On 13 December 2007, the Council of the EU published proposed new legislation that will change the place of supply of many cross-border services for VAT purposes, generally, with effect from 1 January 2010. The aims of the proposed legislation are to ensure that VAT on services accrues to the country where the service is consumed and to prevent distortions of competition between member states that operate different VAT rates.

The package of proposed new rules is contained in:

1. A draft Directive on the place of supply of services.

2. A draft Directive on procedures for VAT refunds to businesses established in a member state that is not the refunding country.

3. A draft Regulation on improved administrative co-operation and exchange of information between member states.

The proposed new rules represent a significant extension of the reverse charge mechanism for business to business supplies. This will have significant compliance implications for all businesses receiving cross-border supplies and, for partially exempt businesses, may affect the amount of irrecoverable VAT which they suffer.