Currently, supplies of electronic services by EU businesses to EU final consumers follow the origin principle. This means that they are deemed to take place where the supplier has established his business and are subject to the VAT rules of the country of the supplier. However, as from 1 January 2015, they will be taxed at destination, i.e. at the place where the customer is established, has a permanent address or usually resides.

Suppliers will have difficulty identifying and verifying the customer's permanent address or usual residence as any registers containing taxpayers' addresses are only available to the public authorities and the fact where a person has personal and occupational ties is not easily recognizable when a transaction takes place.

The VAT Implementing Regulation establishes a number of rebuttable presumptions that should assist in identifying the customer’s permanent address or usual residence. For example, if for the supply of electronic services the physical presence of the recipient is required (a Wi-Fi hot spot or an Internet café), the customer is deemed to be located where he effectively uses and enjoys them. For services supplied via mobile networks, the customer is presumed to be established in the country identified by the mobile country code of the SIM card used for receiving such services.

However, instead of assisting suppliers, the presumptions make the situation even more uncertain and complex. How the seller of an e-book should know that the customer receives it at a Wi-Fi hotspot or how should the supplier of a mobile phone app find out the country code of the SIM card? Some electronic services (e.g. distance learning programmes) can be accessed via the browser from any place in the world. Does it mean that if a customer uses such as services in various countries and also while travelling, he is deemed to have his permanent address in various countries?

If none of the presumptions is applicable, it is assumed that the customer is established at the place identified on the basis of two non-contradictory evidence items, such as IP address, bank details or billing address. However, it is unclear what to do if two non-contradictory pieces of evidence cannot be found. What if the only information communicated to the supplier is the customer’s permanent address and all payments are handled by a payment intermediary, for example, PayPal?

Another problem with the evidence items prescribed in the VAT Implementing Regulation is that they can be easily manipulated. Customers can open a bank account in a third country or a country with a low VAT rate, and claim to be established there.

It will be interesting to see how supplier of electronic services will apply the new rules and how their efforts will be evaluated by the tax authorities.