Getting VAT right is a constant concern when goods and services are supplied across borders. As a general rule only, cross-border B2B supplies of goods are exempt from VAT. In the case of private individuals, however, the “distance selling” arrangements apply. Distance sales of this kind are especially frequent in the e-commerce field. Under these arrangements, supplies to another country are generally not taxable in the country of origin – but are taxable in other EU countries. Because online cross-border business is so readily scalable, the risks arising from incorrect VAT treatment are particularly pronounced because the sums involved can quickly mount up.
Services to businesses are regarded as having been supplied at the place where the recipient is established. In transactions with other EU countries, the reverse charge procedure is often used. In this case the VAT is payable by the recipient of the service as required by the rules of its home country. Things are more difficult for businesses supplying services to private individuals or to companies based outside the EU. Here the applicable rules must be determined on a case by case basis. Sometimes, the business supplying the service must itself ensure payment of VAT in the other country.
It is a good idea to seek advice from a qualified tax advisor on all your international relationships. Missing or incorrect information may have significant fiscal and even criminal consequences – at home and abroad. So you should plan ahead and ideally set up your flows of goods and services in a way that avoids VAT errors upfront.