Analysing transactions from a VAT perspective requires an understanding of the underlying activity which is taking place. Just like the analysis of any other transaction from a VAT point of view, transactions involving DLT assets should also be guided by the existing VAT provisions, principles and jurisprudence which is found in existing VAT legislation. From a VAT perspective, a transaction must be analysed by reference to the nature of the activities, the status of the parties involved, and the specific facts and circumstances of the particular case.
A crucial analysis from a VAT perspective is the determination of the place of supply of the good or the service being provided. Very relevant to mention especially in the context of DLT asset transactions is the VAT treatment of supplies deemed provided electronically for VAT purposes, commonly referred to as electronically supplied services (ESS).
From a Malta VAT perspective and also in line with the EU VAT directive, services that are delivered over the internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology qualify as electronically supplied services (ESS). Based on such definition, careful analysis must be made when considering the VAT implications for certain transactions in the DLT sphere such as the provision of a crypto exchange platforms. In fact, Council Implementing Regulation (EU) No 282/2011 which lays down the implementing measures of the EU VAT directive mentions specifically services automatically generated from a computer via the Internet or an electronic network, in response to specific data input by the recipient.
The VAT treatment for ESS differs from other services when the service is provided in a B2C (business-to-consumer) context, that is when the customer is not a taxable person. For ESS the place of supply of the service, i.e. the place where the service is subject to VAT or otherwise, should be where that customer is located for VAT purposes. This poses a challenge to suppliers providing exchange platforms which are automated, involving minimal human intervention, as the location of the customer becomes crucial in arriving at what VAT is to be charged, if any, as well as the right of input VAT recovery that the supplier of the service will have.
Input VAT Recovery
Input VAT recovery is linked to whether the supply is subject to VAT or exempt in the location of the customer, and also how the service is treated from a Malta VAT perspective i.e. should the supply take place in Malta. This means, that the Malta VAT treatment becomes crucial to determine what VAT can the company recover. From an administrative perspective, having customers located elsewhere does not mean multiple VAT registrations in every country, as a simplified procedure referred to as the Mini-One-Stop-Shop (MOSS) system is in place whereby the supplier can opt for one single reporting registration in the country where established.
Director, Tax Advisory Services