Place of supply rules for intermediary services apply even when underlying supply is not subject to VAT
The Dutch Supreme Court issued a decision on 17 July 2021 concluding that the place of supply rule for intermediary services applies even where the activities performed under the relevant contract are not subject to VAT.
Under the VAT rules, an intermediary for VAT purposes is defined as a person/entity acting as a third party in arranging or facilitating the making of supplies. The place of supply for intermediary services is the place where the underlying transaction is taxable.
B2C intermediary services are subject to VAT in the country where the underlying supply (i.e., the supply for which parties conclude a contact) is subject to VAT. But what if there is no underlying supply subject to VAT? Is the special place of supply rule for intermediary services still applicable, and if so, where is the place of supply?
Decision of the Supreme Court
The case before the Supreme Court involved an intermediary established in the Netherlands that puts volleyball players in contact with foreign clubs, after which the players enter into employment contracts with the clubs. At issue is whether these intermediary services are subject to VAT in the Netherlands.
According to the court, the place of supply rules for intermediary services also apply when the underlying transaction consists of the performance of work based on an employment contract. It is irrelevant that the performance of the volleyball player as an employee is not subject to VAT. The activities of the volleyball players are sports activities that would be subject to VAT in the country where the activities actually take place had the players been taxable persons for VAT purposes. The place of supply of intermediary services relating to sports activities is also the place where the sports activities are carried out. Since the main activities of the volleyball players take place outside the Netherlands, the intermediary services are not subject to VAT in the Netherlands. The fact that this interpretation would impose VAT obligations on the intermediary in the country where the volleyball players are to perform their activities does not change the outcome.
The following points can be gleaned from the Supreme Court decision:
- The place of supply rule for intermediary services applies regardless of whether the underlying supply is subject to VAT.
- In determining the place of supply, it is necessary to look at where the supply would be subject to VAT if the person carrying out the activities were acting as a VAT-able person.
- If the activities are carried out in different countries, the determining factor is where the main part of the activities is carried out.
- The interpretation of the place of supply rules cannot be altered on the grounds that the place of supply rules as they stand would create additional compliance and/or administrative obligations for the taxable person in question. It should be noted, however, that since 1 July 2021, a B2C-intermediary service provided to EU consumers can be reported in the One Stop Shop return.