To adapt the VAT rules to the internal market's needs, the EU's council of ministers adopted a VAT package on February 12 2008. The VAT package introduces changes which (1) affect the place of supply of services (directive 2008/8/EC); (2) create new reporting requirements (regulation 143/2008 and directive 2008/117/EC dated December 16 2008); and (3) modernise the 8th directive refund procedure (directive 2008/9/EC).

The French Amending Finance Act for 2009 which is expected at the end of the year will implement into French law the VAT package which enters, for the most part, into force on January 1 2010.

The key changes included in the VAT package are the following:

• Place of supply: Regarding transactions between taxable persons (B2B transactions), the place of supply will be where the customer is established and no longer the place where the supplier is established, as is the case now. This major change is linked with an implementation of a general reverse charge mechanism for all services within the scope of the new B2B main rule: the place of taxation is deemed to be where the customer is established and the latter is liable for the payment of the VAT by application of the reverse charge mechanism. For transactions between taxable persons and non-taxable persons (B2C transactions) the general rule to determine the place of supply of a service, will continue to be the place where the customer is established. As now, the general rule will be the fall-back rule and a supply of services, will be subject to this treatment unless the service is one which falls under another specific place of supply rule. In other words, when deciding on the place of supply of a service the supplier is required to look first at the exceptions to the general rule and if the supply is not described there it becomes subject to the general rule. The VAT package simplifies the rules. From January 1 2010, the general rule will encompass the major part of the services supplied to businesses whereas many of them are covered by different place of supply of services rules at the moment.

  The main exceptions to this new B2B general rule are services connected with immovable property (which will remain the same from January 1 2010 as now, that is the place of supply is where the property is located); passenger transport (which remains the same as from January 1 2010 as now, that is the place where the transport takes place proportionate to the distance covered); short-term hire of means of transport (which will be located at the place where the means of transport is actually put at the disposal of the customer); services and ancillary services relating to cultural, artistic, sporting, scientific, educational, entertainment or similar activities such as fairs and exhibitions, including the supply of services of the organisers of such activities (which remain located where they are physically performed); and restaurant and catering services (which remain located where the service is physically carried out). Regarding EU on-board restaurant and catering services, they will be located at the point of departure of the passenger transport operation. However, some of the above will change after January 1 2010 as set out below.

• Additional reporting requirements: There will be an additional obligation to file EC sales services lists (ESL) for services supplied to taxable persons and non-taxable legal persons where the latter are required to account for VAT under the reverse charge mechanism. From a French point of view, and based on the information available, the following information will be required on the ESL return: the service supplier's VAT registration number, the service supplier's address and trade name, the period of time for which the ESL return is filled in, the customer's VAT registration number in the member state where the service is located, the total VAT-exclusive amount of taxable reverse-charge supplies of services in Euros. The French ESL return will have to be submitted monthly and at the latest by the 10th working day following the month during which the VAT becomes payable by the recipient of the services delivered. The French ESL will be submitted electronically to the French customs authorities – who will be responsible for the collection and transmission of the data collected as they are for the Intrastat and EC sales lists for goods (Déclaration d'échanges de biens). Only small businesses (turnover below €76,300 ($111,000) if it carries out deliveries of goods or accommodation services or turnover below €27,000 if it carries out supplies of services) will be allowed to submit their ESL in a paper form. The French tax or customs authorities may apply a penalty of €15 per incorrect data item per ESL return capped at €1500 per return.

• Introduction of a mini "one-stop shop" scheme and changes to the place of supply for B2C electronically supplied services, telecoms services and broadcasting services (takes effect from January 1 2015). From January 1 2010 the place of supply for telecoms services and broadcasting services supplied by a non-EU provider to an EU customer will be where the customer is established. This provision is applied now to electronically supplied services. As from January 1 2015, the place of supply for B2C electronically supplied services, telecoms services and broadcasting services will be located where the customer is established regardless of where the supplier is established.

