Value added tax in international services until 31.12.2009 Detailed guidance

1 Definition of  'service'

The definition of 'goods' as per Value-added Tax Act comprises fixed and movable tangible property and deliveries of electric current, gas, heat, refrigeration and similar energy-related commodities. In contrast with 'goods', everything else that can be sold within a business context is defined as 'services'. Some examples of services are such activities as waiting at tables of a restaurant, construction work, rental of commodities, patents, the right to remove gravel from a land property, the obligation to refrain from taking certain action, the obligation to tolerate a certain situation, and exchange of goods on behalf of someone else.

Goods and services are usually easy to tell from one another. However, some problematic situations arise especially when movable objects and labour are being delivered simultaneously.

The regulations governing trade of movable property belong to the Commercial Code under civil law. According to Section 2, paragraph 1 of Commercial Code, this regulation is applicable to orders of goods in cases where the customer is not delivering an essential part of the raw materials. As a result, any production, design and assembly of movable tangible property are considered provision of services if the buyer is delivering the material to the seller. But decisions whether the transaction involves a supply of goods or a provision of services should be made case by case if the buyer is delivering just some, not all, of the necessary raw materials.

Performance of repair work is considered provision of services. Nevertheless, if the repair work is so extensive that its costs exceed the object's original value, the repair is usually considered supply of goods.

Packaging work is considered provision of services also when the person making the packages also produces the packages.

Offering goods for rent is considered provision of services. But if it is agreed that the rented object is transferred to the ownership of the lessee after the rental period or that the lessee must purchase the object, the transaction is considered supply of goods.

2 Introduction to the rules governing the place of supply

The territorial application of VAT laws requires that every Member State must collect VAT on the supply of goods and services within its territory. As a result, Finnish VAT is paid only for supplies of goods and services in Finland. Chapter 5 of VAT Act contains the exact provisions as to when a supply is considered effected within Finland's territory. These provisions are called the place of supply rules.

Another principle of the VAT system refers to the country of consumption or the country of destination. This principle requires that the tax for a commodity should be levied in the country where the commodity is consumed. When commodities are sold to other countries or purchased from other countries, the country of supply and the country of consumption are not the same. With regard to goods, the country-of-consumption principle is validated by laws of the Member States making import and intra-community purchases of goods taxable and export and intra-community supply of goods tax-free. But because of the relative ambiguity of sales of services, international trade involving the provision of services cannot follow the country-of-consumption principle in the same way as international sales and purchases of goods can. Instead, a set of special place-of-supply rules governs the provision of services. Their aim is to make the services consumed in Finland taxable for VAT purposes and, correspondingly, exclude the services that are consumed in other countries from VAT. In addition, there are certain rules providing complete exclusion from VAT for certain types of services.

With regard to place of supply, the rules applicable for services are found in Sections 64 through 69, VAT Act. Specifically, § 64 contains the general rules governing the provision of services, and this section is applicable to all types of services for which no specific place-of-supply rule is found in the VAT Act. Sections 65 through 69 contain provisions on the numerous exceptions from the general rules.

The first step for determining the place of supply is to find out what the type of service is. In other words, it should be examined whether the general rules or one of the specific rules should be applied. The place of supply can also be determined using the buyer's VAT number. The VAT number would be issued by one of the Member States. If the buyer's VAT number determines the place of supply, it is important that the VAT number is still valid at the time of rendering the service. Moreover, the fact whether the 2.

buyer is a business entrepreneur or a private citizen has an effect on the place of supply for some services. The method of proving that the buyer is an entrepreneur is based on presenting such documentation as the VAT number or an excerpt from the Trade Register.

Certain services can be difficult because they embrace characteristics of several different services with varying place-of-supply rules. To determine the place of supply for these services, one should pay attention to the characteristics that are the most important. Difficult situations can sometimes be resolved by requesting a guideline document or a preliminary decision from the regional tax office.

The validity of an entrepreneur's VAT number can be verified via the Website http://ec.europa.eu/taxation_customs/vies/. The validity can also be checked by submitting a request to the CLO unit of the Finnish Tax Administration, e-mail eu.clo@vero.fi, fax 020 355620, or during office hours 9:00 AM to 3:00 PM — telephone 020 355610.

3 The reverse-charge system

The seller of goods and services is usually the one who is liable to tax. But if the seller is a foreign person without a permanent establishment in Finland and without registration for tax purposes in this country, the person liable to tax will be the buyer (reverse charge, or inverted tax liability).

In the monthly tax return, the buyer should report the tax based on reverse charge in the field ”tax on domestic sales by tax rate”. If the buyer has purchased goods or services for tax-deductible purposes, the buyer should also report the same amount in the field ”Tax deductible for the month in question”.

The reverse-charge mechanism will not be applicable when the buyer is a private citizen or a foreign person with no permanent establishment or registration for VAT in this country. Similarly, the distance sales described under Section 63 a of the VAT Act are not taxed by reversing the charge.

For the exact definition of ‘foreign entrepreneur’, please see page of the National Board of Taxes, VAT registration of foreigners in Finland.

