The European Commission unveiled a series of measures to improve the Value Added Tax (VAT) environment for e-commerce businesses in the EU. The proposals would allow consumers and companies, in particular start-ups and SMEs, to buy and sell goods and services more easily online.
The proposals are based on an EU-wide portal for online VAT payments which would reduce VAT compliance expenses, by an estimated €2.3 billion a year.
The new rules would also ensure that VAT is paid in the member state of the final consumer, leading to a fairer distribution of tax revenues among EU countries.
The European Commission estimates that €5 billion is lost on online sales every year.
Administrative burdens for companies will be reduced by 95%
“We are delivering on our promises to unlock e-commerce in Europe. We have already proposed to make parcel delivery more affordable and efficient, to protect consumers better when they buy online and to tackle unjustified geo-blocking. Now we simplify VAT rules: the last piece in the puzzle,” Andrus Ansip, Commission vice president for the digital single market, said.
Currently, online traders have to register for VAT in all the member states to which they sell goods. Often cited as one of the biggest barriers to cross-border e-commerce, these VAT obligations cost businesses around €8,000 for every EU country into which they sell.
The Commission is now proposing that businesses make one simple quarterly return for the VAT due across the whole of the EU, using the online VAT One Stop Shop. Administrative burdens for companies will be reduced by 95 per cent, giving an overall saving to EU business of €2.3 billion and increasing VAT revenues for member states by €7 billion.
To help microbusinesses and start-ups, a new yearly threshold of €10,000 in online sales will be introduced under which businesses selling cross-border can continue to apply the VAT rules they are used to in their home country. This will make complying with VAT rules easier for 430,000 companies across the EU.
A second new yearly threshold of €100,000 will make life easier for SMEs when it comes to VAT, with simplified rules for identifying where their customers are based. The thresholds could be applied as early as 2018 on e-services, and by 2021 for online goods.
The Commission is also proposing more effective action against VAT fraud from outside the EU. Small consignments imported into the EU that are worth less than €22 are currently exempt from VAT. With around 150 million parcels imported free of VAT into the EU each year, this system is open to massive fraud and abuse, creating major distortions against EU business. Secondly, imported high-value goods such as smartphones and tablets are consistently undervalued or wrongly described in the importation paperwork in order to benefit from this VAT exemption. The Commission has therefore decided to remove this exemption.
The proposals will be submitted to the European Parliament for consultation and to the Council for adoption.