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EU Issues Regulations On 2021 VAT Rule Changes For E-Commerce

by Ulrika Lomas,, Brussels

14 December 2018

The European Commission has published proposed implementing regulations for reforms to VAT rules for e-commerce that will be effective from January 2021.

These implementing regulations are intended to ensure the smooth running of the new VAT rules for e-commerce agreed by member states last December. The European Commission said they were developed in consultation with online platforms and the authorities in EU member states.

Reforms from 2021

Reforms agreed in December 2017 by the EU's Economic and Financial Affairs Council will extend an existing EU-wide portal, the mini "one-stop shop," for the VAT registration of distance sales and establish a new portal for distance sales from third countries with a value below EUR150 (USD171). This is intended to reduce the costs of complying with VAT requirements for business-to-consumer transactions.

Most goods that are imported for distance sales currently enter the EU VAT-free, resulting in unfair competition for EU businesses. Under the changes, VAT will be paid in the member state of the consumer, ensuring a fairer distribution of tax revenues amongst member states.

Additionally, online platforms will become liable to collect VAT on the distance sales that they facilitate.

The one-stop shop will relieve online traders of having to register for VAT in each of the member states in which they sell goods. According to the Commission, such obligations cost businesses around EUR8,000 for every EU country into which they sell. The one-stop shop will generate an overall saving of EUR2.3bn for businesses, the Commission estimates, and a EUR7bn increase in VAT revenues for member states.

For start-ups and SMEs, the new rules will introduce an important simplification. For those firms with yearly cross-border online sales below EUR10,000, businesses will be able to continue applying VAT rules used in their home country. Furthermore, the new rules remove an exemption for consignments from outside the EU worth less than EUR22. Around 150 million small consignments are imported free of VAT, and the current system is open to abuse. While EU businesses have to apply VAT regardless of the value of the goods sold, imported goods benefit from the exemption and are often undervalued in order to do so.

The simplification measures for intra-EU sales of electronic services are being introduced from next year. The extension of the one-stop shop to distance sales of goods, both intra-EU and from third countries, will apply from 2021, alongside the elimination of VAT exemptions for low-value consignments.

New implementing regulations

The Commission said that its implementing rules will ensure that a new VAT system is ready for businesses that sell goods online once the agreed new framework enters into force in 2021. It explained that without the One-Stop Shop, VAT registration would be required in each member state into which companies sell. This system has been in place for e-service providers since 2015.

The regulations further clarify the situations in which online platforms will be considered to have facilitated a sale between users, and detail the records businesses must keep on sales made via their interface. The Commission said that, since online marketplaces will be liable for any missing VAT, authorities will be sure that they can claim the tax due when sellers from outside the EU have not complied with the rules.

The new rules will also ensure that the goods sold from storage facilities within the EU will have the correct amount of VAT charged, even when the goods are technically being sold to consumers by non-EU businesses. The Commission said that it can be difficult under the current rules for member states to obtain the VAT due on goods from so-called "fulfilment centres."

Tax Commissioner Pierre Moscovici said: "The EU is gearing up for a brand new VAT system in 2021 to make it easier for companies to sell goods online and for member states to recoup lost VAT revenues. [These] proposals will allow online businesses to flourish while ensuring non-compliant businesses or fraudsters cannot undercut them. For this to happen, it is crucial that online marketplaces play their part."

TAGS: compliance | VAT registration / deregistration | tax | business | European Commission | value added tax (VAT) | tax compliance | commerce | VAT legislation | VAT cross-border transactions | e-commerce | legislation | regulation | European Union (EU) | VAT compliance matters | Europe | BEPS

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