In addition, reverse charge is not applicable for the following types of services:

1. Transport of passengers,
2. Scientific and educational services, cultural events, entertainment, and sports events and other comparable services including services directly linked with arrangement of the above.

A foreign taxable person must register for tax purposes in Finland for supplies to Finland, unless the supply is subject to the reverse charge.

In Finland, the field of application of reverse charge is wider than required by the VAT directive. As per the VAT directive, the following supplies of services are subject to the reverse charge:

1. Intangible services,
2. Radio and television broadcasting services
3. Telecommunications services,
4. Electronically supplied services,
5. Community transportation and services directly related to it,
6. Valuation of tangible movable property and work performed on tangible movable property and
7. Brokerage services.

Two special regulations aiming to prevent double taxation are in force: If the supply of services is associated with a disposition of goods from outside the EU community to Finland, the buyer who is a taxable person subject to the reverse charge must also pay tax for the importation of the goods. When goods are being let for rent, the buyer is allowed to deduct the tax paid for the importation of the goods. For other intangible services than rental services, double taxation has been eliminated by a stipulation that says the buyer will not have to pay tax for the service insofar as he has paid tax for the import of the goods associated with the service.

4 Place of supply rules

4.1 The general rule

Any provision of a service should be taxed in Finland, if the service is rendered in a fixed establishment located in Finland. If the service is not rendered in a fixed establishment not in Finland nor in another country, it should be taxed in Finland if the seller's registered office is in Finland.

A fixed establishment means a place of business of a long-term nature, where the business is fully or at least partially managed. In the sector of construction and installation work, a site or a series of consecutive sites where the works last longer than 9 months is considered 'fixed'. For an exact definition of 'establishment' please refer to page of the National Board of Taxes, VAT registration of foreigners in Finland.

For the purposes of place of supply, just having a fixed establishment is not enough — the seller must also actually render the service to a recipient who is present at this fixed establishment. Both the human and the technical resources for the provision of the services should always be available at the establishment. If the seller possesses a fixed establishment both in Finland and in another country, the services rendered to customers in the foreign establishment will not be taxed in Finland.

When the seller is a Finnish entrepreneur, the service is usually considered supplied in Finland. It is only in the case where the services are rendered to customers in the Finnish entrepreneur's foreign establishment that the services will not be taxed in Finland.

Correspondingly, the services supplied by a foreign entrepreneur will only be taxed in Finland if the service is actually rendered in a fixed establishment located in Finland.

This general rule is applicable for such services as waiting at tables of a restaurant, travel agent's services, beauty parlor, hairdresser and barber services, veterinarian's services and laundry services.

4.2 Hiring out forms of transport

The place of supply in connection with hiring out of forms of transport is usually determined according to the general rule. However, there are two exceptions from the general rule for which the country where the service is actually used and enjoyed is decisive.

1. The place of supply for the service of providing forms of transport for rent, which under the general rule would be situated outside the Community, if the effective use and enjoyment of the services take place in Finland only, will be considered Finland. This service will be taxed in Finland.

2. The place of supply for renting out forms of transport, which under the general rule would be Finland, will change from Finland to a non-EU country if the effective use and enjoyment of the services take place in a country outside the Community.

If a transport vehicle is used for journeys between Finland and a country outside the Community, e.g. between Finland and Russia, the rental service of forms of transport is not considered used and enjoyed in a foreign country only. In situations of this type, the country of taxation will be determined according to the general rule.

For tax purposes, ‘forms of transport’ not only refers to lorries and trucks but also to such transport equipment as containers, cisterns, platforms, pallets, and trailers.

4.3 Services linked with buildings and immovable property

The country of taxation for services connected with buildings and other immovable property is Finland if the property is situated in Finland. This rule is applicable to all services directly linked with a piece of immovable property. This special rule is of primary character and in case of conflict; it will surpass any other place-of-supply rules.

'Immovable property' refers to land, buildings, permanent structures and parts thereof.

'Services connected with immovable property' refers to such services as:

• Construction, repair, design and engineering services,
• Technical maintenance, cleaning, superintendent, accounting and other administrative services,
• Monitoring and security services,
• Services of estate agents and experts, appraisal and other professional services,
• Letting various forms of advertising space be rented in the immovable property,
• Letting deposit boxes for rent in the vault of a building,
• Letting the entire immovable property for rent
• Hotel and accommodation services.

In contrast with the above, examples of services not connected with immovable property are services such as storage of tangible movable property, asset management services that include a piece of immovable property and services that include obtaining a title deed or a mortgage for a piece of immovable property. In the same way, if an entrepreneur acts as an intermediary of services connected with immovable property his/her services are not deemed connected with immovable property. But an exception of this rule is intermediary service of rental contracts for immovable property, which is considered connected with immovable property similarly as the services of estate agents acting as intermediaries between buyers and sellers of immovable property.

Due to the fact that parts of buildings are also regarded as immovable property, the place of supply is the same as the property's country of location for the services of estate agents listing shares of housing companies and other associations.

The place of supply of construction work is deemed to be the country where the work is actually being done. This rule is applicable also in the situation in which a Finnish company performs the construction work in another Member State and simultaneously sells the customer the materials of the building. The sale of building materials is considered a transfer of goods as per Section 18, VAT Act. This transfer is reported as intra-Community sales in the Finnish monthly tax return and in the other Member State — as an intra-Community acquisition. The Finnish construction company must register for VAT in the Member State where the construction work takes place.

