My 13-year old daughter is very active on Instagram, musica.ly and other similar ‘apps’, sharing her food pictures and shuffle dances with her friends and the rest of the world. And I find that sometimes difficult to deal with. How much is she allowed to share and with whom? How much and how long can she spend time watching others. The hours of youtube fail and funny videos she has watched are already countless.
And even school is concerned. Not just about her, but about all the children at school. Almost every school in the Netherlands now has special classes or materials that children have to attend or read, where the ‘internet and social media rules’ are explained. And only a couple of days ago there was an item in the newspaper about the concerns that schools have with all the children only looking at their phones all day and accepting and understanding only ‘news’ that has emoticons in it and which is shared by friends. The real news is not even reaching them anymore.
As every parent, I have had second thoughts about all this. Of course there is no way of stopping it. The times of the cassette player, the CD’s, the hard-copy newspapers, even the mobile phone are over: it’s all old, something from my generation. Nowadays people want to have everything now and fast, streaming, real-time, and of course in the highest resolution possible. News is no longer interesting if it doesn’t have a meme in it.
I’m not sure about the memes, but the tax authorities are also more and more looking at modern ways to collect information. Standard Audit File for Tax, Blockchain technology, and EDP Audits are all examples of signals that the tax authorities are looking at ways to get the information from businesses real-time and online. Businesses are required to not only ensure that every transaction is reported correctly and on time, but the deadline for reporting is getting shorter and shorter. In some countries invoicing is already organised via the authorities, so that the authorities can immediately check if transactions have been reported, if VAT was charged and was due, and if the customer can recover that VAT.
Although some people see this as a risk, there are of course also businesses that see the opportunities of these developments. These businesses develop apps and websites and tools to sell and distribute their services and goods as fast and efficient as possible, all around the world. And the interesting thing that happens now is that tax authorities and businesses are looking at the technological and economic developments and anticipating on this, but the tax rules remain behind. The legislative processes are too slow to effectively catch up, not in the least because many people that have to make and change these rules do not understand these technological and economic developments. And you can find plenty examples in the VAT rules.
The European VAT rules exist since 1977, when the 6th VAT Directive was adopted (if you count the second directive, it’s 1969). There was a big change in 1993, when the intra-Community transactions were introduced, and another in 2006, with the adoption of the EU VAT Directive. And even after that, the rules changed significantly in 2010 (place of supply rules) and new proposals are now pending to implement further changes in 2019 and 2022. But even though it seems that the EU tries to catch up, they will have to continue doing that. And there will always be cases where a company is doing business in such a way that the rules have not anticipated yet.
An example if a pending case for the European Court of Justice about a Dutch entrepreneur who is selling services via its website. The services consist of interactive erotic webcam sessions that can be watched live on any computer, of course after paying a fee to the entrepreneur. After payment, the customer gets access to the website, where he can interact with girls (in the case referred to as ‘models’), who are actually located in the Philippines, via a live video stream.
The Dutch tax authorities argue that the services are subject to Dutch VAT, as the Dutch enterprise is established in the Netherlands. The national court, however, decided that it concerns so-called ‘entertainment services’, which are subject in the country where the services are actually performed (thus in the Philippines). The questions that are being asked to the European Court of Justice focus on the definitions of ‘entertainment services’, and on ‘the place where the activities actually take place’.
That last question, I believe, is a difficult one. Because with all the technological and economic developments, who knows what is taking place where? Are the bits and bytes sent over the internet traceable? Is the model in the Philippines performing her services in cyberspace? And what if she would not be a real model, but a fictitious model, really only existing in cyberspace?
This case shows that the VAT rules have to develop further constantly, but they will always have a hard time catching up with reality. Especially with regard to the taxation of services, there is still a large area to cover. Perhaps that is why the European Commission has postponed any changes with regard to the place of services to 2027, and is now focusing on the supplies of goods first.
I just keep on enjoying memes and internet radio, meanwhile ordering all my Christmas presents online and hope that they will arrive on time.
Merry Christmas and I hope that you enjoy the holidays and make 2018 another great year!
Bas de Koning is an independent (www.taxdirector.nl), specialised in indirect taxation. He’s available for VAT interim assignments, advice and training. You can find more information on www.simplyvat.nl