European Commission simplifies VAT rules for e-commerce
On 1 December 2016 the European Commission published its proposal for significant modification of the VAT legislation for online sales of goods and services at the European level, during the period 2018-2021. This proposal is part of the Digital Single Market Strategy, one of the policy pillars of the Juncker Commission. The intention is to achieve one single market in which e-commerce companies gain easier access to consumers.
5 December 2016
One of the difficulties these companies often face is the complex VAT legislation. The review of government of such companies is also often difficult because of the complexity. The proposal is based partly on a study performed under the leadership of Deloitte Belgium, on behalf of the European Commission. The study concentrated initially on the economic importance of e-commerce, as well as the degree to which companies were meeting their obligations and authorities were able to verify this. Building on an analysis of the current successful mini One Stop Shop arrangement (MOSS), Deloitte then considered what options the European Commission had to limit the administrative burden on companies on one hand, while on the other ensuring that the authorities did indeed collect the VAT.
In 2015 the e-commerce sector experienced growth of 18%, and revenues in the EU were € 550 billion (of which € 96 billion was transnational). The changes the European Commission proposes are intended to strengthen this growth further by reducing the burdens significantly on e-commerce companies, particularly for the small and medium-sized enterprises (SME) sector and micro-enterprises. According to an average growth scenario, simplification will allow revenues to grow by € 5.2 billion.
In concrete terms the first simplifications will be introduced from 2018. These changes will affect those offering online services, and will address several troublesome points which arose during evaluation of the rules which were introduced for these services in 2015. At that time all providers of online services were required to charge VAT in a B2C context in the customer’s country of residence. Payment of the VAT occurred through a portal in their own member state, the MOSS portal. From the evaluation conducted by Deloitte in dialogue with both the business sector and the national authorities, it transpired that this system and its implementation at the European level is generally regarded as being extremely successful.
Simplification for micro-enterprises
From 2018 an (optional) annual turnover threshold of € 10,000 will be introduced. Providers of online services who remain under this threshold may apply the rules of their country of establishment (including the possible ‘small entrepreneurs scheme’). This scheme is vitally important for so-called micro enterprises.
Another simplification is aimed at small enterprises offering online services (e.g. video streaming or apps), and where the turnover from international sales is below a threshold of € 100,000 annually. After the change such companies will only be required to show one element of proof of the EU country in which the customer is based (e.g. an invoicing address, an IP address etc.), rather than the two indicators currently required.
Expansion of MOSS portal to online goods sales
In 2021 the rules and the MOSS portals currently in place for online services, will be extended to online sales of goods. This means an important step forwards for a very large number of small and large companies. They are currently required to register in different European countries, with the associated reporting obligations and administrative costs. Costs of meeting the administrative burden will drop by some
€ 2.3 billion annually.
A company may also use the invoicing rules from its country of establishment. This means that a company which sells goods or provides services to customers in specific European countries, no longer needs to issue invoices. Checking companies which report VAT through the MOSS portal will also occur through the country where the company is based, in their own familiar environment and language.
European companies on level playing field
Another important change, which will be introduced from 2021, is that the various thresholds for importing goods intended for customers, and for sale to customers within the EU, will be abolished. This is aimed mainly at combatting unfair competition from non-European companies. It’s estimated that the member states lose out on some € 4.8 billion in VAT annually because the non-European companies do not fulfil their responsibilities arising from these transactions.
After the change, companies and administrations no longer need to take account of the thresholds. This will lead to simplification. However, micro enterprises will still be able to apply the VAT rules of their country of establishment for sales up to € 10,000.
Possible rate reduction for electronic publications
In the wake of the proposals on international e-commerce, the European Commission also proposes allowing electronic publications to be taxed from 2018 at the same VAT rate (often a reduced rate or even a zero-rate) as their printed equivalents. This would put an end to the current discrimination against e-books and online magazines and newspapers.