• Use and enjoyment rule: According to the VAT package, member states will be permitted to apply the use and enjoyment rules to services covered by the B2B general rule, the B2C general rule, the hire of means of transport and EU to non-EU B2B and B2C services. At the moment French VAT law limits the application of the use and enjoyment provisions to miscellaneous B2C services, to B2C electronically supplied services supplied by non EU service suppliers to non taxable customers established or domiciled in France, and to the hire of means of transport to taxable or non-taxable customers. Based on the information available, the limited application of the use and enjoyment provisions will be retained as from January 1 2010 – in other words France will not extend the general application of the use and enjoyment provisions – which of course France is permitted to do under the provisions of the new article 59a of directive 2006/112/EC as amended by directive 2008/8/EC. The interpretation of the term "effectively used and enjoyed" should be made depending on the nature of the service and on a case by case analysis.

• Modernisation of the 8th directive VAT refund claims: From January 1 2010, the procedure under which EU businesses can claim the refund of the VAT incurred in member states where they are not established will be reformed. The new system will include an electronic filing, a detailed timetable for processing refund applications and the right to interest on overdue refunds. From a practical point of view, from January 1 2010 EU businesses will electronically file their refund claim with the tax authorities of the member state where they are established. In other words, this means that it will no longer be necessary to apply for the refund in the member state in which the VAT was charged to the business. For instance a French company will claim the refund of Spanish, Italian and other EU VAT through a specific portal put into place by the French tax authorities on which it will have to be registered. The use of this portal requires an electronic certificate "certificat fiscal pro" freely issued by the French tax authorities or an electronic certificate listed by French tax authorities. Based on the information available, the French portal will include the requirements of the other member states as regards invoicing requirements, deductible VAT and so on. Once the electronic filing is successfully done, the French tax authorities will issue a receipt, confirming the status of "taxable person" of the applicant and will forward the information to the tax authorities of the relevant member state in which the VAT was incurred. The latter has to notify the applicant of its decision to approve or refuse the refund within four months of its receipt. Approved refunds, should be paid by the member state of refund to the applicant within 10 working days of the expiry of the aforementioned four month period, otherwise interest will be due.

  The member state of refund can ask for additional information to be provided by the applicant but in any case the decision to approve or refuse the refund should occur within eight months of its receipt. In addition, the time limit to submit the refund claim is extended until September 30 of the calendar year following the refund period (at the moment, the deadline is June 30). From a practical point of view EU businesses which will claim a refund of French VAT will be required to indicate on the portal of their member state of establishment the taxable basis and the French VAT incurred in Euros, the nature of the goods and services purchased in France through a specific code, an electronic copy (pdf, jpeg and tiff format below 5Mo) of all invoices for an amount of VAT higher than €1000 or higher than €250 for diesel fuel expenses, (at the time of publication discussions are still taking place at EU Commission level to find alternative solutions to providing the member state of refund with the copy of the invoices when the file is bigger than 5Mo as many member states' IT systems will not be able to cope), the description of its professional activities through a specific code. The electronic application may be completed in either French or in English. The French tax authorities will inform the applicant of the reception of its refund claim but also of its decision to grant or refuse the refund via an electronic message sent to the tax authorities of the member state of establishment of the applicant.

The new rules on the place of supply of services summarised above underline the need for businesses to have very clear definitions of such concepts as "taxable person", "acting as such", "established", a "fixed establishment", the " recipient", "means of transport", services related to immovable property and so on. Even if it appears difficult, if not to say impossible to get a uniform definition across the 27 member states of such terms, clear definitions at least in each member state are vital, in our view, for businesses to avoid double taxation, non taxation, potential penalties or high costs and administrative burdens to comply with these new regulations. The following one or two examples will highlight the potential difficulties:

Quality of the recipient: taxable or non taxable person?

Determining the business status of the customer is critical to determine the place of supply of services. In most cases, businesses will be able to rely on a valid VAT identification number checked via the VIES system as evidence of the customer's VAT status. However, where the customer is established outside the EU, alternative evidence of the business status of the recipient should be found. Unfortunately, for the moment, in France there is no clear guidance on how to evidence the fact that the customer is a taxable person. The French guidelines at the moment only refer to proof "by all means". From a practical point of view, and in the event that there is no further guidance relating to the evidence of the business status of the customer, it would be advisable for the supplier to gather the following documentation : order forms or other documents issued by the customer showing his business address, trade registration number, a printout of the customer's website and any document which can show that the customer acts as a business to be able to evidence the quality of taxable person of its customer.

