The Value Added Tax (Reverse Charge) (Anti-avoidance) Order 1997

Explanatory Note

(This note is not part of the Order)

This Order applies to services performed on or after 1st July 1997.

Article 3 amends Schedule 5 to the Act. It inserts paragraph 7A and amends paragraphs 8 and 9 of the Schedule. The amendment gives effect to a derogation from Article 9(1) of Council Directive 77/388 (OJ No. L145, 13.6.1977, p. 1) which was made by Council Decision 6236/97 (OJ No. L86, 28.3.1997, p. 33).

Where section 8(1) or 43(2B) of the Act applies, a supply of services within the description contained in paragraph 7A (“relevant telecommunications services”) or of the services of agents who procure such services, are treated as if a supply of services had been made in the United Kingdom by the recipient of those services. Prior to this Order a supply of such services was not treated as made in the United Kingdom where it was made by a supplier who belongs in a country other than the United Kingdom.

Paragraph 9 is amended so that a reverse charge is made by business customers to the extent that they use relevant telecommunications services which are treated as taking place in the United Kingdom by virtue of the Value Added Tax (Place of Supply of Services) Order 1992 (S.I. 1992/3121) as amended by the Value Added Tax (Place of Supply of Services) (Amendment) Order 1997 (S.I. 1997/1524).

Article 4 modifies the effect of regulation 82 of the Value Added Tax Regulations 1995 (S.I. 1995/2518). Articles 4 and 10 ensure that relevant telecommunications services are treated as supplied only to the extent that they are performed on or after 1st July 1997 and are not chargeable to VAT in another member State.

For the purposes of the time at which and the extent to which relevant telecommunications services are treated as supplied, Articles 5, 6, and 9 treat a right to relevant telecommunications services which was granted before 1st July 1997 and the services which are performed by virtue of that right as if they were a single supply.

Article 7 modifies the effect of paragraph 8 of Schedule 6 to the Act so that VAT is charged on a supply of relevant telecommunications services only to the extent that the supply is performed on or after 1st July 1997 and is not chargeable to VAT in another member State.

Article 8 applies to relevant telecommunications services which are supplied by virtue of a right to those services granted before 1st July 1997 where the consideration for those services is less than their open market value. However, for the purposes of the open market valuation, no account is taken of the right by virtue of which the services are supplied. Where article 8 applies, the effect of paragraph 8 of Schedule 6 to the Act is modified. The consideration for the services is deemed to be the lower of (i) the open market value of the services when they are valued as if they had not been supplied by virtue of the right and (ii) the sum of the consideration for the right and the consideration for the services which is reduced by the open market value of the right. However, for the purposes of that reduction, the right is valued as if it had been a right to supply the services at their open market value without regard to the effect on the value resulting from the existence of the right itself.