Jeppesen Data and VAT

The sample invoice above is a bizarre way to do it

I think most accounting software deals with vat registered EU customers by a specific tax code. For example Sage uses T1 for UK (and vat is charged), T0 for eg the USA (no vat charged ), T4 for EU with a valid vat number supplied (no vat charged), and for an EU customer without a vat number (ie a good chunk of Jepp Germany customer base) one would use T1 to get the right result.

But not much of this applies to C210 who is not vat registered. ..

Accounting is not my first competence, no doubt on that
So the way I do could be bizarre (or software-dependent, mine is COGILOG).
But once a year, an accountant checks it all, so I guess it fits the rules, specially with VAT declaration.

And I totally agree with the fact it doesn’t concern private consumer, w/o VAT-reg’d company !

EDIT: and I guess that when you select T4, your software does in the background what I do manually, and that Jason called “reverse charge method”

Peter wrote:

Jepp USA should never charge vat. However the customer in the EU should pay it on import. With software downloads the vat is often avoided, illegally.
Jepp Germany should charge vat to an eu based customer, unless he supplies a vat number.
Jepp Germany should not charge vat to a non EU based customer.
The above is based on my 38 years in business.

This is totally correct.

As I understand it, Eugene is based in the EU, and therefore he should be charged EU VAT. The situation is further complicated by the fact that he’s not buying regular goods and services, but rather “Digital goods”. There are further rules for digital goods which effectively means that he must be charged VAT at the rates applicable to the country where he’s receiving those digital goods. If I remember correctly, that’s Hungary. So he should be charged Hungarian VAT.

Of course if he told Jepp that he’s moved to Turkmenistan, or some other place outside the EU, then they would not have to charge him EU VAT (unless they got fussy and started checking IP addresses, but I doubt that). But of course they might have some arrangements for charging Turkmenistan sales tax (if there is one), and it might be at a more penal rates, but probably there would be no tax charged. But of course this would be VAT fraud, and having a false address may cause other problems such as billing address on the payment card not matching, or updates or offers that come via post, won’t arrive.

Regarding PCV’s accounting, I’m not 100% sure what’s happening in his screenshot, but he has the principal correct. (And it’s true in the UK too Peter! See here UK HMRC ).

Essentially what happens, when one EU VAT registered customer buys from the other, the purchasers VAT number is additionally quoted on the sales invoice (proof of their registration) and the seller records the sale at 0% VAT. The purchaser then takes the rate applicable to those goods in their home country and self accounts for that VAT. Let’s say you buy something from another EU country for €100, and the rate applicable in your home country is 20%. You account as if YOU had made a sale of €100, and put the €20 VAT that you would have charged into your sales VAT figure. If you are entitled to reclaim VAT on purchases then you also put in the €20 with your purchases VAT (as if the seller had charged you that). So the net effect is NIL if you are able to reclaim your VAT in full. In most cases, the tax man doesn’t really care, as there is no tax effect. Sage handles this by separating your EU imports, and giving you the relevant figure to make the appropriate entries on your VAT return.

Now this might seem bizarre, and in most cases it actually is. But the reason is simple (but not relevant for the original question). If you run a business which is exempt from VAT (Let’s say insurance services), and you operate in a country with a high VAT rate (let’s say 25%), then you could make huge savings buy buying all your goods and services from a country with a low VAT rate (eg the old UK rate of 17.5%). This could really distort trade. So businesses buying more than a certain figure (varies from country to country but usually around €35-40k) are required to register for VAT even through they can’t reclaim or charge any. This means in their case they still get charged 0% by the EU seller, they still have to account for the VAT at their home country rate and include it in their sales, but they aren’t entitled to account for any purchase VAT. Now they have no incentive to shop around for the country with the lowest VAT rate, as they still get charged their home country VAT rate.

It also applies to companies that are entitled to a partial VAT refund. Imagine a consultancy firm that had a 25% wing that did sales of life and pension for commission. As 25% of their business is VAT exempt, they can only reclaim 75% of their purchase VAT. In this case, they’d still be charging the full sales VAT at their home country rate, but only entitled to put 75% of the purchase VAT in. So again no benefit in buying from a country with a lower VAT rate.

The digital goods thing has a similar motivation. If digital goods are sold to consumers (who can’t claim back VAT and don’t have to self account) then there is a big advantage to the company to set up in a country with a low VAT rate. It makes their product cheaper to the consumer. The consumer doesn’t care if the server is coming from country A or country B; it’s all “the internet” to them. So now you have to charge the VAT rate applicable to the country the consumer is located in. This is to stop companies shopping around for low VAT rates to locate themselves in. With physical goods or services costs such as delivery and travel time come into play so it’s not so each to shop around.

Hopefully that clears up the original VAT question, and the subsequent questions about reverse charging EU VAT.

Peter wrote:

The sample invoice above is a bizarre way to do it

Peter it is not an invoice, it is an excerpt from the accountancy records. Again, the VAT amount does nowhere figure on the invoice – yourself stated very correctly there is no need or reason for it.

Peter wrote:

However the customer in the EU should pay it on import. With software downloads the vat is often avoided, illegally.

It is illegal, but there is in practise no way of enforcing it. The only way would be via a tax audit, but that is extremely unlikely to happen unless you run a business and if you do then prob99 you wouldn’t need to pay the VAT anyway. And if you actually are subject to a tax audit then you most likely have bigger problems than avoiding VAT on software downloads!

Peter wrote:

Jepp USA should never charge vat. However the customer in the EU should pay it on import. With software downloads the vat is often avoided, illegally.

No, it is not “illegally”. The VAT is a tax due on (article 2 paragraph 1 of the EU VAT directive:

• the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
• the intra-Community acquisition of goods for consideration within the territory of a Member State
• the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
• the importation of goods.

No VAT is due on the importation of services from outside the EU (supplier outside the EU). That’s the law.

More generally, VAT is due by the supplier, not the customer, except:

• importation of goods
• in the reverse charge system (that’s why it is called “reverse charge”; it reverses the usual system). Reverse charge applies only on intra-EU cross-border supply of services or goods (physically shipped to the buyer’s address).
• for the supply of new means of transport (for planes when the MTOW exceeds 1 550 kg and either are less than three months old or have flown for less than 40h, or both; for land vehicles when the engine capacity exceeds 48 cubic centimetres or the engine power exceeds 7,2 kilowatts and they are less six months old or have travelled for no more than 6000 km).
• the cross-border intra-EU supply of products subject to excise duty: tobacco, alcoholic beverages for human consumption, …

So except in these cases (and stuff like triangular operations), as buyer, VAT is not your problem. You absolutely cannot be charged the VAT by the tax office, if VAT was “illegally not paid”. (Except if you were partner in crime, etc.) Whether there is VAT or not on your invoice, whether the VAT on your invoice was or was not paid to the Treasury, not your problem. The VAT tax office can only go after the supplier.