Based on the information available, the French tax authorities confirm that a taxable person who also carries out activities or transactions outside the scope of VAT such as public bodies, active holding companies, will always be regarded as taxable persons for the purposes of the new rules on the place of supply and the liability rules.

Where no such evidence is provided, the transaction should be treated as a B2C supply of services located where the service supplier is established.

In addition, to apply the new B2B main rule, not only must the customer be a taxable person but it must also be "acting as such". From a French point of view such term means "for business purposes". Indeed, a taxable person is deemed to act as a non-taxable person when it purchases services for its private needs or consumption or for the needs of its employees. In such case, the transaction should be treated as a B2C supply of services located where the service supplier is established.

On the contrary, a taxable person who carries out both taxable (for example management services) and non taxable (holding) activities will be considered to be acting as a taxable person from a French point of view when it purchases consultancy services for the sole purposes of its non-taxable (holding) activity since this latter is business related.

Furthermore, when a service is simultaneously used for private and business needs, the recipient will be regarded from a French point of view as a taxable person acting as such.

From a practical point of view it can be considered that the express reference on the invoice issued for the supply of services in question to the VAT registration number of the customer and to article 44 of the directive 2006/112/EC as amended by directive 2008/8/EC will constitute an assumption that the services were delivered to a taxable person acting as such. Nevertheless, in any case, it remains the supplier's responsibility to check whether the customer is a taxable person acting as such or not.

Head office and fixed establishment?

The place of establishment is not only a critical criterion to determine the place of supply of services but also the person liable for the payment of the VAT.

From a French point of view, the place of establishment of the head office is determined taking into account the following elements: statutory head office, place of its global management, place where the board meetings take place, place where the global policy and strategy of the company is determined, place where the members of the management have their permanent address, the place where the accounting is booked, the place of the main financial activities, and so on. In other words, the place of the head office is generally the place where the global management decisions are adopted, where the global management is carried out.

Regarding the fixed establishment concept, the French definition is fully in line with that given by the European Court of Justice. A fixed establishment is defined as an establishment with a minimum degree of stability derived from both the human and technical resources necessary either for the provision of the services on an independent basis or for the use of the services purchased. Therefore, a mere warehouse or a mere VAT registration of an establishment or a representation office should not qualify in principle, from a French point of view, as a fixed establishment. It has been confirmed by the French tax authorities that the definition of a permanent or fixed establishment for VAT purposes is different from that retained for other taxes and duties.

France will continue to refer to the establishment most closely, logically, rationally connected to the service supplied to determine who is the supplier or the recipient of the services for territoriality purposes.

Finally, the recipient of the services should be the person to whom the services are invoiced, who issued the order form and who will in principle pay the invoice, the supplier being the one who has an active and significant role in the service supplied by using its own human and technical resources.

It should be underlined that the new article 192a abolishes the force of attraction rule applied in some member states for VAT liability purposes. According to the rule now, the reverse charge mechanism is not applicable to services provided by a foreign head office to a customer established in a country where the supplier has a fixed establishment. Accordingly, for liability purposes, the head office supplying taxable services in the member state of the fixed establishment has to use the VAT registration number of its permanent establishment even if this latter is not involved in the supply and the reverse charge mechanism can not apply. The new article192a clearly states that the force of attraction rule can no longer be applicable from January 1 2010. The supply would only be seen as being carried out by the fixed establishment (located in the member state of the customer) only if that establishment intervenes in the service supplied which would require an active and significant role of the fixed establishment in the supply of the service. The abolition of the force of attraction rule will clarify the French position in this respect. Nevertheless, based on the information available from the French tax authorities, article 192a would not be applicable in the case where a taxable person having its head office in France carries out a supply of services in France even if those services are supplied by one of its foreign establishments and if the head office does not intervene in the supply of said services, in other words, the head office will have an attractive effect.

