A law of unintended consequences – coming soon

This article is based on an original piece and subsequent conversation

with AsiaInfo’s Regulatory expert Linda French – @RegAffairsEMEA

You would be forgiven for filing news of a new VAT law in the ‘boring but important’ pile of regulatory changes. But this new one has some interesting and possibly challenging consequences.

From January 2015, the playing field of communications services is getting another levelling from the regulator, as he (or she) attempts to make things fairer for suppliers of services within the EU. In essence, from January, VAT will be payable where the customer is based, not where the supplier is based (with a few exceptions).

There are various rules that determine where a service is delivered. A German address, fixed line account and internet service will mean that German VAT will be applicable to services delivered to a customer in Germany.

Which is fine.

It also means that a provider of digital services based in Brazil, offering services to customers in France, Germany and Spain will need to pay French, German and Spanish VAT. Which obviously seemed overly complex even to our friends in Brussels. So they set up a Mini One Stop Shop (MOSS, of course) scheme where the Brazilian company can register and remit VAT to any one of the three countries and that country will allocate the VAT to the other authorities.

Which is also fine (although they will need to order a few miles of red tape to make it work).

What is not so fine is when the German customer works in France during the week and gets a French SIM card from, say, Vodafone (other providers are available). Vodafone must now send the customer two invoices – one with German VAT, the other with French VAT. This would clearly be somewhat irritating to, say, Vodafone (other providers are still available) who has spent the last decade getting to a convergent billing environment in order to reduce costs and provide greater clarity to the customer. The functionality of their systems will need to be pretty sophisticated.

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The other little twist, which had the folks on BillingViews Boulevard chuckling with the irony of it, is that it could be cheaper to send a text from Germany to Germany using a UK SIM card. Why? Because of the roaming regulations, which will abolish premium roaming rates across Europe.

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Obviously the impetus of the new VAT law – and law it will be – is to stop large companies sheltering themselves from VAT and other taxes, but, in theory at least, this could put a large spanner in the move towards simplicity, clarity and convergent charging.

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About Alex Leslie 400 Articles
Alex was Founder and CEO of the Global Billing Association (GBA), a trade body focused on the communications sector. He is a sought after speaker and chairman at leading industry conferences, and is widely published in communications magazines around the world. Until it closed, he was Contributing Editor, OSS/BSS for Connected Planet.


  1. Hi Dominic – response from Linda:

    There are several pieces of information that can be used to determine where the consumer resides; home address, fixed line location, where your family reside….. And the country code of the SIM. The country code of the SIM supersedes any other piece of information. Thus fixed address verses country code of SIM, SIM would prevail.

    The law has very much considered this scenario of prepaid “anonymous” subscribers, which is why the law works well for this. Simply put, no matter where or who purchases an EU country code prepaid SIM, EU VAT will apply at the rate of VAT in that EU country code of the SIM. Likewise, if you buy a prepaid SIM with a country code outside of EU (let’s say Japan); no EU VAT would be applied , but probably there would be some Japanese taxes (dont know rules in Japan).

    This law makes it easier in the case of prepaid anonymous subscribers, where consumer location could be very difficult to ascertain.

    • Hi Alex, I only just saw this response, so apologies for the late reaction!

      So, if the SIM country code is going to be used to deal with the anonymous prepaid scenario then aren’t we back to square one? CSPs could simply setup an operation based in a low/zero-tax country, and then sell these prepaid SIMs in other EU countries and dodge the tax?

  2. Very interesting! So what happens when you buy a prepaid SIM in another country, where you don’t receive a bill and the tax is effectively included in the price of the top-up? Do they then ask you where your home is and give you a different price for the top-up according to the corresponding VAT rate? Or does the tariff (price per minute) need to automatically change somehow?! This sounds like a nightmare waiting to happen…

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