4.4 Transport of passengers

The provision of passenger transport services is taxed in Finland, if the transport takes place in Finland. The journey is regarded as taking place in Finland if it begins and ends in Finland.

Nevertheless, direct rides from Finland to a foreign country and from a foreign country to Finland are exempt from tax. It is of no significance whether the destination is inside or outside the Community.

In the same way, sea cruises to international maritime territories are regarded as tax-exempt passenger transport to another country.

The transport service is deemed rendered directly to a foreign country when the same transport company agrees to provide transportation from a location in Finland to a foreign country. Similarly, it is rendered directly from a foreign country to Finland when the same transport company agrees to provide transportation from a location in a foreign country to a destination in Finland.

To be exempted from tax, the party selling the ticket (i.e. concluding the agreement) to transport persons directly to a foreign country or back from a foreign country does not have to be the same party who actually provides the transportation. The selling party can purchase the entire transport service or parts thereof from other entrepreneurs. The place of supply for each partial transport service sold by various transport companies will be determined according to the specific transport contracts made.

In passenger transport, the last point of departure and the first destination are usually those marked on the ticket. However, if the journey is temporarily interrupted for other than technical reasons, the last point of departure and the first destination for a direct transport will be the place where the journey was temporarily interrupted.

A fault in the transport equipment and other unpredictable reasons such as weather conditions are regarded as 'technical reasons'. In this way, an interruption of a journey due to a technical reason will not convert a tax-exempt passenger transport into a taxable one.

Such reasons as staying overnight are considered 'other than technical' reasons. However, if the timetables of available transport services make it absolutely necessary to stay overnight, the direct transport will not be considered interrupted.

4.5 Transport of goods

The last point of departure and the first destination for a goods transport service are usually the locations marked on the bill of lading or other comparable document. However, this rule is not applicable if the actual point of departure or destination is some other place, not the one entered in the bill of lading. As an example, a very common situation is an agreement in which a transport company has committed itself to transport the imported goods first to a temporary storage location in Finland, and then later to another place in Finland — in this situation the destination is the location of the temporary storage.

According to the general rule, the service of transporting goods is taxed in Finland if it takes place in Finland. But there are several exceptions to the general rule.

Provision of transport service relating to the international postal service including ancillary services is considered exempt from tax, if provided to a company active in postal transport service in foreign countries.

Intra-Community transport

The following types of services are defined as intra-community transport:

• Transport of goods from one Member State to another and
• Transport directly linked with the above in the territory of a Member State (auxiliary transport).

The country of taxation for intra-Community transport is usually the country of departure. But if the buyer uses a VAT identification number issued in a Member State, the country of taxation will be the Member State that had issued the VAT number.

Several transport companies (not just one) can effect the legs of journeys within a Member State and between one or more Member States. The seller of the transport service should be able to show proof for the within-state leg being directly connected with a transport from one Member State to another. Adequate proof can be obtained by referring to the freight documentation. A journey within one Member State is not considered directly connected to transport from one Member State to another if the goods are placed in temporary storage for other than technical reasons before the journey to another Member state begins.

Furthermore, transport of goods from one Member State to another via non-EU territory is also considered intra-Community. In this way, transport from Finland to Sweden via Norway is intra-Community.

A decisive circumstance as to the country of taxation for intra-Community transport is whether or not the buyer uses a VAT number. If no VAT number is used, the intra-Community transport is taxed in the country of departure. If the departure takes place in Finland, the intra-Community transport is taxed in Finland.

If the buyer of the intra-Community transport of goods uses a VAT number issued in Finland when purchasing the transport service, the service is taxed in Finland.

Whenever the buyer's VAT number is used in connection with the purchase of transport service, both the buyer's and the seller's VAT numbers should be entered in the sales receipt.

Transport between Finland and the so-called third countries

Direct transport services from Finland to countries outside the Community and correspondingly, from outside the Community to Finland, are exempt from tax. Tax-free transport services are taxed if the goods are imported to Finland.

The transport service is considered effected directly to a foreign country when the same transport company agrees to provide transportation from a location in Finland to a foreign country. Similarly, it is effected directly from a foreign country to Finland when the same transport company agrees to provide transportation from a location in a foreign country to a destination in Finland.

In addition to the tax-exempt direct transport services listed above, also any directly connected internal transports within Finland are exempted. The prerequisite for exemption is that the seller of the transport service can show proof for the internal Finnish leg being immediately connected with the direct transport out of Community territory. Adequate proof can be obtained from the freight documentation.

Other tax-exempt transport services are transport of goods in external transit procedure and for goods in internal transit procedure that are going to be imported.

The external transit procedure is used for transport of goods originating from a third country and not processed through customs and for transport of certain Community goods under special control, within the transit zone of the Community, Efta and Visegrad States. The internal transit procedure is used for transport of normal Community goods to Efta/V4 States or to other Member States via Efta/V4 States.

