What about VAT on apps and other electronic services?

Digital infrastructure Digital services Innovation

Open letter to the Swedish Tax Agency: The issue of how VAT should be handled when selling electronic services has recently been the subject of extensive reporting in various media. Now that the government decided on March 3, 2011 to grant Stardoll AB an exemption from paying Swedish VAT for electronic services when these have already been taxed in another EU country, the issue has been revived. What now for other operators? How should they act to avoid ending up in the same situation as Stardoll AB did?

To: Swedish Tax Agency

Stockholm, March 29, 2011

The Swedish Tax Agency has recently launched a new service (an app), the possibility to file tax returns on your mobile phone. This service obviously requires that the person who is going to declare first downloads an app from the App Store or Android Market.

The issue of how VAT should be handled when selling electronic services has recently been the subject of extensive reporting in various media. Now that the Government decided on March 3, 2011 to grant Stardoll AB an exemption from paying Swedish VAT on electronic services when these have already been taxed in another EU country, the issue has been revived. What now for other operators? How should they act to avoid ending up in the same situation as Stardoll AB did?

The industry is aware that the VAT issue will be discussed in the EU VAT Committee and that possible guidelines from this body may come sometime in the spring. However, it is unlikely that these guidelines will answer all the questions that the Swedish industry has. Moreover, answers are urgently needed. Businesses need clarity to be able to adapt. In addition, many companies are considering relocating abroad to avoid the uncertainty that currently exists. There is therefore also an urgent need to prevent unnecessary relocation.

The following organizations represent an entire industry with companies for which the issue of VAT management is still not resolved. The following organizations therefore want the Swedish Tax Agency to take a position and explain its view on how VAT should be handled when selling electronic services, especially in cases where another company collects the payment for the service.

The following organizations may therefore raise the following very important questions on behalf of the industry, for which there is a great need for solid guidance in order to achieve predictable taxation:

1. What determines who is liable for tax on the sale of electronic services? Is it who invoices the customer or who is contractually liable to the customer for the service or are there other circumstances that are decisive? In other words, when does a Swedish company become liable for tax on the sale of electronic services to private individuals resident in other EU countries and when does this liability pass to another taxable person?

2. If the EU Member States cannot agree on the question of who is liable for tax, double taxation may arise. How does the Swedish Tax Agency view this situation, i.e. how should companies act to avoid this situation? Should all Swedish operators apply for an exemption and, if so, what documentation is required for the Swedish Tax Agency to accept the exemption application? Or does the Swedish Tax Agency see that there is another way to handle the situation?

The following organizations look forward to an open dialogue with the Swedish Tax Agency on these issues.

IT&Telekomföretagen, Dataspelsbranschen, Föreningen Svensk Programindustri, Företagarna, , Svenskt Näringsliv and Promise