E-commerce – the online sale of goods and services – is becoming increasingly popular. It is therefore high time to adapt the VAT system accordingly. This is because the current system is affecting competitive conditions both within and outside the European Union (EU). That is certainly not the intention. The European Commission has drawn up a proposal published.
Import exemption for small consignments
VAT is payable on goods imported into the EU from outside the EU. However, if the value of the consignment is less than €22, the import is exempt from VAT. This exemption distorts competition and will therefore be abolished. See our article Import VAT: is the exemption being abolished?
Distance sales
If goods are supplied to a non-business customer (also referred to for VAT purposes as a ‘private individual’), VAT is payable in the country where the supplier is established. Where the transport of these goods is carried out or organised by the supplier, this constitutes a distance sale. As soon as a supplier’s total turnover from distance sales exceeds a threshold set for each EU Member State, VAT must be paid in the country where the private individual customer resides.
The supplier must then register as a VAT-registered business in the EU Member State where the customers are located. Subsequently, all VAT obligations in that EU Member State must be met. In most cases, this requires engaging a adviser based in that Member State. Cross-border e-commerce therefore faces a competitive disadvantage compared with businesses established in the Member State in question.
Small-scale e-commerce
The European Commission wishes to introduce a uniform threshold of €10,000 for each Member State. Businesses whose e-commerce turnover (covering both goods and services) remains below €10,000 will not be required to charge VAT at the rate of the EU Member State to which the goods are dispatched.
“Large-scale” e-commerce: MOSS
The abbreviation MOSS stands for Mini One Stop Shop. It is a system that allows businesses to pay VAT due in other EU Member States via the tax authorities of the country in which they are established. This system currently applies to electronic services, telecommunications services and broadcasting services provided to non-business customers.
The proposal is to extend the MOSS system to online sales of goods as well. Businesses engaged in distance sales will then no longer be required to register for VAT (or have someone register them) in other EU Member States. In addition, the invoicing rules of the EU Member State in which they are established will apply to them. And the tax authorities in their country of establishment will be responsible for monitoring VAT payments.
When?
These measures are scheduled to be introduced between 2018 and 2021.