4.6 Unloading, loading and other comparable services linked with transport of goods

Such ancillary services as loading, unloading and storage are taxed in Finland if the services are actually rendered in Finland. However, there are exceptions to this general rule in connection with services directly linked with transports to and from foreign countries.

Intra-Community transport

As per the general rule, ancillary services such as loading, unloading and storage are taxed in Finland. If the buyer utilizes a VAT number issued in one of the Member States, the service is taxed in Finland only if the VAT number is issued in Finland. This means that Finnish tax will not be payable for loading, unloading and other services linked with intra-Community transport if the buyer is using a VAT number issued in another Member State than Finland.

Transport between Finland and the so-called third countries

When directly linked with a transport service of goods to a country outside the Community, provision of ancillary services such as loading, unloading and storage is exempt from tax. The prerequisite for exemption is that the seller of the transport service can show proof that the services provided are immediately linked with transport of goods to a country outside the Community. Adequate proof can be obtained by referring to the export certificate or freight documentation.

Provision of loading, unloading and other services is tax-exempt if directly linked with transportation of goods within the external transit procedure that are going to be imported.

4.7 If the values of goods transport and its ancillary services are included in the base

When goods are imported, the base for tax computation includes transport to the destination marked in the freight documents, loading, unloading and insurance costs and other services directly linked with the importation. If at the time when the tax liability was initiated i.e. at the moment of importation of the goods it was known that the goods are going to be transported to another destination within the Community, the costs listed above should be included in the base all the way to this other destination. If the value of transport service or other costs above are included in the base for tax computation in connection with the importation, the provision of this service is exempt from tax.

4.8 Scientific and educational, entertainment and other activities

For the following types of services, the country of taxation is determined according to the place where the service is actually rendered:

• Educational services i.e. teaching,
• Scientific services,
• Cultural, entertainment and sports events and other comparable events, and
• Services directly linked with the arrangement of the above activities.

The reverse-charge mechanism is not applicable to these services.

Provision of the above services is taxed in Finland if the services are rendered in Finland. Such factors as the nationalities of the seller, producer or buyer of the service bear no significance. In the same way, the place where the final results of the service are handed over to their recipient bears no significance. As an example, the provision of scientific services is taxed in Finland if the research work is done in Finland even though the final results for the work will be presented to an audience in a foreign country.

The very type and character of the service concerned determine whether tax is payable in the country where the service is rendered or whether the place-of-supply rules for provision of intangible services would be applicable. For example, arranging lectures can be viewed as an activity similar to consultation, but if the type and character of the lectures turns out to be educational, the country of taxation should be the same as the country where the service is rendered.

Examples of educational activities are courses, training sessions, seminars, symposiums, congresses and meetings. Similarly, the place of supply for dancing lessons, driving school services, flying and skiing lessons etc. will be the country where the service is rendered. It should be noted in this connection that the type of special training, which is arranged or assisted under the law is considered exempt from VAT.

Examples of scientific services are controlled experiments and research endeavours. In contrast with this, the type of research and development that is pursued in companies to develop commercial products is not regarded as a scientific service. The place of supply for the latter is determined according to the place-of-supply rules for provision of intangible services.

Examples of cultural, entertainment and sports events are concerts, theatrical performances, circus, music, dance and film shows as well as competitive sports events. Incomes for the sales of entrance tickets to these activities are taxed in Finland if the events indeed are organized in Finland.

Examples of directly linked ancillary services for making this service possible:

• Stage services such as props,
• Lighting services,
• Sound reproduction services,
• Supervisory and
• Catering services.

In contrast, such services as the design of advertising for the event and the publishing of advertisements in the press are not regarded as directly linked ancillary services.

A combined service undertaking is regarded as one service if delivered to an exhibition, fair or other event by the provider of services, and consisting of several smaller services as a package, with the intention to help the party who is presenting products etc. at the exhibition. Such as package may include the rental of structures and furnishings for the exhibition stand, the construction, decoration and tearing-down work as well as transport and planning services. The country of taxation for such a package is the country where the exhibition or fair is organized.

4.9 Work performed on movable tangible property and valuation of movable tangible property

Valuations and work performed on movable tangible property are taxed in Finland if they are done in Finland.

Examples of work performed on movable tangible property:

• Testing,
• Cleaning,
• Repair,
• Installation,
• Tearing apart,
• Making alterations and
• Manufacturing.

In contrast with the above, such ancillary services as various types of storage and transportation are not considered 'work performed on movable tangible property'.

If the seller of goods sells them complete with ready-made installation, this supply is considered a supply of goods not provision of services. Nevertheless, an installation service performed by a subcontractor is regarded as provision of services.

