All VAT and more: TEI responds to the European Commission on place of supply rules for services: also urges Canada to adopt group loss rules and accelerate LCT repeal, recommends U.S. Supreme Court consider factor representation.

• Position: Value added tax, Tax Executives Institute, large corporation tax

TEI recently filed comments with the European Commission on the consultation document, VAT-The Place of Supply of Services, issued May 2003. The European Chapter's Indirect Taxes Committee, working with the International Tax and Canadian Commodity Tax Committees, prepared the comments, which were approved by the Institute's Executive Committee.

TEI President Drew Glennie commended all involved in putting the comments together. "The consultation paper on place of supply was released at the end of May and the European Chapter took the lead in crafting the Institute's submission on a very tight time schedule. Everyone involved did a fantastic job," he said. The submission marked the second time in a month that TEI provided written comments to the European Commission, reflecting the Institute's increased advocacy in Europe. (TEI filed comments on the application of International Accounting Standards were published in the May-June 2003 issue of The Tax Executive.)

The consultation document proposes to base the place of supply of services on the location of the customer (a destination rule), rather than where the supplier is established (an origin rule). The proposed change would limit the instances where a supplier is required to register for VAT purposes and increase reliance on the reverse charge (or self-assessment) mechanism where a taxable person receives services from a person not located in the same Member State. Because it would ease administration, TEI applauded the move from the origin to the destination principle of taxation.

In its June 30 letter, TEI agreed that the initial focus for any changes in the place of supply rules for services should be limited to business-to-business (B2B) transactions. Because this focus will result in additional complexity in determining the correct place of supply for businesses involved in both B2B and business-to-consumer transactions, TEI urged the Commission to ensure that Member States fully appreciate the additional burden on businesses and guard against aggressive assertion of penalties.

TEI also contended that simplification of the existing rules must be the principal aim of any changes. It is imperative, the Institute said, that the Commission provide detailed guidance to minimize differing interpretations by EU Member States. Moreover, the goal of simplicity should prompt the EC to limit exclusions to the general rule.

TEI's comments are reprinted in this issue, beginning on page 319.

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