EU Seeks VAT Changes to Boost E-Commerce, Digital Publications

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By Joe Kirwin

Nov. 28 — The European Commission is set to propose an overhaul of electronic commerce rules while expanding the one-stop-shop value-added taxation system for collecting and distributing the levy.

In addition, the commission will aim to permit European Union member states to reduce VAT rates on electronic publications, including newspapers, magazines and e-books.

Other measures expected to be included in the commission’s Dec. 1 proposal include VAT-free exemptions for small and micro businesses, and changes that relieve express mail companies—such as United Parcel Service Inc., FedEx Corp. and DHL Express—from the collection of VAT.

Further, the plans include the elimination of VAT exemptions for imported goods valued at less than 22 euros ($23,28).

Undervalued Imports Targeted

The proposal to eliminate VAT exemptions on imported small consignments is designed to clamp down on foreign companies based primarily in China, India and the U.S. which fraudulently price small goods to EU consumers below 22 euros, to avoid VAT.

“This proposal will address current distortions putting EU businesses at a significant disadvantage compared to non-EU businesses that can legally supply small consignments VAT-free into the EU annually and frequently omit to pay the VAT they should,” European Commission Vice President Jyrki Katainen told members of the European Parliament Nov. 23.

According to the commission, 150 million parcels entered the EU in 2015 marked at a value of 22 euros or less, and the amount is increasing at an annual rate of 10 percent.

A recent study conducted by consulting group Copenhagen Economics estimated that approximately 65 percent of the imported goods were fraudulently undervalued.

Besides putting EU-based companies at a disadvantage, fraudulently marked parcels are estimated to cost EU-member state governments 5 billion euros ($5.7 billion).

VAT Collection

While many U.S. exporters of small online-purchased goods to the EU aren’t happy about the elimination of the VAT exemption, they hope the move will be offset by changes in the way customs duties and VAT are collected.

“There is a risk of increasing time and costs if businesses have to complete customs entries regardless of value,” Walter Van der Meiren, chairman of the American Chamber of Commerce to the European Union’s committee on Customs and Trade Facilitation, told Bloomberg BNA Nov. 25.

“Therefore, we should safeguard the time and cost saved in moving tax collection upstream,” Van der Meiren said.

One measure being pushed by express mail carriers would allow them to unbundle their current legal responsibility of collecting both VAT and custom duties upon delivery of goods.

“We have encouraged the commission to look at vendor-based declaration models as well as other models that would allow intermediaries to assist the vendors and buyers to comply with their VAT obligations,” Mark Van Der Horst, a director of EU affairs at UPS, told Bloomberg BNA Nov. 24. “This will be much more efficient for both express mail carriers and EU member-country tax authorities.”

Rates Barrier

While EU electronic commerce sales have expanded over the years, businesses, national governments and EU institutions all agree the market is still minimal compared to its potential.

There are more than 75 different rates in the 28 EU countries, due to reduced rate exemptions. As a result, the complex web of rates makes for hefty administrative and collection costs.

“The cost of filing for VAT in 28 different countries for selling or even for simple storage of goods is a major barrier to small firms making the most of the single market,” according to a blog post by Amazon.com Inc. that outlines the company’s recommendations on how the EU could boost the digital single market when it comes to electronic commerce.

One-Stop-Shop Expansion

To address the cross-border sales barrier, the commission will call for the extension of the Mini-One-Stop-Shop (MOSS) system that currently applies to broadcasting, telecommunication companies and other electronic services. According to Katainen, the proposal will “extend the current single web portal concept whereby a seller is able to declare and pay all VAT for both domestic and EU sales in its own member state. The tax authority then transfers VAT revenues to other member states where VAT is due.”

According to Ecommerce-Europe, which represents more than 25,000 companies selling goods online, the expansion of the MOSS would help “smaller and start-up e-commerce businesses by removing the need to invest disproportionate resources in verifying the home base of the consumer and calculating and displaying individual prices.”

Threshold Issue

However, Ecommerce-Europe warned that the “level of such a threshold” that would apply to an expanded MOSS “should be carefully assessed, considering the sensitivity of this matter for national government.”

The threshold issue is also considered crucial to AmCham EU members, who fear there could be different thresholds for EU-based companies and those selling into the EU for foreign countries.

The expansion of the MOSS is also expected to serve as an “upstream” VAT collection change that could benefit express mail carriers.

“If non-EU vendors are registered in the VAT one-stop-shop then the transport intermediary will not collect the related VAT from EU consumers when goods reach the EU territory,” according to background material provided to Bloomberg BNA by the European Commission.

“If the non-EU vendor does not register in the VAT one-stop-shop either directly or via an intermediary, then the current system of collection of VAT by the postal express operators will remain in place.”

E-Book VAT Turnaround

The proposal to give EU member countries the right to allow reduced VAT rates on electronic publications will mark a dramatic change for the European Commission. Two years ago, the EU executive body won a European Court of Justice case against France and Luxembourg in order to force both to eliminate reduced rates for electronic book publications.

However, commission President Jean-Claude Juncker, who served as prime minister of Luxembourg for more than a decade, promptly announced a policy turnaround upon taking office in 2014.

“Our proposal will give member states the option of aligning the VAT treatment of e-publications such as books, newspapers and periodicals with the one of printed publications,” Katainen said.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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