Many schools have started to deliver lessons remotely as a result of Covid-19. The information in this alert relates to independent schools that are delivering education to students based in other countries by electronic means.
The ongoing health pandemic has changed the way that schools deliver education to students such that many schools are delivering classes remotely using platforms such as Zoom and Microsoft Teams. We are aware that some countries such as China and India are considering the application of indirect tax to on-line teaching on the basis that these services are ‘electronically supplied’.
Broadly speaking the UK and EU legislation treats a supply as being ‘electronically supplied’ where the supply is generic, pre-packaged and provided by electronic means. This covers services like e-books and music downloads as well as pre-recorded lessons. For VAT purposes these types of services are taxed in the country where the individual receiving the supply downloads the information. Consequently, in the EU the delivery of a live class or lecture would not be electronically supplied. However, a pre-recorded class could be afforded this treatment which would in turn potentially lead to exposure to a VAT charge in the country where the student downloads the material.
It is important to note that outside of the EU the definition of ‘electronic services’ could differ from the EU rules hence why some countries may seek to apply their domestic VAT/sales taxes to payments made for any on-line teaching.
Our view is that where Covid-19 has led to live e-classes being provided for the termly fee, they essentially become part of the existing contracted service of education between the school and the parent and UK VAT exemption continues to apply because the service provided by the school remains unchanged. It is only the means of delivery has had to change due to exceptional circumstances that are outside of the school’s control. In these instances, we believe that applying VAT/sales tax in another country would be inequitable since the education is treated as being taxed in the UK (despite the fact that an exemption applies).
The above argument may become more difficult to support later this year if parents are paying fees knowing that the delivery method for the education has changed or if schools begin to deliberately package their supplies of education in this manner in future, for instance, if a different fee was offered for the provision of on-line learning. However, there would remain an argument for UK VAT exemption applying in instances where pre-recorded classes are provided in conjunction with other elements that make up a full package of education, for example, live tuition, mentoring, homework and routine assessments.
Unfortunately, with the differences in the types of delivery and number of countries involved there is no clear answer in relation to supplies of e-learning but schools are potentially exposed to tax charges from overseas especially if pre-recorded classes are provided in return for fees. There are also arguments that can be used to try to rebut other jurisdictions from imposing VAT/sales taxes but treatments and approaches across the world could differ greatly and therefore require specialist local advice.
Crowe would be happy to host a free online meeting where delegates can discuss this issue in more detail and try to obtain information of those jurisdictions that could create the most exposure for the sector– please click here to register your interest.