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Commission proposes changes to VAT on telecommunications services

The European Commission has adopted a proposal for a Directive amending the rules applicable to value added tax (VAT) on telecommunications services. The aim is to ensure that all services used within the EU are taxed in the same manner, regardless of whether the operator is e...
The European Commission has adopted a proposal for a Directive amending the rules applicable to value added tax (VAT) on telecommunications services. The aim is to ensure that all services used within the EU are taxed in the same manner, regardless of whether the operator is established in the EU or outside.

Under current rules, VAT is imposed in the operator's place of establishment, and since in most third countries VAT is not applied to telecommunications services, EU operators are at a disadvantage. Recent advances in technology and deregulation of markets have transformed the telecoms sector. In particular "callback" services provided by third country operators have been introduced rapidly, and the existing tax arrangements mean that EU operators are at a disadvantage faced with this new competition.

The new proposal would oblige third country service providers to be identified for VAT purposes in a Member State, meaning that their customers inside the EU would have to pay VAT on their services. The new proposal would also mean that EU operators will no longer be liable for VAT on services provided outside the EU.

The Commission has also introduced a transitional derogation, pending the proposed Directive's adoption, which will allow the existing rules to be waived. This is at the request of the Member States, and will allow VAT to be charged immediately on services provided by third country operators inside the EU.
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