Indirect Tax News - June 2021

VAT and supplies of services: “Use and enjoyment” rule subject to a broader interpretation

The criterion used to apply the VAT use and enjoyment rule to certain services (such as marketing, advisory, consultancy, IT or electronic services) rendered to non-EU customers has been modified. The use and enjoyment rule—as set out in article 59a(b) of the EU VAT Directive—effectively allows EU member states to deviate from the general place of supply rules to ensure that specific services are taxed in the place they are actually used and enjoyed and, therefore, to levy VAT on the services in the relevant EU member state.

Several years ago, the Spanish tax authorities took the position that the use and enjoyment rule applied only where the direct recipient of the services had a VAT taxable business in the Spanish territory. However, in a decision issued on 22 December 2019, the Spanish High Court concluded that the rule applied to marketing services rendered to a company established in Gibraltar even if the direct recipient—which was established outside the EU—was not the final recipient of the services but reinvoiced them to other entities, as long as the services were finally used or exploited in the Spanish VAT territory by the last party in the chain.

Spain’s General Directorate of Taxation adopted the above criterion in several binding rulings indicating that the VAT use and enjoyment rule will apply where the services supplied to a recipient established outside the EU are actually used or exploited in Spain, regardless of whether the first recipient carries out operations subject to VAT in Spain and provided the services are finally used by any party to carry out operations within the Spanish VAT territory.

The Court of Justice of the European Union (CJEU) confirmed this interpretation in its 15 April 2021 decision in the SK Telecom case (C-593/19). The CJEU held that roaming services supplied by a mobile phone operator established in a third country (in this case, South Korea) to (Korean) customers who are also established in that country, allowing them to use the national mobile communications network of the EU member state where the individuals are staying temporarily (in this case, Austria), must be considered to be “effectively used and enjoyed” in the territory of that member state, so the member state may consider the place of supply of the roaming services to be situated within its territory.

Although the CJEU’s decision has not yet been implemented by the Spanish tax authorities or courts, it is in line with their broad interpretation of the rule. Potentially affected businesses should consider the application of the use and enjoyment rule, taking into account that services that were not subject to VAT may be subject to VAT based on the broader interpretation.

Amparo Sanchis Sierra

Álvaro Gómez-Elvira