Exceptions from the tax liability rules governing work performed on and valuations of movable tangible property when the services are rendered in Finland

1. Work performed in Finland on movable tangible property is exempt from tax if the property concerned is immediately exported outside the Community without using it in Finland. The exporter can be the provider of the service or an agent. Also the buyer can be the exporter of the property if the buyer is a foreign entrepreneur. For example, the provision of repair or other technical service for a lorry belonging to a Russian transport entrepreneur is exempt from tax if the lorry is immediately after service driven out of the Community territory.
   The seller of the service should retain proof of the exportation of the goods e.g. in the form of copies of the export documents. Goods arriving to Finland for the purpose of having work performed on them can be processed in the customs according to internal refinement procedure and after the work is completed, exported out of the Community following the orders of the Customs authority. In this way, the seller of the service can prove that the service was tax-exempt by referring to the customs documents. For more information on this procedure, please contact the district customs office.
2. It is possible to provide valuation services and perform work on a movable tangible property with exemption from tax, if the buyer utilizes a VAT number issued in another Member State and the property is immediately exported from Finland. Proof of immediate exportation can be obtained by referring to freight bills or similar documents. If they cannot be available, a statement from the buyer on how and when the property was exported will constitute sufficient proof. For example, the provision of repair or other technical service for a lorry belonging to a German transport entrepreneur can be invoiced tax-free if the buyer's VAT number is entered in the invoice and the buyer gives a statement describing how and when the vehicle will be driven away.
3. In customs-free zones and customs or VAT storage facilities, the sales of services consisting of work performed on movable tangible property is exempt from tax if the property concerned is merchandise, intended for import and export, and not processed for customs duties or VAT. But if the property concerned is part of the fixed assets of a warehouse or other enterprise, not merchandise, the work performed in the free zone should be taxed.
4. Sales of services consisting of work performed on movable tangible property is exempt from tax if the buyer is a foreign entrepreneur who is not liable to tax in Finland and who has given a written guarantee document. Thus the Finnish reseller of the foreign enterprise will not have to pay tax for the guarantee compensations collected from the foreign enterprise because of repair work done on defective merchandise. The exemption from tax concerns sales to entrepreneurs in both EU Member States and third countries.

4.10 Intangible services

Some examples of intangible services:

1. Transfer of copyright, patent, license, trademark and other comparable rights,
2. Various types of advertising services,
3. Consultation, product development, planning, engineering, design, accounting, auditing, editing, drawing and translation services, legal and other similar services,
4. Automatic processing of data, software and system engineering, and programming services,
5. Handing over information,
6. Services relating to financial management such as notary and debt collection,
7. Offering manpower for rent,
8. Hiring out other movable tangible property than modes of transport,
9. Refraining from using a copyright or other right referred to in 1) above, or refraining from pursuing a certain business activity and
10. Intermediary services relating to transferring a right, advertising or other services listed above.

Intangible services sold to entrepreneurs are taxed in Finland if they are rendered to their recipient in the buyer's fixed establishment located in Finland. If the service is not rendered to a recipient in a fixed establishment in Finland or another country, the service is taxed in Finland if the buyer is domiciled in Finland.

When an intangible service is sold to a buyer who is a non-entrepreneur (e.g. a private consumer) domiciled in Finland or another Member State, the place of supply is determined according to the general place-of-supply rule for services. In other words, sales to non-entrepreneurs are taxed in Finland if the service is rendered to its recipient in the seller's fixed establishment located in Finland. If the intangible service is not rendered to its recipient in a fixed establishment, the sales of the service is taxed in Finland if the seller is domiciled in Finland.

The sales of intangible services is not taxed in Finland if the buyer's domicile is located outside of the EU Community and the service is rendered to its recipient in a fixed establishment than in Finland. This rule concerns such entities as entrepreneurs, private consumers and public organizations.

The intangible services are deemed rendered to its recipient in a fixed establishment if the establishment ordered the service and bears the obligation to pay for it. An establishment ordering an intangible service does not necessarily have to be equipped for the production of taxable goods/services.

Copyright, patent, license, trademark and other comparable rights

Other immaterial rights comparable with copyright, patent, license and trademarks are copyrights of models or photographs, and licenses to arrange viewings of a film or to use software in a computer.

If a Finnish cinema theatre or TV broadcasting company purchases the rights to arrange viewings of a film, the place of supply for this service is Finland.

If the buyer of an immaterial right such as a patent receives the right to utilize this patent all over the world, this service is not deemed rendered to its recipient in any fixed establishment. In this situation, the buyer's registered office will determine the place of supply — i.e. the transaction will be taxed in Finland if the buyer is a Finnish entrepreneur.

It should be noted that the so-called goodwill value is not regarded as a right comparable with copyright etc. If transferred, the taxation will follow the general rule governing the place of supply for services, in other words the country of taxation will be the country of the fixed establishment where the service is rendered or in this case, the goodwill handed over to its recipient.

Various forms of advertising

The design, planning and practical implementation of advertising and making advertising space and advertising time available in television, radio and the press are considered advertising services. Furthermore, such endeavours as advertising campaigns with the possible inclusion of reduced selling prices of certain products and distribution of free gifts, organization of cocktail parties, press conferences and other social events for the promotion of sales and the creation of advertising supplies.

Consultation, product development, engineering, design and other comparable services

In addition to the above, various forms of supervision of work, marketing, research and development, consultation and guidance services and inspection of damages are examples of services in this category. This category also comprises the administrative services invoiced under 'management fees' entailing the work of managers, secretaries, office workers etc.

For design, engineering and consultation services performed on a piece of immovable property, the country where the real property is located primarily determines the place of supply.

