European Commission proposes simplified VAT rules for e-commerce supplies

Tax Alert

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On 1 December 2016, the European Commission unveiled plans to simplify the VAT rules for cross-border online sales (e-commerce). The Commission's proposal will make it easier for online businesses to access markets in (other) Member States while also reducing VAT compliance costs. In addition, the proposal aims to tackle unequal VAT treatment of e-books, e-newspapers and their printed counterparts.

The proposed package consist of:

  • A MOSS e-commerce enhancement
  • Simplifying VAT rules for micro-businesses and startups
  • Removal of the EUR22 optional reduced/zero rate for e-books and e-newspapers
  • An optional reduced/zero rate for e-books and e-newspapers

The package will be submitted to the European Parliament for consultation and to the European Council for adoption. If adopted, some of the Commission's proposals could enter into force as early as 2018.

MOSS extended to physical supplies

As of 1 January 2015, VAT due on supplies of telecommunications, broadcasting and electronically supplied services (e-services) made by EU suppliers to private individuals and non-business customers may be reported using an online VAT portal , known as the Mini One-Stop Shop (MOSS).

Following the success of the e-services MOSS, the Commission has proposed to extent the application of the MOSS to also include cross-border e-commerce supplies of physical goods. Under this enhanced MOSS, businesses will be able to take care of their EU VAT obligations (i.e., the local VAT due) quarterly via their own tax authorities and in their native tongue. Local VAT registrations should no longer be required.

The enhanced MOSS is set to go live in 2021. In the meantime, the current MOSS will be made more user-friendly (starting in early 2017).

Simplifying VAT rules for micro-businesses and startups

In addition to the aforementioned enhanced MOSS, an optional threshold of € 10,000 has been proposed for goods. If the supplier's cross-border yearly revenue is below this threshold, the VAT rules of its home country will apply. Furthermore a secondary threshold of € 100,000 is introduced for e-services. This second threshold will provide for simplified customer identification procedures. Currently, suppliers of e-services have to obtain at least two pieces of evidence in order to identify the location of their customers. Under the proposed simplified schemes, this required number is dropped to one piece of evidence, provided the € 100,000 threshold is not met.

The thresholds could be applied on e-services as early as 2018 and by 2021 also for online goods. Although the thresholds mainly benefit smaller business and start-ups, expanding (non-EU) companies, trying to get a stronger foothold on the EU market, will also benefit from this measure.

Removal of the EUR22 import VAT exemption

Currently, consignments with a value less than €22 are exempt from VAT when imported into the EU. As a result, the Commission believes the current system is open to fraud and abuse. Additionally, this threshold creates unfair competition from non-EU suppliers. In order to combat both fraud and unfair competition, the Commission now proposes to abolish this particular VAT exemption as of 2021.

Abolishing the small consignments import VAT exemption impacts both non-EU suppliers (particularly online gadget suppliers) as well as the EU consumer. Non-EU suppliers will need to charge VAT on even the smallest of shipments. In order to decrease VAT compliance costs, such suppliers may want to designate EU intermediaries (e.g., market place, courier, postal operator or customs agent).

The Commission argues that an increase in competition and a decrease of the administrative burden should be beneficial to the EU consumers. Whether or not this is accurate, which is doubtful, remains to be seen.

Optional reduced/zero rate for e-books and e-newspapers

Currently, books and newspapers may be subject to reduced or zero rate, depending on the Member State, while their electronic counterparts are taxed at the standard rate. The principle of fiscal neutrality, as established in EU case law, demands that the VAT on similar goods or services, should be subject to the same VAT burden. In order to create an equally favorable VAT climate for electronic publications, the Commission has proposed to allow Member States to align the VAT rates on these publications with their printed counterparts. It should be noted that this proposal is optional, Member States will not be obliged to apply lower VAT rates (although this may trigger discrimination disputes with the tax authorities). This proposal may enter into force immediately upon adoption by the Council.

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