EU Finance Ministers have adopted the so-called VAT package legislation implementing new rules on the place of supply of services.

The new rules will ensure that VAT on services in the EU will accrue to the country of consumption and will establish a new procedure for claiming VAT refunds to ensure quicker processing.

The new legislation, which enters into force on January 1, 2010, includes some exceptions, including one on yachting services successfully negotiated by Malta.

Council sources yesterday confirmed that Malta had requested and obtained a derogation so that the new rules will not apply to its yachting services.

Malta had insisted with its EU partners that the new rules should not apply to the hiring of yachts and other yachting facilities in Malta, particularly those for long lets. The derogation will make it possible for Malta to remain eligible for VAT taxes from this lucrative sector.

According to the Commission's original proposal, a company or an individual, say of Italian nationality and residing in Italy, that hires a yacht berthed in Malta for a year would have started paying VAT in Italy. Malta objected to this and insisted that VAT on yachting has to be paid at the place where the service is consumed.

Following tough negotiations, particularly with Spain, which was objecting to Malta's suggestion, the EU agreed to grant Malta the concession.

This Ecofin approval will mean that as from the beginning of 2010, business-to-business supplies of services will be taxed where the customer is situated rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established. At the same time, the procedure for reimbursement of VAT incurred by EU businesses in member states where they are not established will be replaced by a new fully-electronic procedure, ensuring a quicker refund to claimants.

With regard to telecoms, broadcasting and electronic services, the introduction of the new rules on the place of business to consumer supplies will be delayed until the beginning of 2015.

European Taxation Commissioner Laszlo Kovacs welcomed the EU Finance Ministers' decision and said that these changes will ensure a more even playing field for businesses supplying services in the EU.

Member states will now have two years during which to transpose the new EU rules into their national legislation.