MicrosoftDynamicsAX VAT2010 WhitePaper

Microsoft Dynamics AX
VAT 2010
Support of the 2010 VAT
Package legislation in the
European Union
White Paper
Date: October 2009
Table of Contents
Introduction ................................................................................................ 3
VAT 2010 background and goals ................................................................. 3
Overview of changes to VAT rules ............................................................... 4
Place of supply rules for B2B services ...................................................................................... 4
Microsoft Dynamics AX impact ............................................................................................. 4
EU sales list reporting obligations............................................................................................ 4
VAT refund procedures .......................................................................................................... 5
One-stop shop option for VAT reporting ................................................................................ 5
Tax point on services............................................................................................................. 5
Status of VAT Package 2010 adoption ......................................................... 6

European Union .................................................................................................................... 6
EU Member States ................................................................................................................ 6
Significant changes to VAT management .................................................... 7

Reverse charge guidelines...................................................................................................... 7
Expected changes to the EU sales list ...................................................................................... 7
Other changes to reporting requirements ................................................................................. 8
Scenarios .................................................................................................... 8
Intra-EU purchase of goods .................................................................................................... 8
Extra-EU purchase of goods ................................................................................................... 9
Intra-EU supply of goods ....................................................................................................... 9
Extra-EU supply of goods ......................................................................................................10
Intra-EU purchase of services ................................................................................................10
Extra-EU purchase of services ...............................................................................................11
Intra-EU supply of services ...................................................................................................11
Extra-EU supply of services ...................................................................................................12
Changes to Microsoft Dynamics AX 2009 SP1, AX 2009, and 4.0 SP2 ........ 13
Reverse charge functionality..................................................................... 13
Frequently asked questions ...................................................................... 14
References ................................................................................................ 18
APPENDIX A .............................................................................................. 19
MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER
Introduction
This white paper contains information about how Microsoft Dynamics AX will support the VAT
Package 2010a set of changes to the European Union VAT rulesthat will go into effect on January
1, 2010.
Between October and December 2009, Microsoft will release various software updates, depending on
when tax authorities in each country/region make their requirements publicly available, to help
customers comply with the new regulations. One update is already included in Rollup 3 for Microsoft
Dynamics AX 2009 SP1 and Microsoft Dynamics AX 2009 RTM and is available as a hotfix for Microsoft
Dynamics AX 4.0 SP2. You must install this update before installing subsequent VAT 2010 updates.
The VAT Package introduces changes in the following key areas:
Place of supply rules for services.
EU sales list reporting obligations.
VAT refund procedures.
Introduction of a one-stop shop approach to VAT reporting.
EU-based companies that do business with VAT-registered businesses in other EU countries will need
to be prepared to calculate different tax rates for services on their sales invoices as of January 1,
2010. They will need to apply reverse charge tax for services on purchase invoices. February 2010 will
be the first reporting period for which the new reporting obligations for EU sales list and/or VAT
Declaration will apply.
This document will provide further guidance on the following:
Background details about the VAT Package changes in the EU.
Current status on adoption of legislation in EU member states.
Overview of the expected impact on changes to Microsoft Dynamics AX.
How Microsoft Dynamics AX customers can start now to prepare for the upcoming VAT changes.
In conclusion, the VAT Package rules will mean significant changes to the way that businesses function
in the European Union. The rules have the greatest effect on cross-border B2B services. Microsoft is
committed to supporting businesses in the EU by providing software updates and guidance for
changes to implementation parameters.
VAT 2010 background and goals

On February 12, 2008, the EU Council of Finance Ministers adopted the VAT Package, which includes
significant changes to the VAT legislation that governs cross-border transactions within the EU. These
changes are designed to:
Minimize the administrative burden for companies involved in cross-border trade.
Ensure that VAT on services accrues to the member state where the services are actually used.
Deter distortions of competition that occur when businesses relocate their operations to member
states with lower VAT rates.
Reduce VAT fraud by requiring companies to account for VAT collection and submission via the
reverse-charge procedures.
The VAT Package hinges on the distinction between business-to-business (B2B) services and businessto-consumer (B2C) services. A seller must know if the customer is a business or an end consumer in
order to determine if the new rules apply.
B2B VAT is calculated and payable in the member country/region where the service is consumed
(customer). B2B supplies include sales to any customer with a VAT number, including government
authorities, government departments, and flat-rate farmers.
B2C VAT is calculated and payable in the member country/region of the service provider
(supplier). B2C supplies include sales to any customer without a VAT number.
However, there are exceptions. The VAT Package identifies specific types of services for which the
principle of taxation is based on the place of consumption. Businesses must be aware of these
exceptions in order to apply the correct VAT calculation methods. The following services are some of
the exceptions:
Services related to real estate are taxable in the country/region where the property is located.
Cultural, artistic, sporting, and scientific services are taxable in the country/region where the
services are performed.
Vehicle leases are taxable in the country/region where the customer is located or where the
customer picks up the vehicle.
Transport of B2B goods is taxable in the country/region where the customer is established. For
B2C goods, transport is taxable in the member state of departure (intra-EU transport) or in the
country/region where transport takes place (domestic or extra-EU transport).
Restaurant and catering services are taxable in the country/region where the services are
consumed.
Broadcasting and electronic services are not subject to the new rules until 2015, after which these
services will be taxable in the country/region where the customer is located. Until 2015, these
services are taxable in the country/region of the supplier.
Overview of changes to VAT rules

