(September 25, 2015)

On September 25, 2015 the European Commission issued a press release announcing that a public consultation to help identify ways to simplify the Value-Added Tax (VAT) payments on cross-border e-commerce transactions in the EU was launched. The consultation is supposed to run for 12 weeks and to end on December 18, 2015.

According to the European Commission in the context of the Digital Single Market, the Commission is working to minimize burdens attached to cross-border e-commerce arising from the different VAT regimes within the EU. The European Commission states that it wants to provide a level playing field for EU companies, big or small, and ensure that VAT revenues flow to the country where the consumer is based.

In the press release it is furthermore stated that in 2016 the European Commission will come with a legislative proposal to reduce the administrative burden on businesses arising from different VAT regimes. The consultation launched today will feed into preparations for these important proposed measures.

The European Commission is supposed to propose simplification measures for small business including an appropriate threshold which can address the problems without causing further distortions to the single market or compliance challenges for tax administrations. According to the press release, the Commission will propose reducing the administrative burden on businesses arising from different VAT regimes including:

-          extending the current single electronic registration and payment mechanism to cover the sale of tangible goods;

-          introducing a VAT threshold to help online start-ups and small businesses;

-          allowing cross-border businesses to be audited only by their home country for VAT purposes;

-          removing the VAT exemption for the import of small consignments from suppliers in third countries.

In the announcement the European Commission states that it is seeking to receive a wide range of views from business owners and other interested parties before it drafts its legislative proposals on the topic in 2016, as part of the Digital Single Market strategy.

According to the announcement the consultation is also part of the ongoing assessment of the new rules for VAT payments on cross-border telecommunications, broadcasting and electronic services which came into force last January. The Commission is keen to garner feedback on the associated Mini-One Stop Shop (MOSS), the tool that allows businesses that sell digital services to customers in more than one EU country to declare and pay all their VAT in their own Member State.

Context and Objectives of this public consultation

The complications of having to deal with many different national tax systems represent a real obstacle for companies trying to trade cross-border both online and offline. Since January 1, 2015 with the entry into force of new "place of supply" rules[1], VAT on all telecommunications, broadcasting and electronic services is levied where the customer is based, rather than where the supplier is located.

In parallel, a Mini One Stop Shop has been implemented to reduce the costs and administrative burdens for businesses concerned. This should be extended to tangible goods ordered online both within and outside the EU. Instead of having to declare and pay VAT to each individual Member State where their customers are based, businesses would be able to make a single declaration and payment in their own Member State.

Currently goods ordered online from third country suppliers can in some Member States benefit from the small consignment import exemption (below a threshold of 10-22 EUR) allowing shipment free of VAT to EU private customers. This gives them a competitive advantage over EU suppliers, and market distortions have already been signaled in various Member States. While acknowledging the benefits for business of not having to register up to the distance sales thresholds for intra-EU Business to Consumer (B2C) supplies of goods (Euro 35 000 or Euro 100 000 to be determined by the Member State of destination), it is relevant that these thresholds may cause uncertainties for business and can lead to compliance challenges for Member State tax administrations. Such exceptions on imports and intra-EU distance sales may no longer be needed if VAT were to be collected through a single and simplified electronic registration and payment mechanism.

The broad issue was considered by the Commission Expert group on taxation of the Digital Economy who reported in May 2014 and made a number of recommendations in respect of modernising VAT for cross-border e-commerce[2].

Having carefully considered these issues, the Commission made a commitment in the Communication 'A Digital Single Market Strategy for Europe' (Com (2015) 192 final[3]) indicating that it will make legislative proposals in 2016 to reduce the administrative burden on businesses arising from different VAT regimes.

The Commission has prepared an inception impact assessment (see http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_taxud_002_iia_vat_en.pdf) which contains more detailed information on the initiative including the options which will be considered for the impact assessment.  As part of the preparatory work for these proposals, it is intended to carry out an ex-post assessment of the implementation of the 2015 changes to the place of supply rules and the accompanying simplification measure, the Mini One Stop Shop.

According to the Consultation it seeks the views of business, the public and representative organisations on:

1.       The current VAT rules for business to consumer cross-border supplies of goods and services,

2.       The implementation of the 2015 changes to the VAT place of supply rules and the Mini One Stops Shop,

3.       The commitment by the Commission in 'A Digital Single Market Strategy for Europe' to:

·        Extend the current single electronic registration (i.e. the  Mini One Stop Shop) and payment mechanism to intra-EU and 3rd country online sales of tangible goods,

·        Introduce a common EU-wide simplification measure (i.e. a VAT threshold) to help small start-up e-commerce businesses,

·        Allow for home country controls including a single audit of cross-border businesses for VAT purposes and

·        Remove the VAT exemption for the importation of small consignments from suppliers in third countries (i.e. non EU Member States).

The Consulation is divided in the following sections:

·         Section 1 - General Information

·         Section 2 – 2015 VAT Place of Supply Rules and the current Mini-One Stop Shop

·         Section 3 – Future Policy Options

·         Section 4 – Other issues:

Click here to be forwarded to the Public Consultation as available on the website of the European Commission, which will open in a new window.

Click here to be forwarded to the press release issued by the European Commission in this respect.

Copyright – Internationaltaxplaza.info 

Stay informed: Subscribe to International Tax Plaza’s Newsletter

and

Follow International Tax Plaza on Twitter (@IntTaxPlaza)