What does supplied where received mean? I was talking to an old friend recently about VAT. He runs his own business and does his own VAT returns, having originally trained as an accountant many years ago.
He was making the point that unlike direct taxes, VAT seems to have a different language all of its own. For example, accountants talk about income while in VAT speak we talk about outputs – it’s almost as though VAT is deliberately written in opposite language. And what on earth, he said, is this business of “supplied where received”?
Making it make sense…
I’ve recently been working on the forum article which I posted yesterday about the consultation process on the place of supply of services (“POSS”), here https://vatexchange.co.uk/forum_Place_of_supply_of_services. As the article explains, this term simply refers to the country in which the VAT liability arises for supplies of services.
Now I know that the subject of POSS sends a lot of people to sleep. The principles involved seem to be unusually complex. You have to try to remember lists of services covered by this rule or that rule. But if you can take a minute to get your head round the principles involved then life in the VAT world will become a lot easier to understand. 
And I think I can help. Even if you don’t have time to read the article, just reading this blog should help you to understand one of the basic principles. And once you understand this principle, the rest of the rules should make a whole lot more sense.
Trying to understand the Europeans!
One of the reasons that the subject of VAT, and concepts like the POSS, is so complicated is that it is based on EC legislation, which of course was written in French and is based on the European legal tradition, which is different to the UK tradition.
Now, you all know I’m no solicitor, but I understand that the difference is that UK legislation is literal, ie you look at the the exact meaning of the words to understand it, where as European legislation is purposive, ie you look at the intent of the legislation to understand it. I’m sure I’ve oversimplified that explanation or maybe I’ve got it plain wrong, in which case I’d be happy if anyone out there could explain it better. But I think it’s sort of right.
Either way, not only have we got to deal with translating the original words, but also how to interpret the words.
In the forum article, I’ve tried to explain the POSS and how the rules apply to different types of services. Although it is a bit of a read, it is only a very brief explanation of how the rules work and only really scratches the surface of the whole subject. Not only is the legislation itself a lot more detailed, but we also have years of caselaw both at UK and EC level dealing with all sorts of different aspects of the rules. And of course, we can’t forget that each member state of the EC has its own way of applying the rules, so once you think you understand the principles involved, you then have to learn 15 different ways of applying the rules.
So although one of my aims in life is to try to help people understand VAT, I’m very conscious of the old adage that a little bit of knowledge is a bad thing. Which is why I can only ever give people a bit of general guidance on the forums and point you in what I hope is the right direction. Hopefully it will be sufficient to help you work out the answer to your query.
One of those “Eureka” moments
But I remember a long time ago feeling particularly relieved when I had one of those “Eureka” moments, you know like a lightbulb gets switched on in your head and you suddenly understand something. And it was to do with the concept of “supplied where received” and the reverse charge.
In section 5 of my article and the appendix, I explain what is meant by “supplied where received” and how the reverse charge works for imported services. Ever since I started working in VAT in 1981, I’ve known the mechanics of the rule and the types of services to which it applies. But I could never really understand what it meant. People would refer to the “tax shift” and how you accounted for VAT on the return. But to me it was like being able to play the notes of a tune without feeling how the notes become a melody and a piece of music.
Anyway I think it was around 1992 when the penny dropped. Of course this was the time in VAT when the EC Single Market came into being and businesses were able to move goods around the EC without paying VAT at the internal EC borders. Instead, they started to account for VAT on imports from other EC countries (or “acquisitions”) on their VAT return as “acquisition VAT”.
What does “supplied where received” mean? I suddenly realised that this is what the reverse charge does for services. If you import certain types of services from overseas suppliers, eg if you have taken advice from a Spanish solicitor, he won’t charge you Spanish VAT. In the same way as though you were importing goods from Spain, where you would pay the VAT on your VAT return, the reverse charge mechanism works the same way for services.
Think of it this way, if it were goods, you’d physically import the goods by road, air or sea freight. They are declared at Customs border controls where you either pay or defer the VAT if the goods are from outside the EC, or account for acquisition VAT if the goods come from inside the EC. Similarly, if you’re coming back from holiday in the far east and have spent several hundreds of pounds on new electronic gadgets, you declare them at Customs when you fly back into the UK and pay any duty and VAT.
You can’t do that with services, so the reverse charge mechanism is the way in which the place of supply is “shifted” from one country to another and how businesses declare the VAT on those imported services.
So that is what is meant by “supplied where received”. It is simply the services equivalent of declaring the importation of services.
I hope that helps those of you who are struggling with this concept. Whilst I’m wary about oversimplifying VAT, this is one of those concepts that is actually very logical. Once you’ve got your head around this concept and the types of services that it covers, the POSS rules for other services make a lot more sense.