The key changes introduced in VAT Package 2010, and their subsequent impact on Microsoft Dynamics
AX, are described in the following sections.
Place of supply rules for B2B services

VAT will be calculated based on the customers location, rather than the suppliers location. In most
cross-border transactions between two member states, the customer will be required to account for
VAT using the reverse charge mechanism if the supplier is not registered for VAT in the second
member state.
This new rule will drastically reduce the number of cases in which businesses in one member state
must pay VAT to another member state and then attempt to recover the VAT paid, thereby improving
cash flow and reducing administrative burden.
Microsoft Dynamics AX impact

For B2B transactions across borders, customers should expect to charge 0 percent VAT for both goods
and services on sales invoices. For purchase invoices, customers will need to calculate VAT and remit
the VAT amount to their home tax authority using the reverse charge mechanism. Businesses should
create new VAT codes to differentiate between goods, taxable services, and exempt services.
EU sales list reporting obligations

Under the VAT 2010 rules, cross-border services between two member states are to be reported on
the EU sales list. Currently, only goods are reported on the EU sales list. Also, the EU sales list will be
submitted monthly, rather than quarterly. These new requirements will have a huge impact on
companies that primarily provide services, since they were not required to submit EU sales lists prior
to 2010.

Customers must install updates to obtain the changes to the EU sales list report routines and file, as
well as the VAT declarations. Service industries will now be required to submit their EU sales lists to
the tax authority along with their VAT declarations.
VAT refund procedures

As of 2010, businesses in EU member states can submit VAT refund requests electronically to their tax
authority, which will be responsible for collecting the refund from the other member states and paying
the refund to the applicants. The current refund procedures, requiring submittal of paper forms
directly to the tax authorities of each member state, will be eliminated.
The electronic refund system applies to companies that are based in the European Union and covered
by the 8th Directive. Companies based outside the EU and covered by the 13th Directive must still
submit VAT refund requests manually to the tax authorities of each respective member state.
Companies that submit refund claims will be required to adhere to strict guidelines and filing
deadlines. Tax authorities will be required to pay and refund claims within four months of claim
receipt, or will be liable for paying interest.

Microsoft Dynamics AX will not support VAT refund claims for VAT paid to other countries by 2010.
This is normally done by an external tax refund service company. Many tax authorities plan to
introduce Web sites where companies can manually enter VAT refund requests for processing.
One-stop shop option for VAT reporting

As a long-term goal, the European Commission plans to simplify VAT reporting requirements by
requiring a business to register for VAT only once, in the EU country/region of their choice, allowing
them to account for VAT in all EU member states. The tax authority selected by a business to be their
one-stop provider will be responsible for appropriately redistributing VAT revenue to other member
states.
This one-stop shop concept will be rolled out gradually, industry by industry. It is already in place for
electronically delivered services, and is expected to be in place for telecom and broadcast industries
by 2015. When it is in place more widely, this concept will eliminate the need for businesses to
register for VAT and submit VAT declarations in multiple member states. However, businesses that
engage in B2C transactions will still be liable for calculating VAT according to the rules of the
country/region in which the customer is located.

Microsoft Dynamics AX will not add new functionality to support this concept by 2010. As this change
is rolled out to more industries, Microsoft will continue to evaluate the program changes that are
needed to support this concept.
Tax point on services

An additional rule introduced with the EU VAT Package Directive (article 44) defines the time the tax
point at which the VAT on services should be accounted. In those cases where the customer is
required to apply reverse charge VAT, such as purchase of services from suppliers in other EU
countries, the tax point should be when the service is provided, rather than at invoicing. This rule
raises several significant issues:
The purchaser of the services will not normally know the moment when the services are provided
or the value of the services, since there is no official document, such as a packing slip or shipment
notice, to indicate that the service has been performed. This information is generally found on the
invoice provided by the vendor. If the purchaser receives the invoice after the tax point at which
the VAT was due, technically they will be late in accounting for the VAT on the services.
There could be situations in which a purchaser receives an invoice for both goods and services.
The VAT on the goods would be due in the VAT period of the invoice, but the VAT on services
could be due in the VAT period in which the services were performed. The need to account for VAT
on one invoice during two accounting periods could complicate the VAT declaration audit process.
This rule applies only to services provided to other VAT-registered companies within the EU. This
means that the tax point for services supplied domestically will be different from the tax point for
services supplied to other EU members.
For services supplied cross-border within the EU, it is possible that mismatches could occur
between the VAT accounted for in a recipients VAT returns and the services reported in the EU
sales lists submitted by the service provider. Such discrepancies could trigger enquiries from the
tax authorities.
This new rule will have the most significant impact on businesses that cannot fully deduct input VAT,
because these businesses will have to pay part of the VAT due on services. Businesses with a right to
fully recover input VAT can normally fully deduct the VAT on these services in the same VAT return.
Because the EU rules went into force as a directive, each EU member state has the right to modify the
rules when they are implemented in local law or enforced. Since only a handful of countries have
formally adopted the VAT Package into local legislation, it is unclear as to whether countries are
adopting the tax point rule as written or modifying it. Tax authorities in the United Kingdom and the
Netherlands have announced that they will not enforce this rule, but will continue to accept the invoice
as the tax point for services performed cross-border in the EU. Other EU countries have not yet stated
their intentions.

