By Davide Anghileri, University of Lausanne, Switzerland
On 11 December, the EU Commission proposed detailed measures designed to enable a smooth transition to new EU value-added tax (VAT) rules for e-commerce which were agreed to by Member States in December 2017. The new EU VAT system will come into force January 2021.
The EU Commission aims to simplify VAT obligations for companies carrying out cross-border sales of goods or services to final consumers and ensure that VAT on such supplies is paid correctly to the Member State of the customer, in line with the principle of taxation in the Member State of destination.
The proposed EU VAT system for online sellers provides an electronic business portal for VAT called “One-Stop Shop”. This portal will allow companies that sell goods online to their customers to deal with their VAT obligations in the EU through one easy-to-use online portal in their own language.
Without the portal, VAT registration would be required in each EU Member State into which online companies want to sell. The system is already in place for e-service providers since 2015 and is working well.
From 2021, large online marketplaces will become responsible for ensuring that VAT is collected on sales of goods by non-EU companies to EU consumers taking place on their platforms.
Businesses will benefit, the Commission said, from a substantial reduction in cross-border VAT compliance costs with a consequential increase in cross-border trade. Moreover, EU businesses will be able to compete on equal footing with non-EU businesses that are not charging VAT and, finally, Member States will gain through an increase in VAT revenues of € 7 billion annually.
“The EU is gearing up for a brand new VAT system in 2021 to make it easier for companies to sell goods online and for Member States to recoup lost VAT revenues. Today’s proposals will allow online businesses to flourish while ensuring non-compliant businesses or fraudsters cannot undercut them. For this to happen, it is crucial that online marketplaces play their part.”
Proposed clarifications
The EU Commission proposal comprises two drafts: a Council Directive amending Council Directive 2006/112/EC of 28 November 2006 and a Council Implementing Regulation amending Implementing Regulation (EU) No 282/2011.
The proposals clarify the situations in which online platforms are considered to have facilitated a sale between users and detail the records they must keep on sales made via their interface.
Since online marketplaces will be liable for the missing VAT, authorities can claim the tax due when sellers from outside the EU have not complied with the rules.
In particular, the new rules ensure that goods sold from storage facilities within the EU will have the correct amount of VAT charged, even when the goods are technically being sold to consumers by non-EU businesses. So, the difficulty for Member States to obtain the VAT due on goods sold from so-called “fulfilment centres” will be mitigated.
The proposed implementing rules will now be sent to Member States in the Council for agreement and to the European Parliament for consultation. The Commission calls for a quick agreement in 2019 so that businesses can look forward to a smooth transition to the broader VAT system for e-commerce in 2021.
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
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