Buying services from Google
We regularly see Dutch businesses buying services from Google and failing to report them correctly. Invoices also sometimes show Dutch VAT when they should not.
Buying in services: what are the VAT consequences?
The VAT rules in all 27 EU member states are based on the VAT Directive. The general rule for B2B services is that they are taxed in the customer's country (article 44 of the directive).
Where the supplier is established in the same country as the customer, the supplier charges VAT. The customer can deduct that VAT if it makes taxable supplies.
Where the supplier is established outside the customer's country, the VAT of the customer's member state is reverse charged (article 196). The customer declares local VAT as due on its own return, and can deduct it again if it makes taxable supplies.
Where a Dutch business buys services from Google, that same general rule applies. Google is established, most likely for tax reasons, in Ireland.
Ireland and Northern Ireland
In practice these are often assumed to be the same territory. They are not. Northern Ireland is part of the United Kingdom, along with England, Scotland and Wales, and since Brexit the United Kingdom is no longer part of the EU.
The confusion may arise because for transactions in goods, such as intra-Community supplies and acquisitions and distance sales, Northern Ireland is still treated as EU territory. For services, however, Northern Ireland is a non-EU country.
Because Google is established in Ireland, the Dutch business is buying services from a supplier established in the EU. It reports the invoice amount and the reverse-charged VAT in box 4b and deducts that VAT again in box 5b. On balance no VAT is actually paid.
To apply the reverse charge, Google must issue an invoice showing the customer's Dutch VAT number and a reference to the reverse charge, such as "VAT reverse charged". Google must include the service in its Irish recapitulative statement, in the services column.
So make sure your Dutch VAT number is stated when placing an order.
Ordering without a Dutch VAT number
Where the business does not identify itself with a Dutch VAT number, Google treats it as a non-taxable person. Because these are mainly digital services, article 58 of the directive deems them to be supplied in the customer's country. Dutch VAT is therefore due in that case too, but on the assumption of a non-taxable customer Google cannot reverse charge and instead charges 21% Dutch VAT.
In practice we see that VAT being deducted as input tax. That is wrong. This is a B2B situation in which Google should have reverse charged. The business should have given its own VAT number when ordering and did not. By claiming a deduction it makes clear that it is a taxable person, whereupon the tax authorities must refuse the refund because the VAT should have been reverse charged. The VAT is therefore wrongly shown on the invoice.
Note that businesses making exempt supplies and businesses applying the small business scheme also encounter reverse-charged VAT. They fall under the B2B rules, even though they owe no VAT on their turnover. To be able to declare the reverse-charged and non-deductible VAT, they must contact the tax authorities and request an active VAT number.