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EU Clarifies Digital VAT Proposals

by Ulrika Lomas,, Brussels

08 May 2015

The European Commission has released more detail on its value-added tax proposals under its new Digital Single Market Strategy.

The Commission previously confirmed it will legislate in 2016 to reduce the administration burden on businesses arising from different VAT regimes, namely by:

  • Extending the current single electronic registration and payment mechanism to cross-border online sales of physical goods;
  • Introducing a common EU-wide simplification measure (VAT threshold) to help small start-up e-commerce businesses;
  • Allowing for home country controls, including a single audit of cross-border businesses for VAT purposes; and
  • Removing the VAT exemption for the importation of small consignments from suppliers in third countries.

The Commission has stated that the changes will simplify VAT compliance, as taxable persons will only be required to deal with one tax administration. There will also be uniform VAT rates on goods ordered from websites in third countries, other member states, or domestically, and the Commission will introduce clearer rules for businesses engaging in cross-border e-commerce.

The Commission has confirmed that the VAT threshold for start-ups selling online has yet to be determined. It said: "The level and type of threshold will be considered as part of the impact assessment for the proposal. In addition to the measures outlined in the Strategy, preparatory work has started to prepare a comprehensive future initiative on reducing the VAT compliance costs for small- and medium-size enterprises in general. This initiative is foreseen for 2016."

On the 2015 place of supply rule change, which has required that VAT on business-to-consumer supplies of electronically supplied services is levied based on the location of the consumer, the Commission has confirmed that it will undertake a review of the regime to ensure that it is achieving the aim of simplifying cross-border VAT rules. It said: "The Commission sees this as a timely opportunity to take stock of the issues which both tax administrations and business[es] face, and address these in the context of the 2016 proposal.

On removing VAT exemptions for low value consignments, the Commission said that this exemption, which had originally been introduced as a trade facilitation measure, has turned into "an expensive tax subsidy in favor of imports to the disadvantage of domestic and intra-EU sales. It does not benefit small operators but big market players. With the introduction of a single electronic registration and payment mechanism, this exemption will also no longer be needed," the Commission said, "as VAT could be accounted for at an earlier stage than customs clearance, by exporters or carriers."

Finally, responding to inquiries about the future taxation of e-books and other e-publications, the Commission said it will explore how to address the tax treatment of digital books and online publications in the context of the work being done on the adoption of a definitive VAT regime. The Communication setting out the main features of the definitive VAT regime will be adopted next year, it said.

TAGS: compliance | VAT rates | VAT tax authority guidance | tax | business | European Commission | commerce | VAT legislation | VAT cross-border transactions | audit | tax authority | e-commerce | legislation | trade | European Union (EU) | services | VAT compliance matters | Europe

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