Implementation VAT e-Commerce Directive
2019 Tax Plan - Budget Day (Prinsjesdag)
The components to be implemented particularly regard simplifying the current VAT regime for telecommunication services, broadcasting services and, more specifically, electronic services.
10 October 2018
- Implementation VAT e-Commerce Directive
- EUR 10,000 sales threshold
- Expanding scope of application MOSS
- Invoicing rules own Member State
- The EUR 100,000 sales threshold
Implementation VAT e-Commerce Directive
The bill “Implementation article 1 e-Commerce Directive” provides for the mandatory implementation in the Dutch tax system of (part of) the e-Commerce Directive. The EU Member States adopted this Directive on 5 December 2017. The components to be implemented particularly regard simplifying the current VAT regime for telecommunication services, broadcasting services and, more specifically, electronic services.
The larger part of the e-Commerce Directive relating to distance sales to consumers should be implemented as of 1 January 2021. The State Secretary for Finance has stated to introduce a separate bill in due time, containing the related provisions. As this involves the implementation of the e-Commerce Directive as adopted by the EU Member States, the parliamentary debate on this bill is likely to meet with little opposition.
Soon after the VAT rules for telecommunication services, broadcasting services and electronic services had been introduced in 2015, entrepreneurs faced an administrative burden. Since 2015, entrepreneurs selling electronic services to consumers in other Member States must pay VAT in the Member States where those consumers reside, at the rates applicable in those Member States. Entrepreneurs can opt for the simplified measure of the Mini One-Stop-Shop scheme (MOSS) for making their VAT payments. This offers entrepreneurs the possibility to declare and pay all foreign VAT due in their own Member States. When selling these B2C services through the Internet, though, it is not always easy to determine in which Member States consumers reside and what VAT rate entrepreneurs should charge and pay. Another issue for entrepreneurs when making payments through the MOSS, is that they must file an extra VAT return in their own Member States, in addition to their regular domestic VAT returns. The amounts involved in what these entrepreneurs sell consumers in other Member States are often small. To accommodate them, four simplifications will be introduced on 1 January 2019.
The EUR 10,000 sales threshold
Under the present rules, entrepreneurs who supply electronic services to consumers in other Member States must pay VAT due in those Member States. Some 1,300 Dutch based entrepreneurs use the simplification through the MOSS tax return right now, according to the State Secretary. And yet this can still result in an administrative burden for entrepreneurs if they supply few electronic services to foreign consumers, since they must keep records of their consumers’ residence and the VAT rates in the latter’s Member States.
The simplification means that entrepreneurs performing these online B2C services and that are established in a single Member State, can apply the VAT rate applicable in their own Member States. There is one condition to using this simplification. Entrepreneurs can only use it if they do not exceed the total cross-border EUR 10,000 sales threshold. Application of this sales threshold solely applies to transactions in which the consumers are not liable for tax. Please note, entrepreneurs who do not exceed the EUR 10,000 sales threshold can continue to use the earlier MOSS simplification measure. A request to that end should be filed with the inspector. The option then applies for at least two calendar years. In the explanatory memorandum the State Secretary states that this option can be attractive for entrepreneurs when the VAT rates in other Member States are considerably lower than the Dutch VAT rates.
Expanding scope of application MOSS
Some entrepreneurs who are not established in the EU, nor have a fixed establishment there, are still registered in the EU (or should be) for VAT purposes. Right now, they cannot avail themselves of the MOSS when they supply electronic services to consumers in the EU. The bill expands the scope of application of the MOSS. This permits entrepreneurs not established in the EU to also use the non-Union scheme within MOSS. As more non-EU entrepreneurs will be able to avail themselves of the MOSS as from 1 January 2019, supervision of these entrepreneurs will improve. This legislative change is important for British entrepreneurs, too. If no Brexit deal is reached, they who will no longer be EU based entrepreneurs the day after the expected Brexit on 29 March 2019. From then on, they can avail themselves of the non-Union scheme within MOSS.
Invoicing rules own Member State
In addition to the current VAT rates in other Member States, entrepreneurs who supply electronic services to consumers in other Member States should also be aware of the invoicing rules applicable in those other Member States. Complying with this myriad of different rules is a burden to these entrepreneurs. The simplification proposed means entrepreneurs who apply the MOSS are permitted to apply the invoicing rules of their own Member States, instead of those applicable in the customers’ Member States. Since non-EU entrepreneurs can apply the MOSS as well, the local invoicing rules can be decisive when choosing the Member State of registration. One of the benefits for entrepreneurs established in the Netherlands or non-EU entrepreneurs who register in the Netherlands for purposes of the MOSS is that they are exempted from the obligation to issue invoices for transactions with private consumers. Entrepreneurs who do not avail themselves of the MOSS should basically apply the invoicing rules of the Member States of the consumers.
The EUR 100,000 sales threshold
The current legislation stipulates that entrepreneurs who supply electronic services to consumers in other Member States must have two separate and non-contradictory pieces of evidence to be able to determine where consumers are established. Such pieces of evidence can include billing addresses, IP addresses, bank details, SIM card data, the location of fixed telephone lines, and other relevant business data. Obtaining these pieces of evidence is also an administrative burden for these entrepreneurs. The existing rules on evidence are adapted to simplify this process. Entrepreneurs whose sales in respect of electronic services to consumers in other Member States have not exceeded the EUR 100,000 threshold in the current or the previous calendar year, can determine the residence of their consumers based on one piece of evidence as from 1 January 2019. The striking issue here is that this evidence must come from a person involved in the transaction who is not the supplier or the customer.