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VAT on sales of software to EU reseller - Place of supply

Hi all

My UK based VAT registered client company develops and sells bespoke business software to a Republic of Ireland based reseller (also VAT registered).

The nature of the software means that it will only ever be sold onto business customers.

However, the reseller will not be using the software itself and my client may not know where the ultimate customer is based as the reseller may sell throughout the world.

Am I over complicating things and should the sale simply be to Ireland? i.e. zero rated with reverse charge to be applied by the Eire based reseller as the customer?

The reseller does provide a sales list upon which the royalties are based, should the place of supply be based on the ultimate customer on this list?

In short, is the reseller the customer or is it the ultimate customer the customer?!

Secondly, how important is it for the supplier to state "This supply is subject to the reverse charge" on the invoice?  Is it not for the customer to figure out whether reverse charge applies?

Finally, can someone please confirm that the requirement to register for VAT in Ireland only applies to Distance Selling and not this particular scenario?  My client will soon be over the VAT threshold (in Ireland) in selling to the reseller so wanted to double check.

Many Thanks

Replies

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By Hansa
30th Apr 2012 12:00

More information needed

 

If the "sales" to an Irish  Company were for physical goods or indeed completed services then the answers to your questions would be fairly simple ... Yes, reverse charge Yes, "This supply is subject to the reverse charge" should be on invoice Yes, Local (Irish) registration NOT required (B2B) .  However the above may not apply as it is not clear what the nature of the "sale" actually is. - is the relationship of an agency nature?, does the Irish company have unencumbered world wide-selling rights?  Do they have FULL (ie royalty free) ownership of the software once it crosses the Irish Sea?.  Does the UK company have any direct relationship (eg support) with the end clients etc etc.

This may turn out to be somewhat more complex than first appears given the nature of the product

 

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By ashohid
30th Apr 2012 13:12

Thanks - additional info

 

·         Client sells OEM to reseller

 

·         No end user contact

 

·         Support provided to reseller for embedding into their systems

 

·         Reseller then provides support to end customer

 

·         Royalty charged % of sales value (no base charge)

 

- Unencumbered world wide-selling rights? – yes but reseller only sell to UK at present

 

 - Do they have FULL (ie royalty free) ownership of the software once it crosses the Irish Sea – No, Intellectual Property rights held by client.

 

- Does the UK company have any direct relationship (eg support) with the end clients etc etc - No

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By Hansa
30th Apr 2012 13:46

In that case ...

Yes, reverse charge 

Yes, "This supply is subject to the reverse charge" should be on invoice 

Yes, Local (Irish) registration NOT required (B2B) 

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By ashohid
30th Apr 2012 15:08

Thanks
Many thanks

One further point to clarify if i may.

Ive assumed zero rated but looking at a vat guide this looks to be outside scope of UK VAT rather than zero rated.

What is the implication on applying reverse charge if outside scope of UK VAT?

Should client also state that supply is outside scope of UK VAT on invoice?

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By Hansa
30th Apr 2012 16:32

Why "outside scope" of VAT?

A sale of a service cannot 'be outside the scope of VAT' if sold within the EU if it would be VAT-able within the UK.

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By ashohid
30th Apr 2012 18:20

Notice 741A

I'm looking at Notice 741A

 

Table at 23.2, third row down

 

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_PROD1_029955&propertyType=document#P1428_168841

 

 

In fact section 18.10.2 goes on to say the following.

 

 

18.10.2 What if I receive exempt or zero-rated services?

The reverse charge does not apply to exempt services or zero-rated services.

 

So it seems to me that it is 'outside scope of UK VAT'and reverse charge applies!

Or am I missing something?!

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