Date of publication: 07/12/2017
This newsletter briefly describes the new rules. Together with the higher focus of the VAT authorities on VAT and e-commerce, this evolution makes clear that a correct VAT compliance is crucial for e-commerce businesses.
In a series of measures intended to adapt the current VAT rules to recent technological change, the European Commission announced on 5 December 2017 that an agreement has been reached in the ECOFIN Council regarding VAT and e-commerce/e-books. These measures are based on proposals by the EU Commission that were submitted at the end of last year.
The new measures should simplify VAT compliance for small businesses and increase national tax authorities’ collection capabilities relating to e-commerce businesses.
Summarizing, it has been agreed that:
- By 2019, companies selling goods and/or e-services online in a cross-border context, which do not exceed an annual threshold of EUR 10,000, will be able to treat such sales as domestic sales. Therefore, such suppliers will only have to take into account their local VAT law and VAT rates. This threshold simplifies the current rules on distance sales of goods (for which local VAT liability is currently based on different thresholds in the EU Member states). For e-services, these new rules should avoid that a company has to account for foreign VAT only for a small amount of transactions in another EU Member States. Anyway, it is clear that this threshold is rather low and that SMEs will quickly be obliged to account for foreign VAT.
- By 2019, companies carrying out cross-border electronic services up to EUR 100,000 per year will only need one piece of evidence (instead of two) for identifying their customers’ respective country of residence. This should simplify the rather complex rules on evidence of customers’ residence for SME companies when rendering electronic services.
- By 2021, the scope of application of the “One Stop Shop” mechanism, currently only available for declaring VAT on e-services, will be expanded. In the future, the one stop shop mechanism will be extended to distance sales of goods.
- Online market places, through which non-EU suppliers are selling goods within the EU, will be held accountable in the future for the correct payment of VAT for such supplies. This is an important measure that should ensure a correct VAT collection by the EU Member States. The European Commission will now discuss the implementation of this measure with stakeholders to ensure the use of best practice.
- By 2021, the VAT exemption for the import of small consignments, i.e. supplies with a value of less than EUR 22, will be abolished. Currently, this exemption causes distortion in competition between EU and non-EU suppliers. Furthermore, the misuse of this VAT exemption is a trigger for fraudulent and abusive practices. EU companies will benefit from this change as they will be more competitive in relation to non-EU companies. Additionally, it will be possible to collect VAT over import of small consignments by declaring it through the “One Stop Shop” mechanism. Non-EU companies/market places registering for such a “One Stop Shop” will also benefit from simplified customs clearance processes. If the “One Stop Shop” is not being used, VAT collecting could be done on behalf of the customer by a monthly customs declaration that has to be submitted by the logistics provider.
- Finally, the ECOFIN Council has reached an agreement on the application of a reduced VAT rate for e-books. In the future it should be possible for e-books, as currently is the case for hardcopy books, to benefit from a reduced VAT rate. As soon as the European Council agrees to this change, the new rules can enter into force.
Clearly these measures will be welcomed by SME companies in the e-commerce business. But also national tax authorities will benefit as they will have more opportunities to collect any VAT that is due for e-commerce supplies. It seems that the European Commission has found a fair balance between both sets of needs.
However, the applicable rules will remain complex and adequate guidance for correct VAT compliance and reporting will be crucial for e-commerce business. Furthermore, other challenges lie ahead, for example with online market places and VAT collection for supplies by non-EU companies.
The Tiberghien VAT team will follow up these important EU developments in the future.
Finally, please note that the Belgian authorities already focus on VAT collection and e-commerce business under the current VAT rules. We refer to the recent policy guidelines in which the Minister of Finance announced that the budget for monitoring and auditing e-commerce businesses will be doubled.
E-commerce businesses should be aware of this higher focus by the Belgian authorities. Not complying with the applicable VAT rules in Belgium triggers an important exposure for VAT claims, with fines and interest. On the other hand, please note that the Belgian authorities are rather flexible when irregularities are spontaneously regularized, before an official VAT audit.