Use and enjoyment for VAТ purposes is a principle that determines where a specific service is used, and where it should be taxed.
This principle is used to:
- prevent tax avoidance and non-taxation, in which case it’s referred to as negative use and enjoyment.
- avoid double taxation, in which case it’s referred to as positive use and enjoyment.
For governments who apply the use and enjoyment principle, the place where the service is consumed (i.e. where it was used and enjoyed) is the location of the supply of goods. This means that the destination country, rather than the country of origin, should tax the service.
Often, the provision of business supplies (B2B) is taxed in the country of the customer, while supplies of services to end customers (B2C) are taxed in the seller’s country.
If the consumption of a service takes place outside of the supplier country, it might be taxed in the country where it is used and enjoyed. If, on the other hand, a service provider is selling their services to EU customers, the supply’s location might be considered to be the EU country in which their services are consumed. Not all EU countries are using the use and enjoyment principle, though. EU members might decide to use this principle on a vast range of services, and it’s up to them to define which ones.
Use and enjoyment: services that might be concerned
Some of the services to which use and enjoyment rules might apply in the EU or in the UK are:
- Advertising and promotional services
- Consultancy services, including law and engineering consultancy
- Financial services
- Transportation services
- Telecommunication, radio and broadcasting services
- Assignment and copyright transfers
In most instances, use and enjoyment rules do not apply to services provided to non-taxable persons.
Use and enjoyment in the EU and in the UK
Let’s now look into some examples of the application of a use and enjoyment rule in the European Union. Some EU countries apply negative use and enjoyment, others apply positive use and enjoyment, and others use both rules.
Germany, for example, is applying a positive use and enjoyment principle. If a German seller provides services to a business located outside of the EU, the supply’s location is the country where the service is used (i.e. the country outside of the EU where the other business is located).
In Spain, a negative use and enjoyment rule applies. For some services, Spain is considered the place of supply, even if a Spanish business is providing services to a non-EU business.
British companies also need to comply with use and enjoyment rules in EU countries. Wherever their services meet the conditions and limitations imposed by the destination country, they might be subject to VAT in it, i.e. positive use and enjoyment might apply. The UK will continue to apply its own set of use and enjoyment rules (both positive and negative), however, which might sometimes lead to double taxation.