Microsoft Dynamics AX will not add new functionality to support this rule by 2010, because tax
authorities have not issued guidance on how to support the scenarios mentioned above. After 2010, if
one or more countries require this rule to be literally followed, we will introduce necessary changes.
Status of VAT Package 2010 adoption

Although the content and the effective date of the VAT Package changes are known, individual
member countries have not yet released the details of how these changes will be implemented.
European Union
The compromises leading to the ECOFIN adoption of the VAT Package are final. However, since the
changes related to the VAT Package were adopted as directives, each EU member state must add (or
transpose) the EU legislation into their own legislation, requiring the parliaments of each member
state to agree on and pass the legislation.
EU Member States
As of October 2009, only six member states Germany, Malta, Greece, Portugal, Austria and the
United Kingdom have officially transposed the VAT Package into their local laws. Ten additional
countries have published draft legislation, but not yet enacted it into law. The remaining countries
have yet to make any draft legislation available to the public.
Each member state tax authority, under the auspices of its respective ministry of finance, is
responsible for establishing details and procedures for the calculation and reporting of the new VAT
rules and instructing businesses and accountants how to comply with the new regulations. Some
countries that have transposed the VAT Package into their local laws have also published compliance
guidelines. Some countries have not yet amended their local laws, but the tax authorities have already
issued guidelines under the assumption that the legislation will be adopted. Other countries have done
neither.
As of October 2009, only the United Kingdom, Belgium, Austria, the Netherlands, Sweden and Finland
have provided guidelines on the changes to the structure of the EU sales list. These six nations are
taking very different approaches to structuring the additional service-related data in the new EU sales
list. Some are changing only the requirements for reporting EU sales lists, and others are also
changing the requirements for reporting VAT declarations.
Refer to Appendix A for an overview of requirements for each EU member country/region.
Significant changes to VAT management

Reverse charge guidelines
Under VAT Package 2010, if a customer has a VAT registration number, the supplier should issue
invoices at 0 percent and indicate that the service is subject to reverse charge. However, although
most invoices will be taxed at 0 percent, there are two cases that must be considered when
determining whether a 0-percent invoice should be reported on the EU sales list.
Service taxable in the country/region of the customer If the service is taxable in the
country/region of the customer according to the B2B rules introduced in the VAT Package, the
supplier is obligated to issue the invoice without VAT and indicate it is subject to reverse charge by
the recipient. The supplier must include the invoice on the EU sales list submitted to the home
member state tax authority.
Service not taxable in the country/region of the customer If the service is not taxable in the
country/region of the customer, the supplier also issues the invoice without VAT and indicates that
it is subject to reverse charge by the recipient. However, the invoice should not be reported on the
EU sales list submitted to the home member state tax authority.
It is certainly much simpler to issue the invoices without VAT and apply the reverse charge rules.
However, suppliers now must conduct research to determine whether the services that they supply are
always taxable in all other EU member states, which imposes a new administrative requirement.
For purchases, invoices from suppliers in other EU member states will have 0 percent VAT applied for
both goods and services. When these invoices are entered into Microsoft Dynamics AX, the reverse
charge VAT must be booked. For most countries, the standard Use Tax functionality is used to post
the VAT liability, so that this can be included in the VAT declaration and eventually paid to the tax
authority.
Expected changes to the EU sales list

At this time, each EU member state requires that businesses report their sales of goods to VATregistered customers in other member states. This information, which is required by the European
Commission, allows each member state to share data in order to better audit the amount of VAT paid
and reclaimed.
At a minimum, all EU sales lists must contain three columns, or fields: the customers name, the VAT
registration number, and the total value of supplies for the period. Detailed transactions for the period
are summarized so that only one amount is reported per customer VAT number.
The format and medium vary from country to country. They include:
Paper Companies print out a paper report from Microsoft Dynamics AX and submit it with the
VAT declaration form to the local tax authority. The United Kingdom requires a paper EU sales list
report.
XML file, manual submission Companies create an XML file containing summarized details per
customer for the period, log on to the tax authoritys Web site, and either upload the XML file or
transfer the data contained in the XML file. Belgium and Germany follow this approach.
XML file, automatic submission Companies create an XML file containing summarized details per
customer for the period. Microsoft Dynamics AX connects to the tax authority server and submits
the data directly, following the protocols for authentication and encryption. The Netherlands uses
this method.
Derived from other reports Companies submit electronic files that contain more data than is
required for the EU sales list, which may include information for both sales and purchases and for
both domestic and EU-based trading partners. The local tax authorities share only the salesrelated information with tax authorities in other member states. Spain (340 report) and Italy use
this method.
Since the VAT Package rules mandate additional reporting of total services supplied per customer per
period, various options for changes to the layout of the EU sales list are possible. Each member state
may choose its own method for representation in the EU sales list report, which could include:
One record per customer Continue to present one summarized line (or record) per customer VAT
number with one amount for goods and one amount for services. The Netherlands will use this
approach.
Two records per customer Include up to two lines (or records) per customer VAT number. Each
line would list one amount but would be prefaced with a transaction type code (good or service) to
distinguish between the two. The United Kingdom will use this approach.
Separate EU sales list reports Continue to use the existing EU sales list report for goods, and
introduce an entirely new report, with a similar layout, for services.
Other changes to reporting requirements

