ACCA Advanced Taxation (ATX) Practice Exam

In a business-to-business (B2B) transaction, where are services charged for VAT?

1. Where the supplier is located

2. Where the customer is located

3. Where the services are delivered

4. Where the invoice is issued

The correct answer is: Where the customer is located

In a business-to-business (B2B) transaction, the general rule for Value Added Tax (VAT) on services is that the place of supply is determined by the location of the customer. This means that if a supplier provides services to a business customer located in another country, the services are considered to be supplied at the location of the customer. This principle is in line with the VAT rules that ensure that the tax is applied in the country where the consumption of the service actually takes place. It avoids situations where suppliers are charged VAT based on their location, as this could lead to complexities and complications in VAT compliance, especially in cross-border transactions. The rationale behind this is to simplify tax arrangements for businesses, ensuring that they are only liable for VAT in the jurisdiction where their customers are based. Additionally, it helps prevent potential double taxation or tax avoidance strategies that could arise from differing tax jurisdictions. In contrast, the other options refer to various locations that do not align with the established principles of where services are considered supplied under VAT rules. Hence, focusing on the customer's location provides clarity and consistency in VAT enforcement in business transactions.