Charging electric vehicles and VAT

With the growth of electric vehicles across Europe, the VAT treatment of charging has become an important topic. Using a case study we work through the two links in the chain.

A business offers customers the ability to charge their electric vehicle through an app with an associated subscription, and charges the customer for both the subscription and the electricity. The business is established in Italy and already offers this there, but wants to extend the service for its Italian customers to the Netherlands. For now, all customers are established or resident in Italy.

The business receives periodic invoices from the electricity supplier and from other suppliers that make the package possible. How does the supply of electricity, that is the charging, work for VAT?

The two links

To determine the consequences, it must first be clear what the transactions look like. There are two links:

• between the electricity suppliers and the Italian business (A to B)
• between the Italian business and the customer (B to C)

The first link is always B2B, the second can be either B2B or B2C.

Is electricity goods or a service?

Electricity is an odd one out. The rule is that anything that is not goods is a service. Because electricity is intangible, you might conclude it is a service. It is not: electricity qualifies as goods. The distinction matters a great deal, because it produces a different VAT treatment.

Link one: where does the supply take place?

Supplies of goods are in principle taxed in the country from which the goods are dispatched or where they are located. Electricity is an exception: where the customer is a reseller, tax arises where that customer is established. In the A to B link the supply is therefore taxed in Italy, because the Italian business resells the electricity.

Note that there is no actual transfer of the right to dispose, which is required for a supply of goods, because it is the end user who charges the vehicle directly. The Italian business nevertheless becomes part of the transaction by intervening in its own name. The commissionaire fiction means that for VAT purposes there are two relevant transactions after all: the purchase and the sale of the electricity.

As to invoicing: where the electricity supplier is established in the same country as the Italian business, it charges Italian VAT, which the business can deduct in full. Where the supplier is established outside Italy, the Italian VAT is subject to a mandatory reverse charge. The business can deduct that reverse-charged VAT in full, adding and subtracting it in the Italian return.

Link two: where is the VAT charged?

In the second link the supply is taxed where the charging takes place. For B2C transactions the party supplying the end user must therefore be registered for VAT in the country where the charge point is located and charge local VAT.

An Italian consumer charging in the Netherlands will therefore receive a bill including Dutch VAT. Where an Italian business charges its car in the Netherlands, Dutch VAT must likewise be charged. A reverse charge is not possible here, because the customer is not established in the Netherlands. That business can reclaim the VAT through the refund procedure for foreign VAT, provided it meets the conditions.

The additional services

Alongside the electricity, B also offers services such as use of the app and the associated subscription. How these are treated depends on the situation.

Where a fixed fee is charged for them, separate from the supply of electricity, there is in our view a separate service. That falls under the general rule: for B2B the VAT is reverse charged to the customer, for B2C the service is taxed in the customer's country and local VAT must be charged.

Where those services are paid for only through a mark-up on the electricity taken, there is in our view no separate service. It is then subsumed into the supply of goods and follows its VAT treatment. It is therefore important to be clear about how these services are presented and offered.

In summary

In the first link, VAT is charged in the country where the customer is established, because that customer is a reseller. Because of the commissionaire fiction, the rules for buying and selling goods apply even without a direct transfer of the right to dispose. Where the supplier is established outside the reseller's country, the VAT is reverse charged. That also brings practical benefits for cross-border suppliers, because it avoids registrations.

In the second link, VAT is charged on the basis of where the charging takes place. Always keep the local rules on reverse charges in view, and consider whether additional services are being offered.