VAT: European Union consultation on e-commerce

The difficulties associated with having to take into account many different national tax regimes represent a real obstacle for businesses attempting to trade cross-border online and offline. Since new “place of supply of services” rules came into force on January 1, 2015, VAT on all telecommunications, broadcasting and e-services is levied in the country where the customer is established, rather than where the supplier is established.

At the same time, a mini one-stop shop has been set up to reduce costs and administrative burdens for the companies concerned. This system is set to be extended to material goods ordered online, both within and outside the EU. Instead of having to declare and pay VAT in each Member State where their customers are established, businesses will be able to make a single declaration and payment in their own Member State.

At present, goods ordered online from suppliers based outside the EU can benefit, in some Member States, from the import exemption granted to small consignments (where the amount is below a threshold of between 10 and 22 euros), which allows VAT to be waived when the customer is a private individual established in the EU. These suppliers then enjoy a competitive advantage over those in the EU, and market distortions have already been reported in several member states. While recognizing that it is advantageous for businesses not to have to register for VAT for distance sales below the thresholds set for intra-EU B2C supplies (35,000 or 100,000 euros depending on the Member State of destination), it is clear that these thresholds can be a source of uncertainty for businesses and lead to compliance problems for Member State tax administrations. These exemptions for intra-EU imports and distance sales would no longer be necessary if VAT were collected via a single, simplified electronic registration and payment system.

The Commission’s expert group on taxation of the digital economy looked into this broad issue and presented a report in May 2014, along with recommendations for modernizing VAT on cross-border e-commerce.

After careful consideration of these issues, the Commission undertook, in the Communication entitled “Europe’s Digital Single Market Strategy” [COM(2015) 192 final][3], to present legislative proposals in 2016 aimed at reducing the administrative burdens imposed on businesses as a result of disparate VAT regimes.

The Commission has prepared an initial impact assessment, which contains more detailed information on this initiative, including the options that will be taken into account in the impact assessment. As part of the preparatory work on these proposals, it is planned to carry out an ex-post evaluation of the implementation of the new 2015 rules on the place of supply of services and the accompanying simplification measure (mini one-stop shop).