OTM 6.5 – April 2014

Adjustments in line with the turnover tax (VAT) legislation of the European Union

The European Union has expanded its Directives regarding the issuance of supporting documents that are relevant for turnover tax purposes (invoices and credit notes). This expansion means that, under certain circumstances, supporting documents within the EU must include a note to the effect that the tax liability will pass to the person to whom the services are provided.

As from version 6.5 onwards, OTM has been adjusted in line with these Directives. These adjustments are relevant for OTM licensees having their place of business in an EU country.

Requirements

The following requirements must be observed when including the note regarding the transfer of tax liability in any supporting documents:

1. The supporting document is created in connection with a cross-border transaction within the European Union.
2. The recipient of the delivery  (customer) has a VAT identification number.

Provided that the requirements under nos. 1) AND 2) above have been met, the supporting document must be issued WITHOUT turnover tax and include a note regarding the transfer of tax liability.

If only the requirement under no. 1) has been met and the customer has no VAT identification number, the supporting document must be issued WITH turnover tax shown and the note regarding the transfer of tax liability must not be included.

Supporting documents that may contain the note regarding the transfer of tax liability

• Invoices and partial invoices to clients
• Invoices for resources (payable vouchers)
• Credit notes for resources (payable vouchers / credit notes for creditors)

Amendments/supplements within OTM

>Administration >Preferences >Taxes now has a new section that shows the wording for the note regarding the transfer of tax liability in all EU languages. It should be noted that these wordings are merely SUGGESTIONS and may be edited by OTM licensees as they see fit.

OTM analyses the data of both the service provider and the customer and adds the notice to all supporting documents if the requirements have been met.

This also applies if a client invoice is issued to a billing address that does not meet the above requirements. Example: The client's registered office is located in the same EU country as the OTM licensee's place of business. However, the invoice for the project is issued to an address in a different EU country.

The OTM client administration has been updated accordingly for this purpose:
Invoice recipients whose billing address does not meet the requirements are now being recorded via several entry fields (including the VAT identification number, if applicable). This enables OTM to recognise whether the requirements for the inclusion of the above note have been met.

Several invoice recipients may be stored for one and the same client. Where several invoice recipients are stored for one and the same client, one of these invoice recipients may be marked as the default. This address will then automatically be used for all future projects for that client.

Invoices issued to an alternative invoice recipient are marked with a colour to indicate this in the OTM accounting module.

Wording of the note

As the EU has not set out any exact implementing provisions (as at March 2014), we suggest the following wording:

Option A:
"This invoice is not subject to [French, English, German, ...] turnover tax in accordance with Article 21 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes. The customer itself bears the tax liability in relation to the tax authorities in its own country."

Option B:
"Please note that the tax liability transfers to the customer (reverse charge procedure)."

Option C:
"Note: The customer bears the tax liability."

Option D:
"Note: The reverse charge procedure applies."

Disclaimer

LSP.net GmbH shall not be liable for the accuracy or completeness of the above notes and explanations. OTM licensees are solely responsible for correct and lawful application of tax directives and laws in their own countries.

As the legislation and directives of the European Union are frequently subject to change, we recommend that OTM licensees obtain information regarding current amendments to tax legislation from their tax advisers or the competent tax authorities of their respective countries.

LSP.net GmbH
Berlin, 31 March 2014