Computer services

It should be noted that data transmission services are not regarded as computer services. Their place of supply is determined according to the rules applicable for telecommunications.

Sales of special computer software are considered provision of services. Nevertheless, the import of special computer software saved on volumes of media is taxed as import of goods, if the importer is not a business entrepreneur.

In contrast, sales of standard computer software saved on volumes of media are deemed supply of goods, not provision of services. Standard computer software comprises the mass-produced software products, which are available for all customers and which require a relatively low level of user training. Such software as PC software, software for home computers and game software are considered standard.

Notary and debt collection services

Financial services are usually exempt from tax. Taxable services linked with financial management are deemed intangible services. But it should be noted that hiring out the right to use a safe deposit box is not an intangible service, because it is a service relating to a piece of immovable property. This means that its place of supply is the country where the immovable property is located.

Reverse-charge system

The system of reverse charge is applicable to intangible services. For the provision of intangible services rendered in Finland, the buyer will be liable to tax in case the seller is a foreign person with no fixed establishment or registration for tax purposes in Finland.

4.11 Radio and TV broadcasting, electronically supplied services and telecommunications

Radio and television broadcasting services, electronically supplied services and telecommunications, provision to entrepreneurs

When provided to entrepreneurs, radio and television broadcasting services, electronically supplied services and telecommunications are taxed in Finland if rendered to the buyer in the buyer's fixed establishment in Finland. If the service is not rendered to a recipient not in Finland nor in another country in a fixed establishment, the service is taxed in Finland if the buyer's registered place of business is in Finland.

Radio and television broadcasting services, electronically supplied services and telecommunications, provision to private consumers

When provided to a buyer domiciled outside the Community, and when rendered to a recipient elsewhere than the buyer's fixed establishment in Finland, radio and television broadcasting services, electronically supplied services and telecommunications are not taxed in Finland.

If the buyer's domicile is in Finland or another Member State, the services are taxed according to the general rule. In other words, the country of taxation is Finland if the service is rendered to its recipient in the seller's fixed establishment located in Finland. If the service is not rendered in a fixed establishment, the service is taxed in Finland if the seller has a fixed establishment in Finland. There is an exception to this general rule, which concerns services sold from a country outside the Community. These services are taxed in Finland also when the fixed establishment (in which the service is rendered to its recipient) or the seller's registered office is outside the Community. It is also required that the service is rendered to the buyer in the buyer's fixed establishment or if the service is not rendered in a fixed establishment, the buyer's domicile is in Finland.

The provider of radio and television broadcasting services, electronically supplied services and telecommunications should register for tax purposes in Finland, if the company sells services to Finnish private consumers. For sales to legal persons who are not entrepreneurs, the reverse-charge system is applicable.

In the case of electronically supplied services sold to non-entrepreneurs in various EU Member States, the seller-operator who is not registered for tax purposes in any Member State can make use of the special scheme for VAT. It is considered that the operator is not established in any Member State if no registered office or fixed establishment is in existence and the operator does not supply any other goods or services that would entail registration for tax purposes. The only business activity in Community territory should be the provision of electronically supplied services to non-entrepreneurs. More information on the special scheme is available in the Finnish Tax Administration's special instruction, record no. 1508/40/2003 "Sähköisten palvelujen myynnin erityisjärjestelmä". If the seller-operator does not opt for the special scheme, the alternative is to register for tax purposes in all Member States where private consumers are buying the electronically supplied services.

Radio and television broadcasting services

Radio and television broadcasting services mean the traditional broadcasting business with some form of payment collected from the listeners or viewers. If a television or a radio program are broadcast simultaneously both via the traditional method and via the Internet or other electronic network, also the part of the broadcast effected in the Internet or other electronic network will be deemed provision of radio and television broadcasting services. Nevertheless, a broadcast via the Internet or other electronic network only is not radio and TV broadcasting — instead, it is an electronically supplied service.

Electronically supplied services

Electronically supplied services have the following typical characteristics:

1. Services are rendered using the Internet or other electronic network, in other words, the rendering of this service is dependent on the Internet or other electronic network, and
2. The nature of the service is to a great extent dependent on the information technology used when rendering the service, in other words, the service is primarily automatic, and usually requires very little human intervention, and should the technology fail, the service cannot take place at all.

Some examples of electronically supplied services:

• Digital products such as software as well as changes and updates of software;
• Services relating to support of the use of an electronic network such as website or web page made out for a company or for a private consumer;
• Services automatically generated by a computer software on the basis of the data keyed in by the customer, using the Internet or another electronic network as the medium;
• Other automatic services, depending on the Internet or other electronic network.

The mere interaction by e-mail between the buyer and the seller does not constitute an electronically supplied service. Such a transaction as ordering goods over the Internet is not considered an electronically supplied service because the goods are transported by quite traditional methods (by post) not electronically. Consequently, the regulations governing commerce with goods are applicable.

The EU Advisory Committee on Value Added Tax has issued a Guide To Interpretation in 2003 on the subject of electronically supplied services.