Since VAT 2010 compliance requires that the tax authorities change their processes, some countries
are taking the opportunity to simultaneously introduce other changes that are not directly related to
the VAT Package legislation. For example, Belgium is adding new boxes to the VAT return. The Czech
Republic and Hungary plan to replace paper reporting with electronic filing.
Scenarios
The following scenarios provide an overview of how transactions are handled currently and how they
will change after the VAT Package rules go into effect in January 2010. The scenarios are based on
B2B transactions and assume that both companies have VAT registration numbers in their respective
member countries.
Intra-EU purchase of goods

Company A, located in the Netherlands, purchases a product from Company B, located in Germany.
Company B delivers the product to Company A in the Netherlands.
Current rules
After January 1, 2010
Place of supply
Netherlands
No change
VAT on invoice
0 percent
No change
VAT declaration Company

A
Company A reports the purchase on the

Dutch VAT declaration as an intra-EU
purchase. Company A is liable for the
VAT rate in the Netherlands on the
purchase. If the purchase is fully
deductible, Company A can include the
amount of VAT paid as input VAT to be
deducted.
No change

B
Company B reports the amount of the

sale on the German VAT declaration as
an intra-EU sale.
No change
EU sales list Company A
Not applicable
No change
EU sales list Company B

sale on the German EU sales list as an
intra-EU sale.
No change
Extra-EU purchase of goods

Company A, located in Belgium, purchases a product from Company B, located in China. Company B
delivers the product to Company A in Belgium.
Current rules
Place of supply
Belgium
No change
VAT on invoice
0 percent
No change

A
If Company A is authorized to import

goods without taxation, no customs
duties are assessed. Company A report
the amount of the invoice on the VAT
declaration as goods purchased outside
the EU. If the purchase is fully
deductible, the VAT amount can be
deducted as input VAT.
No change
If Company B is not authorized to import

goods without taxation, customs duties
are assessed. Company B must pay the
customs duties directly to the customs
office. Company B can then reclaim the
VAT paid to customs as input VAT on the
VAT declaration.
B
Not applicable
No change
Not applicable
No change
Not applicable
No change
Intra-EU supply of goods

Company A, located in the Netherlands, sells a product to Company B, located in Denmark. Company
A delivers the product to Company B in Denmark.
Current rules
Place of supply
Denmark
No change
VAT on invoice
0 percent
No change

A
Company A reports the sale on the Dutch

VAT declaration as an intra-EU sale.
No change

B

sale on the Danish VAT declaration as an
intra-EU purchase.
No change
Company A reports the amount of the

sale on the Dutch EU sales list.
No change
Not applicable
No change
Extra-EU supply of goods

Company A, located in France, sells a product to Company B, located in the United States. Company A
delivers the product to Company B in the United States.
Current rules
Place of supply
United States
No change
VAT on invoice
0 percent
No change

A
Company A reports the sale on the

French VAT declaration as an extra-EU
sale.
No change

B
Not applicable
No change
Not applicable
No change
Not applicable
No change
Intra-EU purchase of services

Company A, located in the United Kingdom, purchases a service from Company B, located in Ireland.
Current rules
Place of supply
Ireland
United Kingdom
VAT on invoice
21.5 percent
0 percent; reverse charge VAT applies.

A

UK VAT declaration as intra-EU purchase
of services.
When booking the invoice, Company A

must calculate UK VAT on the service.

B

sale on the Irish VAT declaration as intraEU sale of services.

sale on the Irish VAT declaration as
intra-EU sale of services. The VAT
amount is 0.
Not applicable
Not applicable
Not applicable

sale on the Irish EU sales list.
10
Company A reports the sale on the UK

VAT declaration as intra-EU purchase
of services and is liable for the UK VAT
rate. If the service is fully deductible,
the amount of VAT can also be included
as input VAT to be deducted.
Extra-EU purchase of services

Company A, located in the Netherlands, purchases a service from Company B, located in Canada.
Current rules
Place of supply
Canada
The Netherlands
VAT on invoice
0 percent

A

Dutch VAT declaration as an extra-EU
purchase of services.

Dutch VAT declaration as an extra-EU
purchase of services and is liable for
the Dutch VAT rate. If the service is
fully deductible, the amount of VAT can
also be included as input VAT to be
deducted.

B
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Intra-EU supply of services

Company A, located in Germany, purchases a service from Company B, located in Austria.
Option 1: Service is taxable in Austria

Current rules
Place of supply
Germany
Austria
VAT on invoice
19 percent

A

German VAT declaration as a domestic
sale of services.

