Proposals for modernising the VAT system for cross-border B2C e-commerce

The EU Commission released a number of legislative proposals which aim to improve the VAT rules applicable to the e-commerce sector within the European Union, to stem the high levels of VAT fraud, to decrease VAT compliance costs borne by businesses and to allow goods and services to be more easily sold online, in particular by start-ups and SMEs.

 

The main proposed changes to the EU VAT system are as follows:

I) Extension of the Mini One Stop Shop (MOSS) mechanism to goods and other services

As a reminder, the MOSS came into force on 1st January 2015 and it allows “taxable persons supplying telecommunications services, television and radio broadcasting services and electronically supplied services to non-taxable persons in the EU Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified1.

The Commission proposes that this simplified registration and payment regime (MOSS) be extended to distance sales of tangible goods, to services other than electronic services (telecommunications services, television and radio broadcasting services and electronically supplied services) and to distance sales of goods from third countries to non-taxable customers (B2C) within the EU.

 

II) Other simplification measures

  • Specific measures for SMEs: removal of the existing intra-Community distance selling thresholds for goods and services.

- Under a yearly threshold of €10,000 in online sales (goods or services), the business will remain subject to its national VAT rules.

- Under a yearly threshold of €100,000 in online sales, business will benefit from simplified rules for VAT declaration purposes. The supplier will be required to only obtain one piece of evidence of the place of location of its customers, whereas two pieces of evidence are required currently.

  • Measures for non-established businesses supplying services or making distance sales of goods to non-taxable persons in the EU (B2C)

- Application of the country of establishment of the supplier rules, for invoicing requirements and record keeping.

 

III) New measures applying to importations

  • Removal of the VAT exemption for imports of small value consignments whose value does not exceed €22.
  • Simplification of the declaration and payment procedure for any importer who had not opted for the MOSS.

 

IV) Application of  reduced rates to e-books

The Commission, in addition, proposes that EU Member States be allowed to apply the (generally reduced) VAT rates currently applied to paper books (and other physical support media) to e-books.

 

V) Next stages

The rules described above should enter into force as from 2018 for the specific measures for SMEs, and as from 2021 for the other measures.

The Commission’s proposals have still to be submitted to the EU Parliament for consultation and to the EU Council for adoption.

The European Council clearly wants to see action taken rapidly as it has stated that “all the actions and strategies related to the single market, which the Commission has recently unveiled, should be implemented by 2018”.

For the Commission, 2017 is a particularly demanding year concerning VAT. On 7 April 2016 the Commission adopted an Action Plan on VAT which sets out urgent actions:

  • to tackle the VAT gap,
  • to modernise VAT rates policy,
  • to provide a definitive regime for cross-border trade,
  • to propose a VAT simplification package for SMEs.

 

 

1 Guide to the mini one stop shop, 23rd October 2013.