The EU VAT Directive has been amended
After a long consultation period, Directive 2022/542 amending the EU VAT Directive was adopted on 5 April 2022. The main purpose of the amendments is to adapt the provisions of the VAT Directive as effectively as possible to the needs of modern times.
The reform of the reduced VAT rates
In line with environmental commitments and the European Green Deal the amendment includes the reform of the reduced VAT rates (as detailed in our previous newsletter: The Economic and Financial Affairs Council (ECOFIN) reached an agreement on the amendment of the EU's Directive on the common system of value added tax ("VAT Directive"). (vgd.hu)). As a result of the reform, from 2025 Member States will have the option of introducing a VAT rate of less than 5% (which could be 0% with a right to the input VAT deduction) for up to 7 basic necessity services/goods listed in Annex III of the EU VAT Directive.
The possibility of introducing two further reduced rates (the lowest should be at least 5%) will remain, but the reduced rates can be applied only for the 24 products/services listed in Annex III of the VAT Directive.
This amendment is aimed at encouraging the EU to promote reduced taxation of goods and services related to the expansion of green energy use and to facilitate the gradual phasing out of environmentally harmful goods.
Introducing new place of supply rules related to online events
Another significant change brought by the amending directive is the new VAT place of supply rules for online events, which is likely to be the result of the multiplication of online events due to the COVID19 pandemic.
At present, the place of supply of all services rendered to taxable persons (i.e. for admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, whether physically or online), and of ancillary services related to such admission, is the place where these events take place. However, for events taking place in virtual space, this place of supply rule is difficult to interpret.
According to the amendment, from 2025 onwards, the above special place of supply rule will no longer apply to virtual events. For a taxable person, the general place of supply rule will apply to participation in virtual events: it should be the place where the taxable person has established its business or its fixed establishment is located.
The place of supply will also change for services supplied to non-taxable persons in connection with cultural, artistic, sporting, scientific, educational, entertainment or similar activities, such as fairs or exhibitions, including the supply of services by organisers of such activities, and for services ancillary to such activities, if these services are made available by means of online transmission or other virtual means. The place of supply of these services will not be the place where these activities are physically carried out, but the place where the non-taxable person recipient is established.
The above changes will significantly simplify the determination of which Member State has the right of taxation, as they will help to establish in a precise way the place of supply of services related to online events.
Member States, including Hungary, will need to transpose the new rules into their national legislation until 31 December 2024.
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Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.
This newsletter provides general information and does not constitute tax advice.
11 May, 2022
