier is not established there
Article 44 of the EU VAT Directive sets the general B2B place-of-supply rule as the member state where the customer is established, so this advisory service is taxed in Sweden. Because the Polish supplier has no establishment in Sweden, Article 196 shifts liability for accounting for that Swedish VAT onto the Swedish business customer itself under the reverse charge, meaning the supplier issues an invoice without charging VAT and the customer self-assesses it on their own return. The option putting taxation in the supplier's member state describes the older default rule that still applies to B2C services and to certain excepted B2B services, but not to the general B2B rule in the scenario described. The option treating the supply as automatically exempt confuses this services transaction with the separate zero-rating regime for intra-Community supplies of goods under Article 138, which has no equivalent blanket exemption for cross-border B2B services. The option restricting the reverse charge to non-EU suppliers is incorrect because Article 196 applies whenever the supplier lacks an establishment in the customer's member state, whether that supplier is established elsewhere in the EU or outside it entirely.
Source: EU VAT Directive (2006/112/EC), Articles 44 and 196 (place of supply of B2B services and reverse charge liability)