The following are typical examples of electronically supplied services as listed by Subsection 3 of Section 68 a of the Value Added Tax Act:

1. Website supply, web hosting, distance maintenance of programs and equipment;
2. Supply of software and updating thereof;
3. Supply of images, text and information, and making databases available;
4. 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;
5. Supply of distance teaching;
6. Other services comparable to above categories 1 through 5.

Website supply, web hosting, distance maintenance of programs and equipment

This category of electronically supplied services comprises such services effected over a network as automatic online maintenance of software, remote controlling of systems, online data warehousing (electronic storage and retrieval of special data), and online deliveries of additional disk space.

Supply of software and updating thereof

Typical services in this category are.

• Accessing or downloading various software (such as procurement/accountancy software, anti-virus software) plus updates;
• Software to prevent banner advertising from showing;
• Downloading of drivers, such as software that interfaces PC with peripheral equipment (e.g. printers);
• Automatic online installation of filters on websites; and
• Automatic online installation of firewalls.

Supply of images, text and information, and making databases available

Images: accessing or downloading desktop themes and photographic or pictorial images or screensavers

Text and information:

• Digitized content of books and other electronic publications
• Subscriptions to online newspapers, magazines and journals
• Web logs and website statistics
• Online news, traffic information and weather reports
• Online information generated automatically by software from specific data input by the customer, such as legal and financial data (e.g. continuously updated stock market data)
• Provision of advertising space (e.g. banners on a website / web page);

Making databases available: use of search engines and Internet directories.

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

Music: accessing or downloading of music onto PCs, mobile phones etc. and title themes, jingles, excerpts, ringtones and other sounds.

Films/movies: accessing or downloading of films/movies.

Political, cultural, artistic, sporting, scientific and entertainment broadcasts or events: web-based broadcasting that is only provided over the Internet or similar electronic network and is not simultaneously broadcast over a traditional radio or TV network.

Games, including games of chance and gambling games: Downloads of games onto PCs, mobile phones etc., and accessing automatically functioning online games which are dependent on the Internet or other similar electronic networks, where players are remote from one another.

Supply of distance teaching

Distance teaching is an electronically supplied service if it is effected automatically, is dependent on the Internet or similar electronic network to function, and requires little or no human intervention. It should be noted that distance teaching is not deemed 'electronically supplied' if the teaching relies on substantial

human intervention and the network only actually fulfils the function of a method of communication between the student and the teacher.

Other services comparable to above categories

Examples of other electronically supplied services are:

1. Online auction services (to the extent that they are not already considered web-hosting services under category 1), dependent on databases with automatic retrieval and data input by the customer requiring little or no human intervention (e.g. online marketplaces or online shopping portals); and
2. Internet Service Packages (ISPs), in which the telecommunications component is an ancillary and subordinate part i.e. a package that goes beyond mere Internet access comprising various elements such as content pages containing news, weather, travel information, games, web-hosting, access to chat-lines etc.

Telecommunications

Telecommunications services mean services the purpose of which is the transmission, emission or reception of signals, writing, images and sounds or information by wire, radio, optical or other electromagnetic systems, as well as the transfer assignment or the transfer of the right to use capacity for such transmission, emission or reception.

Consequently, the following services belong to telecommunications category:

• Telephony and telecommunications services,
• Assigning the right to use telecom networks, cabling and satellite systems and other infrastructure for sending or receiving messages
• Provision of Internet and e-mail connections.

Because telecommunications services constitute a method for transmitting messages, services that are transferred using this method, such as handing over information, are not considered telecommunications. In this way, the broadcasting activity or radio and TV programs are not considered telecommunications. In contradistinction with this, the technical transmission of radio and TV programs via an electromagnetic method is considered telecommunications.

4.12 Brokerage services

The concept of brokerage services means to sell or purchase goods/services in the name of a principal. Both the buyer and the seller can act as the principal. By definition, brokerage services mean a situation when both buyer and seller agree that they themselves, not the broker, are the actual contracting parties of the transaction — responsible for the transaction's fulfillment.

Brokerage services are not to be confused with selling goods on a commission basis. Similarly as in brokerage services, in commission trade, the goods are purchased or sold in the name of the principal, but the agent only works for himself. In commission trade, two sales transactions take place. For sales, the principal first sells the goods to the agent, and later, when the agent sells the goods to the final customer, it is considered a sale made by the agent. Correspondingly, for purchases, the agent is the seller of goods to the principal and before that, the first transaction had taken place between the original seller of goods and the agent who purchased the goods.

Brokerage services are usually deemed taxable even if the goods/services being brokered were exempt from tax. Brokerage services can only be exempt if special rules provide for the exemption.

The following brokerage services are exempt from tax:

• Brokerage for tax-exempt exportation of goods outside the Community,
• Brokerage for international sales of tax-exempt services,
• Brokerage for selling, hiring out or chartering exempted vessels and brokerage of work performed on exempted vessels,
• Brokerage of exempted insurance services,
• Brokerage of credits,
• Dealing in shares or securities, i.e. brokerage of shares, with the exception of housing company shares, which by themselves, or together with other securities, carry the right to hold a particular apartment or immovable property, or part of an immovable property,
• Brokerage of lotteries to in Article 2, paragraph 1, section 1) of the Lottery Tax Act,
• Brokerage of gold for the benefit of the Bank of Finland, and
• Brokerage of goods and services for the benefit of diplomatic representations located in other Member States and for the benefit of certain international organizations.

