On 1 December 2016, the European Commission (“the Commission”) proposed changes to the EU VAT Directive for cross-border “B2C e-commerce”. The proposals aim at minimizing burdens arising from applying different VAT regimes on cross border online sales and to reduce VAT compliance costs. If adopted, the proposals will have a great impact for businesses engaged in online sales. The proposals will now be submitted to the European Parliament for consultation and to the Council for adoption. The proposal for VAT rates on e-publications can enter into force immediately upon approval by the Council. Other elements of the proposals are expected to enter into force in 2018 and 2021.
The Commission’s proposals embrace a new VAT approach for e-commerce and follow up on commitments made by the Commission in the Digital Single Market strategy for Europe (May 2015) and the VAT Action Plan (April 2016). The changes should make it easier for consumers and companies – in particular start-ups and SMEs – to buy and sell goods and services online.
The proposals address four key actions:
- Introduction of an EU wide digital online portal for businesses engaged in EU cross border online trade in which all their VAT obligations for all EU countries can be fulfilled.
- A simplified VAT regime for startups and micro-businesses selling online within the EU. VAT on cross-border sales under EUR 10,000 can be handled domestically. SMEs will benefit from simpler procedures for cross-border sales of up to EUR 100,000.
- Abolishment of the VAT exemption for import of small consignments not exceeding a value of EUR 22, aimed at combatting fraudulent transactions from outside the EU.
- Allowing EU Member States to apply the same VAT rates on e-books and e-newspapers (“e-publications”) as the applicable rates on their printed equivalents.
Ad. 1. New VAT rules for sales of goods and services online
Currently, online traders are obliged to VAT register in the EU Member States of their non-business customers. The Commission now proposes that businesses make one simple quarterly VAT return across the whole EU, using a new online portal. A similar system already exists for sales of e-services.
Ad. 2. Simplifying VAT rules for startups and micro-businesses
Below a threshold of EUR 10,000 businesses selling cross-border can continue to apply the VAT rules of their home country. This threshold is optional. In addition, if the supplier’s turnover is less than EUR 100,000 simplified rules will apply for identifying where his customers are based. These two thresholds would apply as early as 2018 on electronic services and by 2021 for online goods.Other proposed simplifications allow EU sellers to apply home country rules in areas such as invoicing and record keeping.
Ad. 3. Action against VAT fraud from outside the EU
Currently, import into the EU of small packages with a value less than EUR 22 per consignment is exempt from VAT. Since this system is open to fraud and puts EU businesses in disadvantage, this exemption would be abolished as from 1 January 2021. In addition, the Commission has proposed a new scheme for distance sales of goods imported from third countries not exceeding EUR 150. The use of this new scheme will allow for VAT to be declared and paid on imported goods ordered online. As a result, in the view of the Commission, the VAT collection will drastically be simplified. The proposed date of entry into force of the import scheme is 1 January 2021.
Ad. 4. Equal rules for taxing e-books, e-newspapers and their printed equivalents
Currently, the EU VAT Directive prevents EU Member States from applying the same VAT rates to e-publications and physical publications. In most EU Member States, e-publications have a less favorable VAT treatment than printed publications. The Commission now proposes to grant all EU Member States the possibility to apply the same VAT rates to e-publications as they currently apply to printed publications.
The Commission’s proposals will now be submitted to the European Parliament for consultation and to the Council for adoption. The proposal for VAT rates on e-publications can enter into force immediately upon approval by the Council. Implementation of the first part of the VAT e-commerce proposal is foreseen for 2018. Measures such as the new online portal should come into place in 2021