Legal Justification Tax Reporting Types

Legal justification tax reporting types are introduced to support the European Union (EU) value-added tax (VAT) changes for the year 2010. The changes intend to modernize and simplify rules relating to cross-border supply of services and recovery of input tax.

These are the most far-reaching changes to VAT law since the introduction of the Single European Market in 1993. This impacts all businesses, which supply and purchase services across EU countries. Companies must rethink their service flow, as well as, their compliance and reporting obligations.

The new rule for place of supply of services, for tax determination in a business-to-business transaction, is where the customer is established and not where the supplier is established, as is the case before January 1, 2010. Therefore, if services are supplied in another EU member state, they are taxable in the recipient's country. For business-to-customer supply of services, the general rule for place of supply continues to be the place where the supplier is established. There are exceptions to the new rule for certain types of services. Examples include: services provided for immovable property, passenger transport services, cultural, and educational events. It also includes ancillary services, short term hiring of means of transport, and restaurant and catering services carried out on board a ship, aircraft, or train within the EU.

Legal Messages

A legal message specifying that the customer of such services must self-assess the relevant tax, should be printed on Receivables (intra-EU services) invoices. Create a Bill Presentment Architecture template to print the legal justification message on the Receivables invoice. The exact text of the message is defined by the country-specific legislation. The reporting code is also a selection parameter to display the intra-EU services invoice lines on the European Union Sales Listing report.

Configure these messages using the Create Tax Reporting Types page. Associate these messages to invoices with a tax rate definition and a tax rule result. When defining these tax reporting codes, the tax reporting purpose is the Legal justification message type. The applicable reporting type uses are Process Result and Tax Rate. Enter the legal justification text which should be as defined by legislation.