The European Commission on December 1 unveiled a series of measures to improve the value-added tax (VAT) environment for e-commerce businesses in the EU. The proposals are intended to enable consumers and companies – in particular start-ups and SMEs – to buy and sell goods and services more easily online.
By introducing an EU wide portal for online VAT payments (the "One Stop Shop"), the Commission is hoping to reduce VAT compliance expenses for businesses by about EUR2.3bn (USD2.9bn) a year. Currently, online traders have to register for VAT in all the member states to which they sell goods. Often cited as one of the biggest barriers to cross-border e-commerce, these VAT obligations cost businesses around EUR8,000 for every EU country into which they sell. The Commission is now proposing that businesses make one simple quarterly return for the VAT due across the whole of the EU, using the online VAT One Stop Shop.
The new rules will also ensure that VAT is paid in the member state of the final consumer, in what is intended to lead to a fairer distribution of tax revenues among EU countries. Since January 1, 2015, this system already exists for sales of electronic services, such as mobile phone apps. This has proven successful, said the Commission, with more than EUR3bn in VAT being collected through the system in 2015.
Administrative burdens for companies will be reduced by 95 percent, the Commission said, giving an overall saving to EU business of EUR2.3bn and increasing VAT revenues for member states by EUR7bn.
In addition, a new yearly threshold of EUR10,000 in online sales will be introduced under which businesses selling cross-border can continue to apply the VAT rules they are used to in their home country. This will make complying with VAT rules easier for 430,000 companies across the EU, representing 97 percent of all micro-business trading cross-border. A second new yearly threshold of EUR100,000 will make life easier for SMEs when it comes to VAT, with simplified rules for identifying where their customers are based. The thresholds could be applied as early as 2018 on e-services, and by 2021 for online goods. Other simplifications would allow the smallest businesses to benefit from the same familiar VAT rules of their home country, such as invoicing requirements and record keeping. The first point of contact will always be with the tax administration where the business is located, and businesses will no longer be audited by each member state where they have sales.
The Commission is also to take action to tackle VAT fraud. Small consignments imported into the EU that are worth less than EUR22 are currently exempt from VAT. With around 150 million parcels imported free of VAT into the EU each year, the system is open to massive fraud and abuse, the Commission said. First, EU businesses are put at a clear disadvantage since unlike their non-EU competitors, they are liable to apply VAT on all goods, irrespective of their value. Second, the Commission said imported high-value goods such as smartphones and tablets are consistently undervalued or wrongly described in the importation paperwork in order to benefit from this VAT exemption. The Commission has therefore decided to remove this exemption.
Finally, the Commission is to enable member states to apply the same VAT rate to e-publications such as e-books and online newspapers as for their printed equivalents, removing provisions that excluded e-publications from the favorable tax treatment allowed for traditional printed publications. Current rules allow member states to tax printed publications such as books and newspapers at reduced rates or, in some cases, super-reduced, or zero rates. The same rules exclude electronic publications, meaning that these products must be taxed at the standard rate. Once agreed by all member states, the new set-up will allow – but not oblige – member states to align the rates on e-publications to those on printed publications.
Andrus Ansip, Vice President for the Digital Single Market, said: "We are delivering on our promises to unlock e-commerce in Europe. We have already proposed to make parcel delivery more affordable and efficient, to protect consumers better when they buy online and to tackle unjustified geo-blocking. Now we simplify VAT rules: the last piece in the puzzle. Today's proposal will not only boost businesses, especially the smallest ones and startups, but also make public services more efficient and increase cooperation across borders."
Pierre Moscovici, Commissioner for Economic Affairs, Taxation, and the Customs Union, said: "Online businesses operating in the EU have been asking us to make their lives simpler. Today we're doing that. Companies big and small that sell abroad online will now deal with VAT in the same way as they would for sales in their own countries. That means less time wasted, less red tape and fewer costs. We're also simplifying rules for micro-businesses and startups, allowing them to tap new markets more easily. Our proposals mean that European governments stand to gain an additional EUR100 million a week to spend on services for their citizens."