The EU VAT system is constantly changing, presenting a major headache for
all businesses - but particularly those that trade cross-border. 2010 saw the
introduction of the first of a series of fundamental changes to the EU VAT rules that will be brought into effect over the course of the next 5 years. While the 2010 changes impacted almost all businesses, to a greater or lesser extent, the next change that will come into force in January 2011 will specifically affect businesses that organise conferences, meetings and events.
Paul Quigley, Director of International VAT Consulting at Meridian Global
Services, warns that further changes to the EU VAT rules are on the way: “All
businesses that operate in this sector need to be aware of the changes and to start assessing what impact they will have, if any. If a business does not properly understand its VAT obligations, the risk is that it will get things wrong - and the consequences of that can be severe. With many governments under increasing pressure to reduce their ballooning deficits, national tax authorities are turning non-compliance. But it is not just the risk of penalties that businesses face - very often, failure to do things properly can lead to VAT that would otherwise have been refundable becoming a cost. And that can mean the difference between staying afloat or going under for some businesses in the current climate, particularly those that operate on tight margins.” But it is not all bad news, some businesses may benefit from the change ahead.
The current VAT rules mean that businesses which organise events are often required to register for VAT in the country in which the event takes place. With effect from 1 January 2011, this may no longer be the case and those businesses may therefore be entitled to de-register for VAT in some countries. What this means for any VAT that those businesses continue to incur on local purchases in order to obtain a refund. That pand expenses in those countries is that a different procedure must then be usedrocedure itself has also changed with effect from 1 January 2010, therefore this is just another example of why businesses need to make sure that they are up-to-date with the latest rules in order to avoid any VAbecoming a cost.
In fact, all businesses that buy in such services (including from other group
companies) also need to be aware of the changes. Quigley explains: “If one of your suppliers gets things wrong and, for example, charges you VAT where no VAT should have been charged, that can leave you exposed to penalties and interest if you inadvertently seek to deduct that VAT or to otherwise obtain a refund in error. Also, as the purchaser of such services, you may find that you suddenly have new reporting obligations as a result of these changes, and again, failure to comply with those new obligations can leave you open to penalties”.
Although VAT was always intended to be a simple tax, the trend towards
globalisation and the increasing use of the internet have meant that the rules
have struggled to keep up with the very different ways of doing business that
have emerged since the rules were first put in place. As a result, they have
needed to be adapted - and this is where the complexity has crept in.
The EU VAT rules are not necessarily difficult, but they are complex. Having
a clear understanding of the rules as they apply to your particular business is vital, as ignorance of the law is unfortunately not considered to be a reasonable excuse when things go wrong.