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European Telecommunications Network Operators' Association



Open Letter on OECD Discussion Draft on International VAT/GST Guidelines for Business-To-Consumer (B2C) Supplies

To: Piet Battiau, head of consumption taxes at the OECD's Centre for Tax Policy and Administration

Dear Mr Battiau, 

We write to respond to the OECD Discussion Draft on International VAT/GST Guidelines for Business-To-Consumer (B2C) Supplies (hereafter ‘The B2C Guidelines’), which was released for public consultation on 18th December 2014.

The ETNO-GSMA Tax Policy Committee (The Committee) appreciates the opportunity to provide its input at this stage of the process and provides the following comments.

In general, we applaud the work that the OECD is doing to bring greater consistency and certainty to the international VAT environment. 

We have considered the draft in consultation with our members and have agreed on the following key points, which we feel should be made in relation to the content therein.

Firstly, we would like to comment on the overall conclusion reached by the guidelines on supplies of services which are not covered by Guideline 3.5 i.e. that the place of taxation of such supplies (including supplies of telecoms) should be the jurisdiction in which the customer has its usual residence.  Paragraph 3.12 in particular states that ‘A place of taxation rule based on the customer’s usual residence is…..reasonably practical for suppliers to apply, provided a simplified registration and compliance regime is available… and for tax administrations to administer, provided it is supported by effective international cooperation in tax administration and enforcement…’. 

We would like to strike a note of caution in relation to this conclusion. We believe that implementing the destination principle as a solution for B2C supplies will bring significant challenges, which should not be underestimated. The compliance and administrative burden for business will be huge even with the possible introduction of appropriate registration thresholds and well-designed simplified registration frameworks. Furthermore, we believe that the enforcement of the destination principle will be incredibly difficult, if not impossible, across the board, with the consequence that a level playing field does not appear achievable via implementation of these guidelines.  We therefore have doubts as to whether the ‘usual residence’ proxy can meet the OECD criteria of neutrality, efficiency, certainty and simplicity, effectiveness, and fairness in practice.

It is worth noting that the experience of the EU 2015 changes so far has been that many businesses have already been forced to close, offer products for free, decline to serve certain markets or have had to fundamentally change their business models (impacting consumer pricing and business margins) as from 1 January 2015.  This is the case after less than two months and even in the presence of a very well designed, simplified Mini One Stop Shop system.  Indeed the EU 2015 changes, introduced without a threshold, have only been made workable for even large business via extensive consultation with the affected sectors in order to arrive at defined and practical ‘presumptions’.  Without these presumptions, it would have been practically impossible for the telecoms sector to apply the destination principle in the many cases where our customers are totally anonymous.  This kind of extensive engagement with business will not be possible on a wider global scale, thus further jeopardising the application of the B2C Guidelines in practice.  In general, we would have expected the OECD to have taken a longer time to evaluate the EU 2015 system to see how it works in practice, before recommending it on a wider scale.

If we accept the move towards the destination principle for a moment however, we would nevertheless suggest that the statement in paragraph 3.12 does not reflect the fact that, for the telecommunications industry, but also for many other small and micro businesses, a place of taxation rule based on the customer’s usual residence is still not at all practical to apply in the absence of per country VAT registration thresholds.   

By way of further explanation, the use of VAT registration thresholds would serve at least to limit the exposure of business and government to disproportionate compliance and audit burdens as countries move towards taxation of remote supplies on the basis of the place of customer residence.  The question of proportionality is particularly salient in the digital economy where the borderless nature of the internet means that businesses trading in one or a small number of countries may unintentionally acquire small numbers of customers resident in many other countries.  A telecoms company operating in the UK and actively marketing only to UK customers may still be forced to register for VAT in many countries.  Furthermore, we believe that threshold levels and related VAT regulations can be structured in such a way as to minimise any concerns relating to distortion and non-taxation, thus striking an appropriate balance between minimising compliance costs for non-resident suppliers and ensuring that resident businesses are not placed at a competitive disadvantage.

In this respect, it is worth stating here that we believe that a per-country threshold should be the aim.  Setting thresholds on a per company basis would introduce far greater scope for distortion and potential abuse, whereas the per-country threshold strikes a better balance between ensuring a proportionate burden on business and the minimisation of competitive distortion.

We note that some countries, such as Norway, South Africa and Switzerland have already introduced regimes such as that which is foreseen by the B2C Guidelines, and have introduced welcome registration thresholds as part of the regime.  The EU stands out as an exception in not having introduced thresholds, something we believe is an error, for the reasons set out within this letter.  We appreciate that the OECD may feel that the introduction of domestic registration thresholds is not a matter on which it can make recommendations, however we feel that consideration of appropriate thresholds is a necessary part of any move to implement the destination principle for B2C supplies, such that the point cannot be divorced from the guidelines on the place of taxation.    

