A software company established in the Netherlands sells downloadable e-books directly to private consumers across several EU member states, without registering for the One Stop Shop, and its cross-border B2C sales of this kind exceed the small-supplier threshold in Article 59c. Since 1 January 2015, under Article 58 of the EU VAT Directive, where is VAT due on these electronically supplied B2C services?
- In the Netherlands only, because Article 58 applies exclusively to suppliers established outside the EU selling into it
- In the member state where each private consumer is established, has their permanent address, or usually resides, regardless of where the supplier is established
- Wherever the servers hosting the e-books for download are physically located
- Nowhere, because electronically delivered digital products are not 'goods' and therefore fall outside the scope of VAT altogether
Why B? And why not the others?
Correct answer: B. In the member state where each private consumer is established, has their permanent address, or usually resides, regardless of where the supplier is established
Article 58 fixes the place of supply for telecommunications, broadcasting and electronically supplied services to a non-taxable person as the customer's own member state of establishment, permanent address, or usual residence, and since 1 January 2015 this destination-based rule applies to EU-established suppliers as well as non-EU ones, so the Dutch company owes VAT in each consumer's own member state. The option confining Article 58 to non-EU suppliers describes the rule as it stood before 2015, when destination-based taxation of these services applied only to non-EU suppliers selling into the EU to prevent EU suppliers gaining a competitive edge from lower home-country VAT rates; that asymmetry was removed by extending the same rule to EU suppliers. The option pointing to server location is a common but incorrect proxy, since VAT law looks to the legal test of the customer's residence or permanent address, not the physical location of hosting infrastructure. The option claiming digital products fall outside VAT's scope is wrong because electronically supplied services are expressly defined and taxed under the Directive; they are simply classified as services rather than goods, not exempted from tax.
Source: EU VAT Directive (2006/112/EC), Article 58, as amended by Council Directive 2008/8/EC (place of supply of telecommunications, broadcasting and electronically supplied services), effective 1 January 2015