For a long time, European merchants have asked for a modification of EU VAT rules on e-commerce.
VAT-related costs are a significant restraining factor hindering the growth of cross-border e-commerce. Merchants are currently required to register for VAT in other EU states than the EU state of establishment when they exceed specific yearly revenue thresholds (ranging from EUR35,000 to 100,000 according to the EU state of destination of goods).
It has been estimated by the European Commission that the costs of complying with VAT obligations are on average EUR8 000 annually for each Member State which a business supplies goods to.
A similar issue has already been addressed, at least partially, in the digital service sector: from 2015, suppliers can report and pay VAT in all EU states by using a single electronic interface, the Mini One Stop Shop (the “MOSS”).
On 1 December 2016, the European Commission published a package of legislative proposals to modernize VAT rules for cross-border e-commerce (the “VAT Package”).
The VAT Package aims at delivering most of what Ecommerce Europe and its members have always asked for:
- The extension of the MOSS to services other than digital services, the introduction of a minimum threshold and other simplifications for service supplies;
- The extension of the MOSS to distance sales of goods and the removal of the current cross-border thresholds mentioned above;
- The removal of the existing VAT exemption for the importation of small consignments from non-EU suppliers and introduction of a new Import scheme for such consignments. Currently, inbound parcels from outside the EU with a declared value lower than EUR 10 are not subject to customs duties and VAT, leading to a loss of tax revenues for EU states and, in frequent cases, to abuse by non-EU merchants;
- The introduction of the faculty for EU states to apply VAT at a reduced or zero rate to e-publications, as they apply to their printed equivalents.
The VAT package is an important step in making VAT-compliance easier for merchants. Nonetheless, specific measures will need to be enacted for implementing the VAT reform in full and it will be critical that the reform is implemented in a way that is cost effective for all stakeholders (e.g., consumers, merchants, couriers, marketplaces, etc.).
Ecommerce Europe has recently published a position paper on the VAT package, drafted in collaboration with Taxmen.eu, where the following recommendations for European policymakers are given:
- Ensure the extension of the MOSS to services other than electronic services: the current language of the Directive proposal appears slightly equivocal and fear is that some categories of services may be left outside the MOSS (e.g., supplies of transportation services, booking of events, etc.).
- Ensure the extension of the MOSS to the distance sales of goods, remove the current cross-border thresholds and replace it with a Pan-European one.
- Ensure the removal of the existing VAT exemption for the importation of small consignments from non-EU suppliers.
- Support the introduction of the faculty for EU states to apply VAT at a reduced or zero rate to e-publications.
- VAT and online marketplaces: a careful approach is needed. It is still unclear what the role of marketplaces will be in the future framework for VAT-compliance.
- Remove hurdles related to VAT and excise duties hindering the growth of cross-border e-commerce sales of beer, wine and spirits.
If the VAT package is approved this year, most of the changes would take place starting from 2021. European merchants will then be able to increase cross-border sales even further and to compete with non-EU merchants more effectively with lower tax distortions.