We agree with the comments made in section C.3.2 that it is complex and burdensome for non-resident suppliers to comply with such obligations abroad and that simplified registration and compliance regimes are important in alleviating this.  However, as stated above, we believe that VAT registration thresholds are an essential part of any simplified VAT registration framework – without them, simplified registration does not of itself alleviate burdens on business and governments to a sufficient extent.  In fact, registration thresholds are arguably the more important element.  As an example, the following parts of a compliance burden would not be alleviated in any way by a simplified registration framework, but would be mitigated via the use of registration thresholds:

  • The need understand VAT rates, invoicing rules and complex specific local VAT rules
  • The need to understand time limits or procedures for making corrections
  • IT costs in relation to systems changes required to cope with charging the local rate of VAT
  • To actively monitor legislative updates and periodically refresh advice received
  • To deal with tax authority audits, taking advice and obtaining local support where necessary
  • Dealing with disputes, foreign court systems (including gaining knowledge of time limits, procedures and protocols)
  • To store and retain documents in line with local legislation

Thresholds are therefore important to ensure that businesses are not forced to register for VAT and to deal with all the complexities of a different VAT system in relation to a small number of supplies (and tax authorities are not forced to collect small amounts of tax). We believe that they will continue to be important for businesses even if there is increased, or even total, harmonisation of VAT place of taxation rules, coupled with simplified registration procedures. 

We therefore believe that the ‘Proportionality’  section within Annex 3 of the guidelines does not currently reflect the important part that thresholds can and should play in making a success of these guidelines.  We believe that the importance of thresholds and the role they can play should be made explicit in the guidelines within section C.3.2.  We agree with paragraph 16. of Annex 3 which states that ‘Jurisdictions should aim to implement a registration-based collection mechanism for business-to consumer supplies of services and intangibles by non-resident suppliers, without creating compliance and administrative burdens that are disproportionate to the revenues involved or to the objective of achieving neutrality between domestic and foreign suppliers.’ 

We support the comments at paragraph 3.23 which encourage jurisdictions to permit suppliers to rely on information that is readily available in the course of their normal business activity, as long as this evidence provides reasonably reliable evidence of the usual residence of the consumer.  We also feel that the recommendation to adopt a principle whereby the taxpayer can rely on evidence collected in line with these principles in all cases but those involving any misuse or abuse, reflects a good balance between achieving the correct taxation result, and providing businesses with adequate certainty.

Paragraph 3.24 highlights the potential challenges facing businesses which do not routinely collect any information from their customers.  In a telecoms context, particularly in relation to prepaid services and one-off, or event-based telecommunications services, it is worth noting that it may be practically impossible for businesses to identify the residence of their customers.  In this respect, we feel that the B2C Guidelines can only be workable for the telecoms industry if they are introduced with clear and defined presumptions – for this reason, we believe that the B2C Guidelines should include examples of workable presumptions and should take steps to formalise these as far as it possible. 

We believe that in order to make the B2C Guidelines at all workable for the telecoms sector therefore, a combination of presumptions and per-country thresholds will be essential.

In section D.2.2, the guidelines consider examples of where a specific rule could be desirable in a B2C context. In paragraph 3.47, we note that in the second bullet it is stated that, ‘the general rule based on the place of usual residence of the customer…may not be sufficiently accurate in predicting the place of final consumption in cases where this consumption is most likely to occur somewhere other than in the customer’s usual place of residence’.   We would like to point out that there are certain types of telecoms supply which we believe would fall into this category, such as local break out services, and other telecoms business models where consumption is unlikely to align with the place of residence of the customer.  We would recommend that the application to certain telecoms business models should be made clear here, with specific examples being mentioned.

Finally, we note the guidance provided in respect of input tax recovery for businesses which are registered for VAT under a simplified regime i.e. that jurisdictions may wish to remove the right to input tax recovery in this case.  While appreciating the reasons for this and that it is likely to be a necessary compromise, we note that it is potentially contrary to the neutrality guidelines and would suggest that jurisdictions be encouraged to allow input tax recovery up to the value of output tax included on the returns.

We would be pleased to discuss our responses with the OECD further and look forward to participating in this work as it progresses.

Yours sincerely, 


Members & Observers - View companies map

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  • Proximus
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  • Telecom Italia
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  • Telekom Slovenije
  • Telenor
  • Telia Company
  • Vivacom
  • AT&T
  • Cisco
  • Ericsson
  • Huawei
  • Nokia
  • Prysmian Group
  • Qualcomm Europe Inc.
  • Verizon

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