Definition of means of transport and "actually put at the disposal"

Based on the available information the VAT Committee has agreed on a definition of means of transport as follows: "means of transport" means vehicles motorised or not and other equipment where they are intended for the transport of persons or goods from one place to another and which are usually created and can be effectively used to transport persons or goods; therefore, constitute for instance, means of transport, wagons, trucks, cars, motorbikes, bicycles, caravans, boats, vessels, motorised or not, ambulances, farming vehicles, quads, and so on.

The place of a short term hiring of a means of transport will be located in France if the means of transport is actually put at the disposal of the customer in France. From a practical point of view, it can be considered from a French point of view that a means of transport is put at the disposal of a customer when the latter is physically and effectively able to use it and takes physical control of the means of transport.

Again according to the French tax authorities, in the case of successive rentals, the duration of the first rental will be taken into account if the period of time between the two successive rentals does not exceed 48 hours.

It is clear that there are a large number of points and issues to be resolved, for example in France there is a discussion around services related to the storage of goods – is this a land related service or does the supply follow the general principle and is reverse charged? What is needed is a uniform interpretation of "services connected with immovable property", of "educational services", and so on. It should be noted that we understand that the French tax authorities' interpretation should remain essentially the same after January 1 2010 as now. Nonetheless, we can only stress that any businesses which provide services to EU entities or receive services from EU entities including the recharges of costs involving EU entities are affected by the implementation of the VAT package. Failure to identify the transactions, processes and controls affected by the new rules and to conduct the changes within billing, accounting and IT systems could not only lead to missed opportunities but also create potential penalties or risk exposures for non compliance. In addition due to the fact that in most EU countries, the local implementation is not yet published, that no clear guidance has been adopted, it will be very difficult for businesses to comply with these new requirements from January 1 2010. The delay in the publication of the local implementing legislation not only creates insecurity for businesses but also leads to higher compliance costs and administrative burdens. In addition due to the lack of uniform interpretation or definition of some critical concepts or types of services, only a careful monitoring of the changes related to the services supplied or purchased in the relevant member states will allow businesses to successfully cope with the implementation of the VAT package.

Biographies
		Patricia More Landwell & Associés – PricewaterhouseCoopers 61, rue de Villiers 92208 Neuilly sur Seine Cedex France Tel: +33 1 56 57 43 07 Fax: +33 1 56 57 49 81 Email: patricia.more@fr.landwellglobal.com More joined Landwell & Associés - PricewaterhouseCoopers in Paris in October 2002 where she is a partner. Over the last 19 years, More, who is an attorney-at-law, has specialised in VAT, customs and indirect taxes advising clients in all sectors with a particular interest in the transport, luxury and energy and utilities sectors. She was guest professor of indirect taxes at the Paris X University from 1999 up to 2002. She has published several practical guides on VAT and many articles. She has published books on intra-community VAT (2003) and the VAT regime applicable to the real estate sector (2002, 2006). She is member of a technical working group (organised by the employers' confederation (MEDEF)) constituted of French indirect tax specialists and which has a number of major French companies as members. She speaks frequently at events organised by Landwell-PricewaterhouseCoopers, a number of French universities and private organisations.
		Stephen Dale Landwell & Associés – PricewaterhouseCoopers 61, rue de Villiers 92208 Neuilly sur Seine Cedex, France Tel: +33 1 56 57 41 61 Fax: +33 1 56 57 49 81 Email: stephen.dale@fr.landwellglobal.com Dale is partner in charge of the VAT and customs group and our tax compliance services (GCS) in France. He has worked in French indirect taxation for some 18 years, having previously worked with PricewaterhouseCoopers in the UK. He is chairman of the FEE (Fédération des Experts Comptables Européens) indirect tax working party. He is also deputy chairman of the International VAT Association (ex-President). He is a board member of the Association de la Pratique de la TVA Européenne. Dale is a member of the Institute of Chartered Accountants in England and Wales VAT committee (and ex-Chairman) and of the OECD SAF-T committee. He lectures at two French universities on indirect taxation. He has written widely in the French and UK press and has published a number of books on VAT. A further publication will shortly be published on the EU case law since 1974.