German VAT declaration as an intra-EU
sale of services.

B
Company B is not obligated to report the

purchase on the Austrian VAT
declaration. Company B can submit a
refund request directly to the German tax
authority for the amount of German VAT.

sale on the Austrian VAT declaration as
an intra-EU sale of services. When
booking the invoice, Company B must
calculate Austrian VAT on the service.
Company B reports the purchase on
the Austrian VAT declaration as an
intra-EU purchase of services and is
liable for the Austrian VAT rate. If the
service is fully deductible, the amount
of VAT can also be included as input
VAT to be deducted.
Not applicable

sale to A on the Austrian EU sales list.
Not applicable
Not applicable
Option 2: Service is not taxable in Austria

Current rules
Place of supply
Germany
Austria
VAT on invoice
19 percent
11

A

sale of services.

German VAT declaration as an intra-EU
sale of services.

B


sale on the Austrian VAT declaration as
an intra-EU sale of services. Since the
service is not taxable in Austria, a 0
percent VAT rate is applied when
booking the invoice.
Company B reports the purchase on
the Austrian VAT declaration as an
intra-EU purchase of services.
Not applicable
Not applicable. If the service is not

taxable in Austria (a B2B exception),
Company A should not report the sale
on the German EU sales list.
Not applicable
Not applicable
Option 3: Service is a B2B exception, such as a catering service

Current rules
Place of supply
Germany
Germany (location where consumed)
VAT on invoice
19 percent
19 percent German VAT rate.

A

sale of services.
Company A reports the purchase on

the German VAT declaration as a
domestic sale of services.

B

Company B reports is not obligated to

report the purchase on the Austrian
VAT declaration. Company B can
submit a refund request to the Austrian
tax authority for the amount of
German VAT.
Not applicable
Not applicable. If domestic VAT is

charged on the invoice, the sale is not
reported on the EU sales list.
Not applicable
Not applicable
Extra-EU supply of services

Company A, located in the Netherlands, provides a service to Company B, located in Japan.
Current rules
Place of supply
Japan
No change
VAT on invoice
0 percent
No change

A
Company A reports the sale on the Dutch

VAT declaration as an extra-EU sale.
No change

B
Not applicable
No change
Not applicable
No change
Not applicable
No change
12
Changes to Microsoft Dynamics AX 2009 SP1, AX 2009, and

4.0 SP2
The following changes will be made to Microsoft Dynamics AX 2009 SP1, Microsoft Dynamics AX 2009
RTM, and Microsoft Dynamics AX 4.0 SP2 to accommodate the VAT 2010 Package.
An option in the EU sales list transfer function will allow the user to specify if service items should
be included in the transfer or not. The user will mark this option for all EU sales lists in 2010, but
not 2009 sales lists.
Data from each invoice in the EU sales list transfer journal will be separated into an amount for
items and an amount for services.
Sales invoices, project invoices, and free text invoices will be included in the EU sales list transfer
journal.
Free text invoices can be for items or services. Current functionality does not allow a type to be
assigned to the line item. Therefore, we will have a dependency on the field commodity code. If
this field is filled in for the free text item, the system will assume that it is an item. If this field is
empty, the system will assume that it is a service.
For project invoices, the system will split the project invoice total into an amount for items
(including any related miscellaneous charges) and an amount for services (total invoice minus
item-related data).
Charges on the document header level will be split and added to the total for services and items in
the EU sales list in relation to the total of items and services in the invoice.
Microsoft Dynamics AX will allow local EU sales list reports to be created monthly, rather than
quarterly.
Microsoft Dynamics AX will allow local EU sales list reports to be formatted according to the
requirements of each member state.
Reverse charge functionality

In Microsoft Dynamics AX, reverse charge VAT is normally handled using use tax functionality for
incoming invoices in Accounts Payable. For Accounts Receivable, a tax code with 0 percent is used. A
reason code can be set up to print text on the invoice explaining that the invoice is subject to reverse
charge of tax by the recipient.
For sales tax codes that are set up for reverse charge, the user should fill in the fields use-tax and
offset use-tax with the box numbers from the VAT declaration form in which the use tax payable and
recoverable should be reported.
For VAT codes that should be applied to services at 0 percent, the user should set up two different
codes one for services that are taxable in the customers country/region of the customer, and one
for services that are tax-exempt in the customers country/region. For the first situation, do not select
the Not included option in the EU sales list group on the Report setup tab, as shown in Figure 1. For
the latter, select the Not included option.
13
Figure 1
Frequently asked questions

