On November 17, 2023, the Council of Ministers approved a preliminary draft law concerning the transposition of the second part of European Directive (EU) 2022/542. This directive contains a limited number of provisions to be transposed related to VAT rates.
These provisions address two primary areas. Firstly, they relate to new place of supply rules for access to activities or events via live streaming.
Secondly, they concern the special margin scheme for works of art, collector's items, and antiques, with the objective of preventing "taxable resellers," such as gallery owners, from applying the margin scheme to work of arts or collector's items they have either imported or purchased at a reduced VAT rate.
This contribution will shed some light on these changes.
On April 6, 2022, the "VAT Rate Directive" (2022/542/EC) came into effect. This directive made changes to the VAT Directive 112/2006/EC and provides EU member states with more flexibility in determining reduced VAT rates.
This new EU framework allows member states to apply reduced VAT rates or even a 0% rate to a revised (expanded) list of goods and services. This reform also took into account the European green agenda. Solar panels, e-bikes, heat pumps, and the repair of household appliances are some ecological additions to the list.
However, there are limitations on the number of categories that countries can introduce to prevent widespread reduced rate usage and associated budgetary challenges.
Belgium has temporarily reduced VAT to 6% for solar panels, solar boilers, and heat pumps when supplied and installed on or near residences. While this reduction is set to end for solar panels and solar boilers by year-end, it will be extended for heat pumps until the end of 2024.
Additionally, the VAT Rate Directive introduced changes to the rules governing the place of supply rules for streamed activities and the margin scheme.
Access to activities or events via live streaming
With the increasing digitalization of the economy, online events such as conferences, livestream lectures, and on-demand training are becoming increasingly popular. This trend has accelerated due to the COVID-19 pandemic.
Access to cultural, artistic, sports, scientific, educational, entertaining, and similar activities is currently subject to taxation in both B2B and B2C contexts at the place where these services are physically provided. In many cases, this is the country of the service provider, but no explicit VAT rules have been established for online events.
The lack of clear regulations has led to significant discussions and different interpretations in the EU. The uncertainty was further heightened by the judgment of the Court of Justice of the European Union in the Geelen case (C-568/17), which considered the country of the service provider as the taxing authority. Despite various discussions within the VAT committee, not all ambiguity has been resolved.
In summary, the amended rules aim to ensure that streamed activities are always deemed to take place where the recipient is established for VAT purposes, with the aim of preventing rate shopping within the European Union.
In the future, virtual events will be explicitly excluded from the special B2B place of supply rules, with events being taxable at the location where the event physically takes place. For events that are streamed or otherwise made available virtually, in B2B situations, services will now be taxed in the country where the recipient is located (Article 44 of the VAT Directive). This means that in cross-border situations, revers charge will apply.
However, this change has a greater impact on B2C situations. For activities that are streamed or otherwise made available virtually, the service is deemed to take place where the B2C recipient is located. In a cross-border situation, the service provider cannot shift the VAT liability to the recipient. To mitigate the impact somewhat, the service provider can use the OSS (One Stop Shop) scheme. This allows them to fulfill foreign (EU) VAT obligations through a single OSS registration in their home country.
The margin scheme diverges from the standard VAT rule by levying VAT not on the purchase price but on the margin earned by a reseller, calculated as the selling price minus the purchase price.
The VAT Rate Directive also obliges member states to discontinue the margin scheme for works of art, collector's items, and antiques when resellers have acquired them at a reduced VAT rate.
Under certain circumstances, this is currently an option for the reseller.
This change is motivated by concerns that the current optional margin scheme leads to competition imbalances among member states. Resellers may find it attractive to operate in a member state with a relatively low reduced rate for the supply or import of works of art, collector's items, and antiques, as well as a relatively low standard rate for resale.
Consequently, the VAT Rate Directive requires member states to revise the margin scheme and prohibit its application when resellers have purchased or imported works of art, collector's items, and antiques at a reduced rate.
These changes will take effect from January 1, 2025. The preliminary draft is currently under review by the Council of State.