Europe agrees on new rules for VAT in the e-commerce sector. The reform of the rules will adapt the current VAT system to the digital age
To facilitate compliance with VAT obligations and reduce fraud by online companies, the Ministers of Economy and Finance of the European Union «Ecofin», approved new rules regarding Value Added Tax. With this type of measure, what is intended is to facilitate the collection of VAT at the moment in which consumers buy products and services online. Therefore, there are new changes compared to the previous application of VAT for 2015 in eCommerce.
What is achieved with the VAT reform in eCommerce?
In addition to the above, Toomas Tõniste, Minister of Finance of Estonia, which currently holds the Presidency of the Council, stated that:
This reform of the rules will adapt our VAT system to the digital age.
By cutting red tape, we will achieve cost savings for businesses and increased tax revenue for Member States. This was one of the main priorities of our Presidency.
The current distance sales VAT registration had a single EU portal as a “one-stop-shop” but now a new one is created for distance sales from third countries for less than €150. With this new rule, the costs of complying with VAT obligations for operations between companies and consumers are reduced.
How will VAT be paid?
It will be paid in the Member State of the consumer, guaranteeing a fairer distribution of tax revenue between the Member States. Even the legislative texts announce that online platforms are responsible for collecting the Value Added Tax on the distance sales they offer. This was not taken into account in the Commission proposals but has ended up being an essential provision of the package of measures (one directive and two regulations). Today, most of the goods imported by distance sales enter the European Union exempt from VAT, which is considered unfair competition for EU companies.
This reform is carried out because VAT fraud for distance sales in the EU amounts to 5,000 million euros per year, so it is intended to reduce it as much as possible with this series of measures. The single window will free online merchants from having to register for VAT in each of the Member States where they sell online. According to the Commission, these obligations cost online businesses approximately €8,000 for each country of the European Union in which they make sales.
The proposals will make it possible to reduce the administrative burden on businesses by 95% and it is estimated that the single window will produce an overall saving of €2.3 billion for businesses and an increase of €7 billion in VAT revenue for Member states. For emerging companies such as startups and SMEs, this new regulation is simplified in fact, if their international online sales do not exceed 10,000 euros per year, they can continue to apply the VAT rules in force in their country of origin.
In addition to that, shipments that come from outside the EU for a value of fewer than 22 euros and that were exempt from paying the Assigned Value Tax, must now do so since approximately 150 million “small shipments” are imported free of VAT. and the system encourages abuse. It was not logical that EU companies had to apply this tax regardless of the value of the goods sold and those imported would benefit from the exemption, often causing a valuation lower than the real one in order to be exempt.
Calendar of the package of measures
They were approved without debate at a session of the Economic and Financial Affairs Council. The European Parliament issued an opinion on November 30, 2017 and the new rules will have the following schedule:
- Adoption. From December to 2019, simplification measures are adopted for the sale of electronic services within the European Union.
- Extension. From December to 2021, the single window is extended to distance sales of goods both within the EU and from third countries, as well as the abolition of the VAT exemption applicable to shipments considered small.
In short, it is about establishing greater administrative cooperation between the Member States in order to accompany and facilitate the extension, this Administrative Cooperation Regulation will apply from January 1, 2021. The provisions that will apply from 2021, they will be addressed in more detail in favor of a Commission proposal under a non-legislative procedure. Those that will apply from 2019 are already included in the set of measures. Member States have until December 31, 2018, and 2020 to include the corresponding provisions of the Directive in their national legal system.
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