In previous blog post we have written that work is underway on simplifying and modernising VAT legislation in the EU. A couple of weeks ago the European Commission presented further proposals for measures aimed at improving the VAT climate for e-commerce business, ensuring that e-publications and their printed equivalents are taxed in a similar way, as well as measures to prevent VAT fraud in connection with imports.
The legislative proposals have been sent to the European Parliament for consultation and to the Council of the European Union for adoption.
In brief, the Commission is proposing the following measures:
- New rules which make it easier for businesses that sell goods online to report VAT are proposed. Under the proposal, these businesses will be able to meet their obligation VAT reporting obligations in the EU in a single location rather having to register for VAT in all member states in which they sell goods. In practice, this means that the existing system for reporting VAT on sales of electronic services (MOSS) will be applicable also for distance selling of goods.
- A new threshold will be introduced for newly established businesses and micro-enterprises, which means that VAT on cross-border online sales under €10,000 will be handled in the companies’ home countries. A second annual threshold of €100,000 is proposed to apply for small and medium-sized enterprises and will simplify the administration involved in determining the country of taxation. The Commission proposes that the thresholds be applied already in 2018 for e-services and no later than 2021 for goods.
- The member states will have the option of applying reduced tax rates for e-publications such as e-books and online newspapers. The aim is to create equivalent rules for the taxation of e-books, online newspapers and their printed counterparts.
- The Commission proposes that the current exemption from import VAT for small consignments (worth less than €22) that are imported to the EU be scrapped, as it creates opportunities for fraud and distorts competition with companies based in the EU.
The Commission’s proposals are aimed at simplifying VAT handling for a large number of small businesses. The proposed thresholds, for example, are expected to facilitate VAT handling for some 430,000 businesses in the EU, covering 97 per cent of all micro-enterprises with cross-border sales. The proposed measures are also expected to help the member states recover lost tax revenue from online sales, currently estimated to run at €5 billion a year.
As with earlier draft legislation, the current proposals will, if adopted, simplify VAT handling for many Swedish businesses. What is more doubtful, however, is whether abolishing the import VAT exemption for low value consignments will really have the full impact envisioned by the Commission. It is of course hoped that scrapping the exemption will put an end to obvious cases of fraud, such as where products with a high value that are imported from China or the US are undervalued or incorrectly described on import forms. Even if the exemption is removed there is still a clear risk that rogue traders will continue on their chosen path in the hope of avoiding customs charges and reducing the basis on which import VAT is calculated.
Sara Lörenskog and Alexander Belo
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+46 10 213 35 56