What the proposed e-commerce VAT rules mean for business
Ryan Bevan 2 December 2016 No comments
Yesterday’s announcement by the EU that it is proposing to simplify VAT for e-commerce businesses (see our earlier article) should certainly be welcomed. The Commission has taken on board and is looking to address many of the issues arising from the changes to the VAT rules on supplies of e-services to consumers that came into effect in January 2015, specifically:
- by 2018, the introduction of a €10,000 threshold for cross-border sales which means EU businesses below the threshold need only account for VAT in their home country and need not worry about overseas VAT
- also by 2018, the introduction of a €100,000 threshold allowing SME businesses selling e-services below the threshold to obtain only 1 piece of evidence to identify where their customer is located
- the ability for Member States to allow businesses to charge the same rate of VAT on e-publications as printed ones. The current compulsory standard–rating of e-publications has proved to be particularly contentious.
- smaller businesses will be permitted to apply the VAT rules, invoicing and record keeping requirements of their home country to their sales and not have to deal with overseas VAT rules and tax administrations.
The biggest changes though will come for businesses involved in selling goods cross-border within the EU as well as non-EU importers. As a quick recap, the Commission is proposing that from 2021:
- the current Distance Selling Thresholds for sales of goods to consumers in other Member States will be removed and replaced with the new EU-wide €10,000 threshold covering all sales to consumers in other Member States
- the One Stop Shop (OSS) facility will be extended to goods for cross-border sales to consumers
- the €22 VAT exemption for small value consignments being imported into the EU will be removed so VAT will apply to all imports from non-EU countries
- the One Stop Shop will be extended to imports and non-EU suppliers using the system will benefit from fast-track Customs procedures
- there will be a simplification measure for non-EU suppliers not using the OSS which will allow the transporter of the goods to transmit monthly declarations of VAT to Customs on their behalf.
Whilst these proposals will simplify the VAT rules and procedures they present practical and commercial changes for many businesses which should not be under-estimated. For example, we consider under the new rules many more businesses selling goods online will be brought into the EU-wide VAT net and will have to deal with EU-wide VAT rules where they currently do not. The mooted VAT compliance ‘savings’ may be achieved in some respects, but possibly replaced by increased costs in complying on the other.
During a round-table meeting of our VAT experts held after the yesterday’s announcement, some particularly interesting points were raised, such as:
- the proposed EU-wide €10,000 threshold is significantly lower than the current Distance Selling Thresholds of either €35,000 or €100,000 that apply on a country-by-country basis so many more businesses will have to deal with up to 28 different VAT rates
- it appears that only small businesses who will be trading below the proposed €10,000 threshold will be able to apply home country VAT rules and requirements
- many businesses will need to incur accounting and billing system development costs to comply with the new rules
- businesses will need to review the pricing of their products and implement any associated website development that may be required to take account of the charging of overseas VAT
- non-EU businesses currently benefitting from the low value consignment exemption will need to review pricing and make customers aware of the cost increases.
Whilst 2021 may seem a long way off (and we have BREXIT to contend with too…) it is essential that businesses keep up to speed with developments on these proposals so that they can be sure to act in time to remain compliant and make the most of the planned simplifications.
So, to help businesses looking to understand what all of this actually means to them in real terms, over the course of next week we will be releasing a series of blog posts assessing these new rules in more depth.
We will be providing commentary and analysis of each of the key actions coming out yesterday’s announcement and critiquing how this translates in to everyday business decisions, what are the unanswered questions and what are the potential pitfalls to avoid.