Which countries are affected by the VAT Package changes?
All 27 member states of the European Union: Austria, Belgium, Bulgaria, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden,
United Kingdom.
When does the VAT Package go into effect?
The VAT Package rules go into effect on January 1, 2010. The last 2009 EU sales list (according to
the old VAT rules) will be reported in January 2010. The 2010 first EU sales list for 2010
(according to the new VAT rules) will be due in February 2010.
Will I have to install software updates to Microsoft Dynamics AX in order to comply with
VAT Package 2010 requirements?
Yes. You should prepare to install at least two software updates. One includes functionality for
services to be included in the EU sales list. This update applies to all EU country/region
localizations and is already available for download. The update is included in Rollup 3 for AX 2009
SP1 and AX 2009 RTM and is available as a hotfix for AX 4.0 SP2.
The second update will be country/region-specific functionality containing the changes to EU sales
list and/or VAT Declaration reports and files. If you need EU sales lists for multiple countries, you
must obtain updates for each country/region.
When will Microsoft deliver software updates to comply with VAT Package 2010?
One software update was released in September 2009 as part of Rollup 3 (see previous question).
Updates for country/region-specific reports and files are planned for release between October and
December 2009. The timing is dependent on when the local tax authorities publish the details for
complying with the regulatory changes. Updates per country/region will be released as soon as
they are developed.
For which countries will Microsoft deliver software updates to comply with local EU sales
list reporting requirements?
14
Microsoft currently offers local functionality (including EU sales lists) for the following countries:
Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Italy,
Latvia, Lithuania, Netherlands, Poland, Spain, Sweden, and United Kingdom.
For which versions will software updates be released?
Software updates will be released for Microsoft Dynamics AX 2009 SP1, Microsoft Dynamics AX
2009 RTM, and Microsoft Dynamics AX 4.0 SP2.
Why will software updates not be released for other versions?
Software updates are released for supported versions (in accordance with the Microsoft support
lifecycle policies).
How will I know when software updates are available for Microsoft Dynamics AX?
Software updates will be published on PartnerSource and CustomerSource for download.
I provide services to companies in other EU countries. How will the VAT Package changes
affect me?
You will need to report the value of services to these customers on your EU sales list (as long as
these services are taxable in the country/region of the customer). Prior to 2010, only the value of
goods was reported on the EU sales list. You may also be required to submit EU sales list monthly
rather than quarterly. Many countries will still allow quarterly reporting if the value of sales to
other companies in the EU is below EUR 100,000.
Will I have to change parameters in order to support the VAT Package changes?
Yes. Currently, many Microsoft Dynamics AX customers use the same VAT codes for both goods
and services. It is recommended that VAT codes be used for goods only, taxable services only,
and exempt services. New VAT codes should be created and tax groups should be updated with
the new VAT codes.
There will also be new parameters related to the EU sales list to include services and specify the
way in which the data in the EU sales list should be summarized (according to the different
requirements of each EU member state).
If I install updates prior to January 2010, will these adversely affect my ability to produce
the December 2009 EU sales list in January?
No. The update released in Rollup 3 will allow you to select whether services should be included in
the EU sales list. This should be unmarked before you create the last EU sales list for calendar
year 2009, and then marked prior to creating the EU sales list for the first reporting period in
calendar year 2010. For the updates that change the layout of reports or files, there will be an
option to select either the 2009 or 2010 version of the sales list.
Which scenarios will be supported within Microsoft Dynamics AX for the VAT Package?
Microsoft Dynamics AX will specifically support the provisions in the VAT Package related to VAT
calculation based on place of supply and EU sales list reporting obligations.
Which scenarios will not be supported within Microsoft Dynamics AX for the VAT Package?
No changes to functionality will be made to support the one-stop shop concept or the VAT refunds
provisions in the VAT Package.
What can I do between now and January to prepare for the new VAT Package rules?
There are several things that you can do now to prepare for the new VAT changes.
Install the update that allows services to be included in the EU sales list. This update is
included in Rollup 3 for AX 2009 SP1 and AX 2009 RTM or the hotfix for AX 4.0 SP2. These are
prerequisites for later updates that will contain country/region-specific changes to the EU sales
lists and/or VAT Declarations.
15
If you do business with customers in other EU countries, ensure that you have accurate VAT
numbers registered on the customer cards in Microsoft Dynamics AX.
Ensure that all of your suppliers in other EU countries have your companys VAT number on
file.
Assess the types of services that your company provides to customers based in other EU
countries. Will all of your services be subject to the new place of supply rules? Determine if
any of your services will be subject to the exception rules. If in doubt, contact your accountant
or tax authority for further guidance.
Review your companys procedures for invoicing of services to customers in other EU

