Towards platform taxation?
The digital economy provides for many challenges in the area of legislation, taxation being no exception.
11 January 2018
In VAT the 2015 changes of the place of supply rules for telecommunications, broadcasting and electronic services marked a new approach for taxation of e-commerce for VAT. The new rules were accompanied by a rule making platforms responsible for paying the VAT on transactions with consumers to the tax authorities under certain circumstances.
In the e-commerce proposals of 2016 that were adopted by Member States on 5 December 2017 again taxation of transactions with consumers is made the responsibility of platforms under certain circumstances. In this article I will address this development of platform taxation. What does it mean for businesses and in what direction will we move in the future?
The 2015 changes and the position of platforms
Since 2015 all B2C telecommunications, broadcasting and electronic services (hereinafter: tbe-services) are subject to VAT where the customers resides. In case the customer resides in an EU Member State where the supplier is not established, the supplier can report and pay the VAT in his own Member State under the Mini One Stop Shop (MOSS).
Electronic services that are provided through a telecommunications network, interface or portal, such as a market place for applications (read: app store) are presumed to be supplied by the supplier operating the network, interface or portal to the end consumer, making that operator (instead of the actual service provider) responsible for paying the VAT in the Member State where the consumer resides. This presumption can be rebutted though if certain conditions are met, i.e. disclosing the name of the actual service provider (or another intermediary) and the service provided on the invoice and bill or receipt. In case the operator authorizes the charge to the customer or the delivery of the services, or sets the general terms and conditions of the supply, the presumption cannot be rebutted.
Requiring the customer to accept general terms and conditions for using the platform also qualifies as setting the general terms and conditions of the supply. Market places such as app stores will therefore most likely not be able to rebut the presumption which makes them liable to pay the VAT on the transaction to the end consumer.
Making the platform responsible for the VAT that needs to be paid on the transaction to the end consumer makes the task of tax authorities easier and better ensures compliance. Since those platforms are often big players the amounts of VAT collected through these platforms will be significantly bigger than VAT that would need to be collected from individual app builders, content providers etc. What is more, big players can be traced more easily, have the capacity and capability to deal with complex VAT rules and more often a wish (or need) to show compliant behaviour.
The 2021 changes and the position of platforms
As of 2021 the exemption for small consignments will be abolished. This means that VAT needs to be paid upon the importation of each parcel. In case the goods have a maximum intrinsic value of 150 euros the supplier can make use of a MOSS-like VAT return to report the VAT due. To state in short VAT is due at the moment the payment is accepted in the EU Member State the goods are transported to (not the Member State of importation) and is to be reported in quarterly VAT returns within a month after the end of each calendar quarter. In case a taxable person cannot or does not want to report the VAT due through this MOSS-like VAT return Member States need to allow the taxable person to make use of special arrangements for declaration and payment of import VAT in respect of goods for which the dispatch or transport ends in the Member State of importation.
Taxable persons that facilitate distance sales of goods with a maximum intrinsic value of 150 euros that are imported from third countries into the EU through an electronic interface shall be deemed to receive and supply those goods themselves. This provision makes those platforms liable for paying the VAT on those distance sales to consumers. Unlike the provision that applies to electronic services this is not a presumption that can be rebutted. Platforms will therefore be responsible to pay the VAT on these distance sales regardless of how contracts are drawn up with the actual suppliers of those goods. What is more, a similar provision applies when an electronic interface (read: platform) facilitates the supply of goods to consumers within the EU when the supplier is not established in the EU. This latter rule applies regardless of the intrinsic value of the goods supplied.
Pursuant to the considerations in the preamble to the adopted Directive the rules for platforms are adapted to achieve collection of VAT and reduce the administrative burden for vendors, tax administrations and consumers. It is yet unclear how to interpret terms like ‘facilitate’ and when the provision will thus apply. The provisions currently adopted will be developed further under a non-legislative procedure. It is therefore to be expected that the provision will be explained in further detail in not legally binding explanatory notes, an instrument that the EU uses more often in the area of VAT. This, in my opinion, brings about uncertainty for businesses on such an important provision that makes platforms liable for paying huge amounts of VAT.
The provisions apply in case the platform facilitates the supply. It is not required that the platform facilitates the payment too. However, because the platform will be liable to pay the VAT on the supply to the consumer it will need to ensure that it will also collect that VAT from the consumer. If the platform does not facilitate the payment it may need to ensure it collects this VAT from the supplier.
The future of platform taxation
If the rules to be applied for distance sales of goods through platforms turn out to be a success or are deemed to be a success by the European Commission we can, in my view, expect an extension of this regime to electronic services (whereas the provision is currently a rebuttable presumption) and distance sales of goods within the EU (in case the supplier is established within the EU).
Even though taxation through these platforms has its benefits (as described above) there are also some downsides that need to be taken into consideration, such as in case of bankruptcy of a platform the VAT loss will be significant compared to a bankruptcy of an individual supplier. What is more, if the proposal of the European Commission on the temporary reverse charge rules is adopted and VAT fraud might shift to B2C transactions fraudsters might use this rule to act as a platform that facilitates distance sales of goods, collect VAT from customers and not pay that VAT. They will be able disappear with the collected VAT (even without actually supplying goods) and the Member States will be left with empty pockets. Finally, developments such as Blockchain might make the use of platforms unnecessary for the future and provide new challenges to the EU.