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ECOFIN agree European Commission’s proposals for simpler and more efficient VAT rules for e-commerce

carolineheath 21 December 2017 No comments

The EU’s Economic and Finance Affairs Council (ECOFIN) have agreed a series of new measures to improve how VAT works for e-commerce in the EU, only a year after the Commission made its ambitious proposals.

The new system will make it easier for consumers and businesses, particularly start-ups and SMEs, to buy and sell goods cross-border online. The measure should also help Member States to recoup the current estimated €5 billion of VAT lost on online sales every year.

Following the agreement, Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said:

“Brick by brick and piece by piece, a new VAT system is being built that is fit for purpose and within which internet companies operating across borders can thrive. At the same time, we are making sure that non-EU businesses do not get preferential treatment when selling to EU consumers – both directly and through online marketplaces. Today’s agreement also bodes well for the more fundamental VAT reform in the EU that is so urgently needed.”

The new measures

The new rules will progressively come into force by 2021 and will:

  • Simplify VAT rules for start-ups, micro-businesses and SMEs selling to consumers online in other EU Member States.
    VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses, benefiting 430 000 businesses across the EU.
    SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 annually.
    These measures will enter into force by 1 January 2019.
  • Allow all companies that sell goods to their customers online to deal with their VAT obligations in the EU through one easy-to-use online portal (One Stop Shop) in their own language.
    Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.
  • establish a new portal for distance sales from third countries with a value below €150
  • For the first time, make large online marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses (so-called ‘fulfilment centres’) within the EU which can often be used to sell goods VAT free to consumers in the EU.
  • Remove a VAT exemption applicable to goods valued at under €22 coming from outside the EU which can distort the market and create unfair competition.
    Previously, fraudsters had been able to mislabel high value goods in small packages as having a value under the threshold of €22, making the goods exempt from VAT and creating an unacceptable gap of €1 billion in revenues which would otherwise have gone to the budgets of EU Member States.

The One Stop Shop for sales of online goods is due to come into effect in 2021 to give Member States time to update the IT systems underpinning the system.

The new rules will ensure that VAT is paid in the Member State of the final consumer, leading to a fairer distribution of tax revenues amongst EU Member States. They extend a new approach to VAT collection in the EU, already in place for sales of e-services, and fulfil a core commitment of the Digital Single Market (DSM) strategy for Europe.  They also mark another step towards a definitive solution for a single EU VAT area, as set out in the Commission’s recent proposals for EU VAT reform.

EU member states will have until 31 December 2018 and 31 December 2020 to transpose the corresponding provisions of the directive into national laws and regulations.

Further details and a link to the Council Directive are available here.