countries. Are you applying VAT of your own country/region or do you apply 0 percent VAT
today?
Review your companys procedures for posting incoming invoices of services from suppliers in
other EU countries. Are you paying VAT of the suppliers country/region? Are you using 0
percent VAT? Are you currently accounting for VAT using reverse charge functionality?
Familiarize yourself with the procedures for handling reverse charge of taxes in Microsoft
Dynamics AX.
If you do not currently need to submit EU sales lists, start familiarizing yourself with existing
EU sales list functionality in Microsoft Dynamics AX.
Evaluate the existing VAT codes in use today. Prepare to create new VAT codes to differentiate
between goods and (taxable) services and (exempt) services. Determine whether it will be
easier to use the existing VAT codes for goods and then create new VAT codes for services, or
vice versa.
New VAT codes can already be created and assigned to the various tax groups. Remember to
set the effective date on the VAT codes to January 1, 2010.
Will I have to do any manual work on transactions by the end of December 2009?
It is highly recommended that you invoice as many open sales orders as possible before the end
of December. This will prevent the need to manually adjust open sales orders in January.
Will I have to do any manual work to change open orders on or after January 1, 2010?
If you have open sales orders to VAT-registered business in other EU countries, then you should
adjust the VAT calculations for service items. If you have previously applied your local VAT rate to
the service items, these should be replaced with 0-percent VAT rates. For open purchase orders,
you should change the VAT rates for service items from the expected rate of the vendor to a
reverse charge VAT rate.
How can I simplify determining which orders may need to be adjusted manually?
Standard filters can be used to display lists of orders that may need to be adjusted. Consider
filtering on fields such as sales tax group, VAT registration number, and country field in the
address.
Only sales of services that are taxable in the country/region of the VAT-registered customer
should be reported on the EU sales list I submit to my tax authority. How can I know
whether services I provide are taxable or exempt in each of the EU countries?
You will have to obtain that knowledge through sources such as your auditor, tax consultant, tax
authorities in the customers country/region, or the customer. Microsoft Dynamics AX cannot
determine this for you.
If a service is exempt in the country/region of the customer, what specifically should I do
in Microsoft Dynamics AX?
For items that are VAT-exempt in the customers country/region, 0 percent VAT should be applied
on the invoice. It is recommended that you use a different VAT code for VAT-exempt services than
16
for taxable services, even though both rates will be 0 percent. This will allow you to mark the VAT
code for VAT-exempt services as not included on the EU sales list.
What will happen if I include VAT-exempt services on my EU sales list declaration?
This is unclear. It is unlikely that the tax authority in your country/region will know whether the
service is taxable or exempt in the other countries. When in doubt, it would be safer to include the
service in your EU sales list than to exclude it.
The VAT Package directive mentions that the tax point for services to other EU member
states should be when the services are carried out. This is different than for goods, for
which the tax point is when the goods are invoiced. How is this difference handled in
Microsoft Dynamics AX?
We will continue to rely on the invoice as the tax point for listing sales to customers in the EU on
the EU sales list and for declaring reverse charge VAT on purchase invoices from suppliers in other
EU countries. There are many complications that cause compliance with this new rule to be
difficult. Tax authorities in two EU member states have announced that they will not enforce this
rule and will continue to rely on the invoice as the tax point. The rest of the EU member states
have not yet provided any guidance on this issue. We will continue to monitor this situation across
the EU. Should one or more countries require adherence to this rule (and provide clear guidance
on how to comply with it), then we will reassess the situation and release updates at a later date.
My company uses the project module to invoice services. Will these invoices be included in
the EU sales list? How will the amounts on project invoices be split between services and
goods?
Project invoices include different types of amounts (item, service item, hours, fees, expenses).
Existing functionality takes the total of a project invoice and subtracts the total of lines of type
service items (including miscellaneous charges).
In order to support the VAT Package for 2010, this functionality will change. The changed
functionality will take the total of a project invoice and calculate the total of all lines of type item
(including any related misc charges) and put that into the value items field in EU sales line. The
rest (invoice amount minus item related amounts) is the service-related part of that invoice and
will be written into the new field Value services.
My company uses the service management module. Will these invoices be included in the
EU sales list?
Yes. The service management module posts either normal sales invoices or project invoices. Both
of these are included in the totals for EU sales lists.
What is meant by electronic services?
The term 'electronic services' is clarified in an annex to Council Directive 2002/38/EG of May 7,
2002. According to this annex, electronic services include:
Web site supply, Web hosting, and remote maintenance of programs and equipment.
Supply of software and software updates.
Supply of images, text, and information, and supplying database access.
Supply of music, films, and games, including games of chance and gambling games, and of
political, cultural, artistic, sporting, scientific, and entertainment broadcasts and events.
Supply of distance teaching.
What is an EU sales list?

An EU sales list (also known as the EC sales list) is a declaration that summarizes sales to VATregistered customers in other EU member states. All companies in the EU are obligated to submit
these declarations to prove that they were allowed to issue invoices to these customers at 0
percent VAT rate. These declarations are called Recapitulative Statements in EC VAT legislation.
17
Is there anything to consider when upgrading to the next version of Microsoft Dynamics
AX?
For the next major release of Microsoft Dynamics AX, the EU sales list transfer process will be
changed. Rather than depend on whether an item is a good or service, we will use the VAT code to
determine whether the amount should be included in the goods or services amount. To ease the
upgrade process, it is highly recommended that users create separate tax codes for goods, for
taxable services, and exempt services when preparing for the VAT Package changes in AX4 and AX
2009.
References
1. KPMG: VAT Package. Are you ready for 2010?
http://www.kpmg.ie/clientseminars09/VATPackageJune09.pdf
2. Press Release. VAT package: Commission welcomes adoption by the ECOFIN Council of new rules
on the place of supply of services and a new procedure for VAT refunds:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/208&format=HTML&aged=0&lan
guage=en&guiLanguage=en
3. Deloitte: VAT Directive Booklet:
http://www.deloitte.com/dtt/cda/doc/content/dtt_tax_poss_vatdirective.pdf
4. Deloitte: Overview of the new rules
http://www.deloitte.com/dtt/article/0,1002,sid%3D2959%26cid%3D259057,00.html
5. Council Directive 2008/8/EC of February 12, 2008, amending Directive 2006/112/EC in terms of
the place of supply of service: http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0011:0022:EN:PDF
6. Council Directive 2008/9/EC of February 12, 2008, setting out detailed rules for refund of value
added tax, provided for in Directive 2006/112/EC, to taxable persons not established in the
Member State of refund but established in another Member State: http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0023:0028:EN:PDF
7. PriceWaterhouseCoopers Webcast VAT Package 2010:
http://www.pwcwebcast.co.uk/dpx_live4/dpx.php?dpxuser=dpliv_ukpwc&cmd=autoplay&type=sol
o&pres=187
8. Vertex: Taxation Inside-Out: The VAT Package: Assessing Readiness for 2010
http://www.vertexinc.com/AICPA/content/July_2008/VAT_Package_Headline_0708.pdf
18
APPENDIX A
Overview of VAT 2010 requirements in each
country/region
Local
Legislature
Status
Local Tax Authority Status
Microsoft Dynamics AX Status
VAT 2010 local

