EU Council addresses VAT for e-commerce, excise tax, tax blacklist, digital tax

By Davide Anghileri, University of Lausanne, Lausanne, Switzerland

The European Council, during its meeting of 8 November, reached agreements on new EU-wide rules for the exchange of VAT payment data in e-commerce, on simplified VAT rules for small businesses, on a modernised framework for the excise tax on goods, and on the removal of Belize from EU tax blacklist. The council also extensivity discussed the effort to reform taxation to account for the digitalization of the economy.

VAT for e-commerce

The Council reached a provisional agreement on new rules for the exchange of VAT payment data to facilitate the detection of tax fraud in cross-border e-commerce transactions.

The new rules consist of two legislative texts. The first one amends the VAT directive putting in place requirements on payment service providers to keep records of cross-border payments related to e-commerce. This data will then be made available to national tax authorities under strict conditions, including those related to data protection.

The second agreement provides regulations on administrative cooperation in the area of VAT. These amendments set out the details of how national tax authorities will cooperate in this area to detect VAT fraud and control compliance with VAT obligations.

The aim is to enable member states to collect, in a harmonised way, the records made electronically available by payment service providers, such as banks. In addition, a new central electronic system will be set up for the storage of the payment information and for the further processing of this information by national anti-fraud officials.

These rules complement the VAT regulatory framework for e-commerce coming into force in January 2021, which introduced new VAT obligations for online marketplaces and simplified VAT compliance rules for online businesses.

These rules should be formally adopted by the Council without further discussion once the text has undergone a legal and linguistic review.

Blacklist

Following the recommendations of the EU Code of Conduct Group (Business Taxation), Council agreed to remove Belize from the EU’s list of non-cooperative tax jurisdictions.  

Belize has passed the necessary reforms to improve its tax regime for international business companies that were due to be implemented by end 2018. Belize will, therefore, be moved from annex I of the conclusions to annex II (grey list), pending the implementation of the country’s commitment to amend or abolish the harmful features of its foreign source income exemption regime by end 2019.

Moreover, the Council removed from annex II the Republic of North Macedonia as it complied with all its commitments on tax cooperation following its ratification of the OECD multilateral convention on mutual administrative assistance.

VAT rules for small businesses

The Council also agreed to a general approach to further simplify the VAT rules applicable to small businesses.

The aim of the new rules is to reduce administrative burden and compliance costs for small enterprises and to create a fiscal environment that will help small enterprises grow and trade cross-border more efficiently.

The reform provides simplification of the current VAT system for small businesses and a VAT exemption across the EU, thus creating a level-playing field to help entrepreneurs and start-ups, not to put additional obstacles on their way.

Moreover, the new set of rules will reduce VAT compliant costs improving the design of the exemption. Furthermore, it provides the opportunity to encourage voluntary compliance and therefore helps reduce revenue losses due to non-compliance and VAT fraud.

The text foresees that small enterprises will qualify for simplified VAT compliance rules if their annual turnover remains below a threshold set by a Member State concerned, which cannot be higher than € 85,000. Under certain conditions, small enterprises from other member states, which do not exceed this threshold, can also benefit from the simplified scheme, if their total annual EU turnover will not exceed € 100,000.

These rules should be formally adopted by the Council without further discussion once the text has undergone a legal and linguistic review.

Excise duties

The Council reached a provisional agreement on measures to improve the business environment for trade in goods subject to excise duties by further improving conditions for fair competition and reducing the administrative burden for companies.

The aim of these proposals is to align the EU excise and customs procedures, so as to improve the freedom of movement for excise goods released for consumption in the single market while ensuring that the correct tax is collected by the member states. It also aims to reduce the administrative and legal burdens for small companies. The proposals contain a number of measures to streamline and simplify the processes covering export and import interaction and intra-EU movements of excise products.

In addition, the Council reached a general approach, without discussion, on an exemption from VAT and excise duty as regards Common Security and Defence Policy (CSDP) efforts within the EU framework.  Text of the Council general approach on excise duty for defense (24 October 2019).

The ministers also discussed reform the excise duty on alcohol and alcoholic beverages. While significant progress was achieved in the negotiations, ministers didn’t reach an agreement on this text. The Council will continue to work at the technical level with a view to reaching a compromise acceptable for all member states in December.

Digital taxation

The Council also took stock of the state of play of work during the Finnish Presidency on the ongoing OECD discussions regarding tax challenges arising from the digitalisation of the economy.

Moreover, ministers exchanged views on the way forward in this area in the coming months and stressed the need to ensure that the various solutions at the international level are compatible with EU law and that their impact is thoroughly analysed.

The discussions showed support for the Presidency’s proposed way forward, and work will continue on that basis in Council’s preparatory bodies.