General place-of-supply rule for brokerage services: Brokerage is deemed sold in Finland, if the goods or services being brokered are sold in Finland. If the buyer of a brokerage service utilizes a VAT number issued by one of the Member States, the brokerage is deemed sold in Finland if the VAT number was issued in Finland.

Import agency:

If the buyer of a brokerage service is registered in Finland for tax purposes and uses a Finnish VAT number in connection with the purchase, the tax for the sales is paid to Finland.

Export agency:

If the buyer of an agency service uses a VAT number issued in another Member State, the tax will be payable in the country where the VAT number was issued.

Please note that there are specific place-of-supply rules governing the brokerage services for transport of goods, for intra-Community transport, for services directly linked with intra-Community transport and for intangible services.

Brokerage for transport of goods is deemed sold in Finland, if the transport service was sold in Finland.

Brokerage for intra-Community transport is deemed sold in Finland if the place of departure of the transport is in Finland. By way of exception, if the buyer of the intra-Community transport service utilizes a VAT number issued in one of the member States, the place of supply will not be the same. Consequently, the brokerage service is deemed sold in Finland, if the VAT number was issued in Finland.

Brokerage for services directly linked with intra-Community transport is deemed sold in Finland if Finland is the place where the services concerned are rendered to a recipient. However, if the buyer of the services utilizes a VAT number issued in one of the member States, the place of supply for the brokerage services will be Finland, if the VAT number was issued in Finland.

Brokerage for intangible services is governed by the application of the same place-of-supply rules as intangible services.

The services of real estate agents, i.e. brokerage for selling immovable property or for renting immovable property are deemed sold in Finland if the immovable property is located in Finland.

4.13 Tax-exempt services relating to international trade

The supply of services to satisfy the direct needs of marine vessels or aircraft in commercial international traffic, or of their cargo, as well as sales of services on board such vessels and aircraft to passengers travelling to a foreign country are exempt from tax. Sales of services taking place on these forms of transport are exempt from tax even if the vessel is sailing in Finnish maritime territory or the aircraft is flying in Finnish airspace.

In addition, the following services are exempt from tax: the hiring out of aircraft, their spare parts or equipment, or the sale of work on them, or the chartering of aircraft to an entrepreneur, who operates for reward mainly on international routes.

4.14 The special status of the Åland Islands

In value added taxation, the Åland Islands is comparable to a third country in relation to the rest of Finland's territory and other Member States. The intra-Community system of value added taxation is not applicable between the tax territory of the EU and the Åland Islands. Instead, the rules governing import from and export to third countries are applied. In certain situations, the special status of the Åland Islands affects the value added taxation of services. The existence of a territorial border has entailed the following changes in the trade of services between Åland and Continental Finland:

Because import of goods from Åland to other parts of Finland and vice versa is taxable, the transport services of goods including their ancillary services are taxed in connection with the importation of the goods. To prevent double taxation, transport of goods between Åland and other parts of Finland are exempted.

Postal transport services between Åland and other parts of Finland are exempted.

Passenger transport services between Åland and other parts of Finland are taxable.

Certain brokerage services of tax-exempt supplies linked with international trade are exempted under section 71, subsection 11 of the VAT Act. The corresponding exemptions of brokerage services are valid also for trade between Åland and other parts of Finland.

For more information on Åland's special status, please see the National Board of Taxes 'Ahvenanmaan veroraja arvonlisäverotuksessa' (in Finnish) (Value added taxation and the territorial border of Åland).

5 VAT codes marked on invoices

As prescribed by Value Added Tax Act, if the buyer is an entrepreneur or a legal person, the seller should always give a receipt. In addition, if the buyer makes a down payment, the seller should always give a receipt for a prepayment. The receipt must include the taxable net price of the goods/services sold and the amount of tax included in the total sum of the sale, including a specification of the applied VAT rates. The receipt must also have ”ALV rek.” marked on it.

If no tax is to be paid for a sale to another taxable person, the receipt must also include this information. The code 'Alv 0 %' (in Swedish: 'Moms 0 %', in English: 'VAT 0%') indicates that the sale is exempt from tax. In addition, the invoice must include a specification of the type of service being sold i.e. a reference to the provision of the Value Added Tax Act allowing the exemption.

The buyer of a service can utilize a VAT number given in another Member State in connection with purchases of certain services. Then both the buyer's and the seller's VAT numbers should be entered on the receipt.

6 Using monthly tax return for reporting services sold in other countries

A VAT registered taxable person enjoys normal rights for tax deductions for sales in another country, if the sales in question would have been VAT taxable if it had taken place in Finland. Sales in other countries, for which the taxable person has the right to make deductions, are reported on line 209 of the monthly tax return.

7 Refund of vat included in the purchase price of goods/services purchased in another country

A Finnish VAT registered entrepreneur can recuperate the VAT for purchases of goods and services in another country by filing an application. The recuperation will take place according to the rules of the country concerned. One of the requirements is that the applicant is not registered for tax purposes in the country where the purchases were made.