legislation
adoption
status
Draft specs
available
from tax
authority?
Expected
changes to
EU Sales
List?
Expected
changes to
VAT
Declaration?
Microsoft
Dynamics AX
Progress
Type of EU Sales
List(s) Required
Type of VAT
Declaration(s)
Required
Austria
Final
Yes
Yes
No
In development
Paper report +
XML file
Paper report +
XML file
Belgium
Draft
Yes
Yes
Yes
Draft spec in
process
Czech Republic
Draft
No
Yes
Yes
Paper report +
XML file
Paper report +
XML file
Pending
No
Yes
Unknown
Paper report +
XML file
Paper report +
elec. filing (new)
Paper report +
XML file
Draft
No
Yes
Unknown
Paper report
Paper report
Paper report
Paper report +
XML file
Paper report
Paper report +
XML file
Paper report +
direct submission
XML
Country/Region
Denmark
Estonia
Draft spec in
process
Paper report
Finland
Pending
Yes
Yes
Yes
France
Draft
No
Yes
Yes
Germany
Final
Only VAT
Declaration
Yes
Yes
Hungary
Draft
No
Yes
Unknown
Italy
Pending
No
Yes
Unknown
Paper report +
XML file
Paper report +
elec. Filing (new)
Paper report +
ASCII file
Latvia
Pending
No
Yes
Unknown
Paper report
Paper report
Lithuania
Draft
No
Yes
Unknown
Netherlands
Draft
Yes
Yes
No
Paper report
Paper report +
direct submission
XML
Paper report
Paper report +
direct submission
XML
Poland
Pending
No
Yes
Unknown
Paper report
Paper report
Spain
Draft
No
Yes
Unknown
Paper report +
ASCII file
Paper report +
ASCII file
Sweden
Draft
Yes
Yes
No
Draft spec in
process
Paper report
Paper report
United
Kingdom
Yes
Yes
No
In test
Paper report +
XML file
Paper report
Final
Draft spec in
process
Draft spec in
process
Paper report
Paper report +
ASCII file
19
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Microsoft Dynamics AX

Date: October 2009

Status of VAT Package 2010 adoption ......................................................... 6

Significant changes to VAT management .................................................... 7

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Place of supply rules for services.

EU sales list reporting obligations.

VAT refund procedures.

Introduction of a one-stop shop approach to VAT reporting.

Background details about the VAT Package changes in the EU.

Current status on adoption of legislation in EU member states.

Overview of the expected impact on changes to Microsoft Dynamics AX.

VAT 2010 background and goals

Minimize the administrative burden for companies involved in cross-border trade.

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Overview of changes to VAT rules

Place of supply rules for B2B services

Microsoft Dynamics AX impact

EU sales list reporting obligations

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Microsoft Dynamics AX impact

VAT refund procedures

Microsoft Dynamics AX impact

One-stop shop option for VAT reporting

Microsoft Dynamics AX impact

Tax point on services

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Microsoft Dynamics AX impact

Status of VAT Package 2010 adoption

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Significant changes to VAT management

Expected changes to the EU sales list

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Other changes to reporting requirements

Intra-EU purchase of goods

After January 1, 2010

VAT declaration Company

Company A reports the purchase on the

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

VAT declaration Company

Company B reports the amount of the

EU sales list Company A

EU sales list Company B

Company B reports the amount of the

Extra-EU purchase of goods

After January 1, 2010

VAT declaration Company

If Company A is authorized to import

If Company B is not authorized to import

EU sales list Company A

EU sales list Company B

Intra-EU supply of goods

After January 1, 2010

VAT declaration Company

Company A reports the sale on the Dutch

VAT declaration Company

Company B reports the amount of the

EU sales list Company A

Company A reports the amount of the

EU sales list Company B

MICROSOFT DYNAMICS AX SUPPORT FOR VAT 2010 WHITE PAPER

Extra-EU supply of goods

After January 1, 2010