The EU’s plans for #VATMOSS reform

Important VATMOSS update
On 1 December 2016 the European Commission announced a package of proposed reforms to the VATMOSS scheme. Please read this post for the latest updates, as some of the proposed changes may affect the situation described in the post below.

Today the EU has announced its Single Digital Market Strategy for Europe (.pdf, 360kb), a long-term project formulated around the three pillars of market access, environment, and economy & society.

As expected, the strategy acknowledges the problems caused by the lack of proper due diligence in implementing the EU Place of Supply reforms (#VATMOSS), for which we owe the hardworking team at the EU Vat Action group complete and sole credit.

The Strategy’s plans for #VATMOSS, and for general VAT issues, are as follows:

2.5. Reducing VAT related burdens and obstacles when selling across borders

The complications of having to deal with many different national systems represent a real obstacle for companies trying to trade cross-border both on and offline. Since 1 January 2015, with the entry into force of new “place of supply” rules (backed unanimously by 28 Member States), VAT on all telecommunications, broadcasting and electronic services is levied where the customer is based, rather than where the supplier is located.

In parallel, an electronic registration and payment system has been implemented to reduce the costs and administrative burdens for businesses concerned. This should be extended to tangible goods ordered online both within and outside the EU. Instead of having to declare and pay VAT to each individual Member State where their customers are based, businesses would be able to make a single declaration and payment in their own Member State.

Currently goods ordered online from third country suppliers can benefit from the small consignment import exemption allowing shipment free of VAT to EU private customers. This gives them a competitive advantage over EU suppliers and market distortions have already been signalled in various Member States. Such an exception would no longer be needed if VAT were to be collected through a single and simplified electronic registration and payment mechanism.

An EU business wishing to make cross-border sales faces a VAT compliance cost of at least EUR 5,000 annually for each targeted Member State.

EU businesses face significant distortions from VAT free goods supplied by non-EU business. These distortions cost EU business turnover of up to EUR 4.5 billion annually.

The Commission is working to minimise burdens attached to cross-border e-commerce arising from different VAT regimes, provide a level playing field for EU business and ensure that VAT revenues accrue to the Member State of the consumer. The Commission will also explore how to address the tax treatment of certain e-services, such as digital books and online publications, in the context of the general VAT reform.

In addition, as regards direct taxation, the Commission will shortly present an Action Plan on a renewed approach for corporate taxation in the Single Market, under which profits should be taxed where the value is generated, including in the digital economy.

The Commission will make legislative proposals in 2016 to reduce the administrative burden on businesses arising from different VAT regimes including (i) extending the current single electronic registration and payment mechanism to intra-EU and 3rd country online sales of tangible goods, (ii) introducing a common EU-wide simplification measure (VAT threshold) to help small start-up e-commerce businesses, (iii) allowing for home country controls including a single audit of cross-border businesses for VAT purposes and (iv) removing the VAT exemption for the importation of small consignments from suppliers in third countries.

What is obvious from this admittedly very quick read is that any reforms to VATMOSS are going to be done at EU speed. Proposals are going to be made next year. This means we’ll be lucky to see anything by 2017 or 2018 at the earliest. This is why it’s important for all of us to support the EU Vat Action team’s lobbying work for suspension of #VATMOSS in the interim, or an EU-wide or UK-wide suspension via extra-statutory concession.

What we don’t need, in the meantime, are pointless diversions at chichi offices in the City of London aimed at having fun with code and gadgets which completely ignore the structural, communicative, and legislative issues that got us into this VATMESS in the first place.

About the author
Heather Burns is a digital law specialist in Glasgow, Scotland. She researches, writes, publishes, consults, and speaks extensively on internet laws and policies which affect the crafts of web design and development. She has been designing and developing web sites since 1997 and has been a professional web site designer since 2007. She holds a postgraduate certification in internet law and policy from the University of Strathclyde. Learn about hiring Heather to write, speak, or consult.