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European Commission proposes new approach for e-commerce and VAT

The European Commission proposed a series of measures to improve the Value Added Tax (VAT) environment for e-commerce businesses in the EU. The proposals will allow consumers and companies to buy and sell goods and services more easily online and will reduce compliance costs.

In particular, the European Commission proposes:

  • New rules allowing companies that sell goods online to deal easily with all their EU VAT obligations in one place (their own Member State and in their own language);
  • To simplify VAT rules for startups and micro-businesses selling online, VAT on cross-border sales under €10,000 will be handled domestically. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 to make life easier;
  • Action against VAT fraud from outside the EU, which can distort the market and create unfair competition;
  • To enable Member States to reduce VAT rates for e-publications such as e-books and online newspapers.

These legislative proposals will now be submitted to the European Parliament for consultation and to the Council for adoption. The proposal for VAT rates can be implemented as soon as approved by the Council, the other proposals are expected to enter into force in 2018 and 2021.

New VAT rules for sales of goods and services online B2C

Currently, online traders have to register for VAT in all the Member States to which they sell goods to consumers. These VAT obligations cost businesses around €8,000 for compliance in every EU country into which they sell. It is now proposed that businesses make one simple quarterly return for the VAT due across the whole of the EU, using the online VAT One Stop Shop. This system already exists for sales of e‑services such as mobile phone apps, and has been proven successful. Administrative burdens for companies will be reduced.

Simplifying VAT rules for micro-businesses and startups B2C

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, representing 97% of all micro-business trading cross‑border. A second new yearly threshold of €100,000 will make life easier for Small and Medium Enterprises (SME’s) 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. Other simplifications would allow the smallest businesses to benefit from the same familiar VAT rules of their home country, such as invoicing requirements and record keeping. The first point of contact will always be with the tax administration where the business is located and businesses will no longer be audited by each Member State where they have sales.

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. Firstly, EU businesses are put at a clear disadvantage since unlike their non-EU competitors, they are liable to apply VAT from the first eurocent sold. 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.

Equal rules for taxing e-books, e-newspapers and their printed equivalents

Current rules allow Member States to tax printed publications such as books and newspapers at reduced rates or, in some cases, super-reduced or zero rates. The same rules exclude e-publications, meaning that these products must be taxed at the standard rate. Once agreed by all Member States, the new set-up will allow Member States to align the rates on e-publications to those on printed publications (but not mandatory).

See link for more information: http://europa.eu/rapid/press-release_MEMO-16-3746_en.htm

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