BDO Indirect Tax News

European Union - New place of supply rules for virtual events to apply as from 2025

Virtual events such as online conferences, livestream lectures, on-demand training and live sports sessions became immensely popular during the corona virus pandemic. It is impossible to imagine everyday life without these offerings (which in many cases have now evolved into hybrid offerings), and this has not escaped the attention of legislators.

Effective 1 January 2025, amendments to the EU VAT directive will introduce new place of supply rules for the supply of cultural, artistic, sports, scientific, educational, entertainment and similar events in the EU. Specifically, such events will be taxed in the country where the customer resides or is established instead of where the services are physically performed. This welcome change will bring clarity and consistency, in particular, to B2C transactions, but the new rules also raise some questions.

Current VAT rules for virtual events and electronically supplied services

Cultural, artistic, sporting, scientific, educational, entertainment and similar events targeting private customers are currently taxed at the place where the services are physically carried out, regardless of whether the transaction is a B2B or B2C transaction. In many cases, this will be the country of the supplier.

Electronically supplied services (ESS) in B2B and B2C transactions, however, are taxed in the country where the customer is resident or established. The distinction between virtual services and ESS is not always easy to identify—the determining factor is whether more than minimal human intervention is involved. Thus, for example, a service in which a person can watch a teacher live, ask questions and interact is considered an educational service, but will be deemed an ESS if the service is a pre-recorded webinar in which it is not possible to ask questions.

Changes to the rules
The VAT changes that will apply as from 2025 are most significant for B2C transactions. Where private individuals are able to stream entertainment services and events or where such services/events are otherwise made available virtually, the place of supply will be the place where the consumer resides, is established or has their usual residence. The supplier will not have to register in and submit VAT returns to different EU member states; instead, it may elect to proceed with single One Stop Shop (OSS) registration in the member state of establishment and submit VAT returns for the other EU member states through that country. As the application of the OSS scheme is voluntary, businesses still will be able to choose to register for VAT in each country where they make supplies if this is more advantageous.

To the extent entertainment services and events are streamed or otherwise made available virtually in B2B situations, the services will be taxed in the country where the customer is established. Thus, in a cross-border situation, VAT liability will be shifted to the customer, who then will have to calculate and pay the VAT due to the tax authorities.
Although the new rules will not become effective for over a year, affected taxpayers may wish to consider taking steps now to begin to prepare:
  • Inventory all activities that may be affected by the new rules;
  • Identify potential new VAT return obligations;
  • Gather information to identify the location of customers; and
  • Consider whether their ERP system needs any adjustments.
It should be noted that while the new rules will provide clarity and solutions, new issues also may arise; for example, how to deal with hybrid services (i.e., services that take place both physically and online). Physical entertainment services and events remain taxable in the country where the service is physically provided.

Madeleine Merkx
Marco Beerens
BDO in Netherlands