You may remember that, on April 7, 2016, the European Commission adopted an action plan (Towards a Single EU VAT Area) setting out urgent actions to tackle a number of important VAT issues. As part of this initiative, on December 1, 2016, the Commission announced that it proposes to expand the scope of the so-called ‘Mini One Stop Shop’ (MOSS) for the collection and EU-wide distribution of VAT on certain e-services, to include sales of online goods and other services. The Commission also expressed the hope that it could further facilitate e-commerce for both consumers and companies (especially start-ups and SMEs) by introducing a range of proposals.
The simple reason for all this feverish activity is that the current rules for digital commerce were created well before the advent of the Internet and the boom in online sales. EU law is now trying to catch up with market practice.
What is the European Commission Proposing?
In short, the proposals include:
The European Commission has identified and attempted to quantify the cost of three key problems that the proposals are intended to address. These are:
In addition, the Commission has responded to the invitation of the Finance Ministers of the Member States to permit members to tax traditional, hardcopy books and newspapers at the same rate as electronic publications. Print sources frequently attract reduced VAT rates (e.g. the UK and Ireland zero-rate such supplies, and many other Member States apply reduced and super-reduced rates), whereas e-books and online newspapers are taxed at standard rates. (See our blog post, European Commission Proposes Reduced VAT on E-books for more information.) Member States will now have the option to redress this anomaly.
When Might These Proposals Take Effect…
The proposal on leveling the playing field between e-publications and print sources can enter into force immediately on approval by the European Council.
The Commission suggests that the proposals on e-commerce thresholds will take effect in 2018, with the other proposals described in this blog coming into place in 2021.
…And Will They Work?
The European Commission suggests that trade between EU Member States will increase as a result of the simplifications and reduce cross-border VAT compliance costs. In addition, it is hoped that domestic online companies and traditional high street businesses will benefit because they will no longer be undercut by businesses charging lower VAT rates or no VAT at all.
Given the sensible nature of the proposals, this seems likely. Although the current workings of the MOSS have had a mixed reception, the simplification involving the EUR100,000 threshold goes some way to addressing the concerns that have been raised. In addition, it is also likely that the UK - post-Brexit - will continue to adopt the simplifications to avoid a VAT trade barrier with the EU.
By Jon Trevelyan, Editor, Bloomberg BNA
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