Digital Single Market - Modernising VAT for cross border e-Commerce
VAT Digital Single Market Package
The e-commerce package – a directive and two regulations – was adopted without discussion at the meeting of the Economic and Financial Affairs Council of 5 December 2017 in Brussels, after the European Parliament gave its opinion on 30 November 2017.
Read the Press Release
Q&A on VAT for e-commerce
Overview of the package
The Commission adopted a package of proposals which will:
- Facilitate cross-border trade
- Combat VAT fraud
- Ensure fair competition for EU businesses; and
- Provide equal treatment for online publications.
The proposal on e-publications can enter into force immediately upon approval by the Council. On the VAT e-commerce proposal, first reforms are already foreseen for 2018. Other measures will come into place in 2021 as IT systems need to be developed.
Proposal to modernise VAT for cross-border e-commerce
What is the Commission proposing?
- A set of thresholds (EUR 10 000 and EUR 100 000) for cross-border supplies of electronic services will be introduced to help microbusinesses and SMEs. This means in practice that only businesses with cross border sales of more than EUR 100 000 will be subject to the standard rules.
- Building on the success of the mini One Stop Shop for electronic services (MOSS), this concept will be extended for online supplies of goods and to all cross-border services to end consumers.
- The intra-EU distance sales regime and the small consignment exemption on imports will be removed in line with the commitment to apply the destination system for VAT.
- The new One-Stop Shop (OSS) will also be extended to imports. Unlike today, VAT can be collected at the point of sale to EU customers by sellers or market places. Non-EU sellers will then declare the VAT using the OSS. These goods will then benefit from a fast-track customs mechanism.
- Where the OSS is not used, a second simplification mechanism will be available to imports–VAT will be collected from customers on importation and a simple monthly declaration to customs will be transmitted by the transporter.
Why is the EU taking action?
The proposal is intended to address three main problems.
- In each Member State where it has customers, a business incurs average VAT compliance costs of EUR 8 000 annually. These costs are particularly prohibitive for SMEs. The proposal will reduce this cost by 95% (resulting in overall annual savings for business of EUR 2.3 billion).
- The VAT exemption for the importation of small consignments as well as high rates of non-compliance means that EU sellers (both online and traditional businesses) are at a severe disadvantage to non-EU sellers. It is estimated that as much as EUR 25 billion in trade (25% of total cross-border B2C sales of goods) is non-compliant.
- Member States are losing at least EUR 5 billion annually in VAT revenues. This includes EUR 1 billion VAT foregone due to the VAT exemption and EUR 4 billion from non-compliance. This is estimated to rise to EUR 7 billion by 2021.
Who will benefit from this proposal?
- Businesses will gain through a substantial reduction in cross-border VAT compliance costs. This will facilitate greater cross-border trade.
- EU Businesses will no longer have to compete against non-EU businesses that are not charging VAT.
- Member States will gain through an increase in VAT revenues of EUR 7 billion annually.
Proposal on VAT Rates for e-books and e-publications
- Under the current VAT Directive, electronically supplied publications (e-publications) must be taxed at the standard VAT rate, unlike traditional printed publications which can benefit from reduced rates. This creates a less favourable regime for electronic publications.
- In its Action Plan on VAT, unveiled on 7 April 2016, the Commission announced that it would present a proposal with regard to VAT on e-publications by the end of 2016. The proposal adopted on 1 December 2016 fulfils this commitment. If accepted, it will allow Member States to apply to e-publications the same VAT rates they currently apply to printed publications.
This proposal was adopted by the Commission together with a proposal on modernising VAT rules on e-commerce activities. Both initiatives are part of the Digital Single Market Strategy (DSM).
Proposal to modernise VAT for cross-border E-Commerce
The current VAT package of proposals was made in the framework of the Strategy for the EU Digital Single Market. On 6th May 2015, the European Commission announced its Strategy for the EU Digital Single Market. In this context the Commission committed to make legislative proposals to modernise the VAT for cross-border e-commerce and reduce the administrative burden of businesses arising from different VAT regimes.
In line with the Better Regulation initiative, the proposals to modernise VAT for cross-border e-commerce were based on an impact assessment, an independent study (File 1 - File 2 - File 3) and the Conclusions from the Fiscalis 2020 seminar (See agenda, the working group document and the Commission presentations.)
The European Commission held a public consultation in 2015 in respect of the commitment in the Digital Single Market strategy to present a proposal in 2016 on modernising VAT for cross-border e-commerce. The consultation assessed the implementation of the 2015 changes to the place of supply rules for business to consumer supplies of telecommunications, broadcasting and electronic services and the associated Mini-One Stop Shop which enabled businesses to register and account for VAT due in other Member States through a simplified online return hosted by the tax administration in the Member State where they are located.
A summary of the results of the consultation is included in annex 2 of the Impact assessment for the proposal.