As of 1 January 2010 Hungary will be obliged to implement through the Hungarian VAT legislation the EU VAT package (that is, Regulations (EC) No. 8/2008 and No. 9/2008). The package will considerably change certain key areas of the current VAT legislation such as the place-of-supply rules for services. PricewaterhouseCoopers summed up the key changes in its latest Tax & Legal Alert as follows.
As part of the implementation obligation, the Hungarian national legislation incorporating the VAT package will have to be promulgated in November at the latest.
PwC's statements below are based on the bill the Government submitted to Parliament (bill number: T/10525). If the bill is passed, the act will amend a number of the current VAT rules. In this newsflash, PwC has only included the changes introduced by the VAT package that are relevant to determining the place of supply.
The rules for determining the VAT treatment of international services will change. The principle of taxation at the place of consumption will be introduced and the range of services not subject to local VAT when supplied internationally will increase.
In line with the principle of taxation at the place of consumption, the main purpose of the changes is to ensure that services are uniformly subject to VAT at the place of consumption; however, this could differ according to whether the services are provided to a business or to a non-taxable person.
The rules vary depending on the type of service being provided and the status of the person receiving the service.
If the services are provided to a taxable person, as a main rule the place of supply will be the customer's registered office, permanent establishment or, in the absence of the former, permanent address or residence. If the customer has more than one establishment in addition to its registered office, the place of supply will be determined by the customer's premises that are the most directly affected.
However, there will still be services whose place of supply will not be determined under the general rules.
It is important to emphasize that, contrary to the former treatment, the place of supply of certain services rendered to taxable persons, such as agency services, the transport of goods, and the valuation of- and work on goods (except real estate), will be determined by the new general rule.
According to the new approach, the registered office or establishment of the taxable customer will determine the place of supply of the service instead of the VAT registration. This will have an effect on the VAT treatment of toll manufacturing and transportation services. Special rules will apply to the hiring of means of transport.
In view of these forthcoming changes, PwC suggests a review of contracts for cross-border services and the related VAT treatment in order to ensure that they comply with the changed regulations, which will come into effect on 1 January 2010.