The European Commissioners for Taxation, Šemeta, has confirmed that the EU is planning on reforming the European VAT systems in the coming years. A recent study shows the EU has lost €177 billion in tax collection in 2012 due to an inefficient structure. The latter also represents a barrier for web shops selling cross-border. Therefore the reform might be good news for the e-commerce sector.
VAT now different in each Member State
VAT is a consumption tax, charged on most goods and services in the EU. It is levied on the “value added” to the product at each stage of production and distribution. The VAT system in the EU is currently governed by a common legal framework – the VAT Directive. In the EU, there is a minimum standard VAT rate of 15%, above which Member States are free to set their own rates.
VAT main barrier in cross-border e-commerce
To illustrate, the difference between the lowest and the highest VAT systems in the EU is 15% in Luxemburg to 25% in Sweden. Under the current rules an online merchant has to deal with 28 different VAT systems if he wants to go cross-border. Many web shops do not have the resources to manage that. Also, in many cases cross-border sales and digital services are subjected to double VAT taxation.
Web shops need a reformed system urgently
Harmonization of the system should lift current burdens for web shops, and not enhance them. Next to this it is essential that tax rules do not make a distinction between the ‘real’ and the ‘digital’ economy. Otherwise there would be a risk of policy makers putting heavier taxes on goods and services sold online than on products sold in a brick and mortar shop.
Policy makers moving in the right direction
Ecommerce Europe has long been advocating for a reform of the current European tax system. The association is therefore pleased that the European Commission seems to have taken up a sense of urgency about the matter. Moreover, this sense of urgency is picked up on a high political level as the European Economic and Financial Affairs Ministers will discuss VAT issues during their next meeting on 7 November.
Ecommerce Europe has recently sent its recommendations for a better European tax system to the Commission. The association will have a meeting with the policy makers in the coming weeks to elaborate on the concerns and suggestions of the e-commerce sector. Ecommerce Europe will report back to its members accordingly.