EU – New VAT Regulatory Framework for Suppliers of Live Virtual Events

Introduction 

The regulatory framework that EU institutions have established concerning the VAT rules that define the place of supply for VAT reasons concerning access to live events in person or online streaming of live events was put in place a long time ago. 

When the regulators defined these provisions, the relevance of online streaming of live events wasn’t that significant from the tax point of view. The main focus was collecting tax through access to live events such as concerts, sporting events, and various other events. 

However, continuous technological developments have enabled unforeseen possibilities even in this business sector. Now, people worldwide can access live streaming of events happening “offline.” 

Let’s put some numbers in-game to make it more practical. Let’s say there were concerts with a maximum capacity of around 50,000 people who could buy tickets and access the live event. Thanks to technological advancements, the number of listeners through online live streaming could grow exponentially. 

The rules surrounding ticket sales and related admission to the live event were clear and easy to apply. However, the VAT on the sale of tickets for online access to the same event was radically different, and the taxman was often left with empty pockets. 

New rules will significantly change this regulatory landscape, impacting how suppliers who permit customers to access virtual events online in real-time collect tax. 

Regulatory background

Based on the contrast between various legal interpretations, logic, and uncertainty, a clear rule surrounding the definition of the place of supply when it comes to live virtual events has yet to be established. Some countries define the place of supply for these events as being associated with the general place of supply rules for providing services. 

Another perspective is that when defining the place of supply rules for these services, the formula that should be followed is the same one used for determining the place of supply rules attributable to the provision of electronic services. (destination-based principle)

This confusion often led to misinterpretations, which inevitably left a door open for skipping the tax collection or collecting and remitting the tax in amounts “lower” than the local tax authority expected.

The logic behind the general rules that define the place of supply for the provision of services within B2C states that the place of supply is connected with the place where the supplier has established his business. It’s quite the opposite when we address the formula used to define the place of supply rules for providing electronically supplied services. 

When providing digital/electronically supplied services within the B2C sector, EU law follows the destination-based principle, which means that the place of supply is defined according to the customer’s residence. 

The European Court of Justice has decided in some of its previous rulings that the logic of the general place of taxation should be followed in these cases. Following the exponential growth of the provision of services to access virtual live events, this approach has shown that amendments to the EU VAT Directive are necessary when it comes to these rules. 

The European Council has adopted a Council Directive (EU) 2022/542 that will significantly modify the previously established rules. This new way of defining the place of supply for tax reasons will “lessen ” Member States’ pain and significantly improve their tax collection when providing these services. 

New Directive and New Rules 

New EU rules defining the place of supply for live virtual events will take effect on January 1, 2025.

New Directive and New Challenges 

Member States 

Tax Implications

Current rules(general rules) used to define the place of supply when providing the service for attendance at a live virtual event state that the place of supply is where the supplier is established or has a fixed establishment. These rules permit foreign streaming service providers of live events to be out of the scope of the EU VAT Directive. 

This will be different from January 1, 2025. Foreign providers of online streaming services for live events will be obliged to charge, collect, and remit VAT according to the destination-based principle. 

Tax Registration

Non-resident suppliers will be obliged to register for VAT to collect tax on these supplies. To establish and maintain compliance with the EU VAT framework, suppliers will be required to register locally( in each MS where they have customers) or use the OSS scheme. 

In many cases, non-resident providers can fulfill all their collection and remittance duties through simplified OSS registration. However, in some cases, the option to register locally will prevail. 

Each case scenario should be observed separately to ascertain what is more plausible for the supplier. 

In some cases, the supplier will prefer to be registered locally(in the MS where he has customers), e.g., for the possibility of deducting input tax credit; it’s more suitable for him because it doesn’t have clients in many countries and other business-driven reasons. 

Tax Rates 

When the new provisions surrounding the definition of the place of supply rules come into the picture, this will also directly affect the imposition of tax rates on the underlying supply. From the moment the law becomes effective, providing these online services for attendance at live virtual events will often follow the case of electronically supplied services. 

In many cases, the standard VAT rate of the destination country will be imposed on the taxable amount. However, this is significant, and there will be numerous situations where the local reduced rate could be imposed on the live streaming of events.

The EU VAT Directive permits Member States to impose reduced rates for attending live events of different natures, and this will also apply to virtual attendance of live events. 

This will undoubtedly demand extensive and devoted tax analysis of Member States’ VAT rates to define precisely what rate applies to the supply of X live events in a virtual environment based on the customer’s residence.

Tax Calculation 

Identifying the correct tax rate under the new rules will be unquestionably more challenging. Let’s provide a concise, practical overview of what this actually means for B2C transactions. 

Point 1. The provision states that the place of supply will be at the customer’s residence. The destination-based principle enters into the equation. 

Point 2. Based on the interpretation that digital streaming/ of live events will follow in “most” cases, the interpretation of the electronically supplied service, one could guess that the same tax rate allocated to the ESS will be imposed for the attendance of live virtual events. Unfortunately, this isn’t the case. 

Point 3. The amended EU VAT Directive will permit Member States to impose reduced rates for attending live events as well as virtual events. This possibility applies to various categories of events, including educational, scientific, and sports events. 

Point 4. There will be cases where the online streaming of a live event will be followed by a standard rate as well as ESS, but for other types of events, virtual attendance will be covered by a reduced rate. 

Conclusion—To determine what rate will be applicable from January 1, 2025, for the live event attended in person or its virtual live version, the responsible person for VAT compliance is mandated to analyze local regulations. 

Validation of Customer

Let’s not forget that different tax rules apply depending on the customer’s legal status. In the case of B2B transactions, the place of supply is also the place where the customer is—here, the reverse charge mechanism plays its part. If the customer is a private individual, the VAT rate is the rate of its country of residence. Verifying and validating the buyer’s status is pivotal. If this part hasn’t been adequately performed and if the supplier cannot prove that the buyer is a taxable person, it will be presumed that the buyer is a private individual, and tax must be charged accordingly. 

The introduction of the new rules concerning the determination of the place of supply for live virtual events unquestionably asks present and future providers of online streaming services or other suppliers that will permit the virtual attendance of live events to familiarize themselves with the new provisions. 

The regulatory framework has significantly changed with the adoption of new rules. From January 1, 2025, digital suppliers will be obliged to charge VAT based on the customer’s residence. This triggers the necessity to register for VAT in the destination country or adhere to the simplified VAT OSS scheme to remit collected taxes.

Appropriating the adequate VAT rate for attending virtual live events will also be tricky, given that it may permit Member States to impose reduced rates on the same types of events.