Key Tax News – On 11 December 2018, the European Commission announced new details for a coordinated, EU wide, VAT system for sale of goods by ‘large online market places’, into the EU, using a single ‘one-stop-shop’ approach, to registering, for sales into any and all EU member states (based on the e-services’ model already in use). This is designed to allow on-line markets to thrive and for member states to collect missing VAT (estimated to be €5 billion in tax revenues lost in the sector each year – a figure due to rise to €7 billion by 2020).


 

On 11 December 2018, the European Commission announced new detailed measures that will pave the way for a smooth transition to new VAT (Value-Added Tax) rules for e-commerce that come into force in January 2021. These rules lay out the steps needed to ensure that online marketplaces can play their part in the fight against tax fraud and to ease administrative burdens for businesses selling goods online.

These new measures form part of the EU’s broader agenda to tackle VAT fraud and to improve VAT collection on internet sales, the new measures presented today should help Member States to recover the €5 billion in tax revenues lost in the sector each year – a figure due to rise to €7 billion by 2020.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “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.

A new VAT system for online sellers 

When implemented, these rules will ensure that a brand new VAT system is ready, for businesses that sell goods online, once the agreed new framework comes into force in 2021. The rules introduce new building blocks for the system that will be needed for online companies to take full advantage of the EU’s Single Market.

The electronic business portal for VAT, or ‘One-Stop Shop’, put in place by these measures, 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. This is like the system for registration, available currently for businesses located within EU member states, but now to be extended to suppliers outside the EU.

Without the portal, VAT registration would be required, in each EU Member State, into which they want to sell – a situation cited by companies as one of the biggest barriers, for small businesses trading cross-border. The system is already in place for e-service providers, since 2015, and is working well.

Ensuring that VAT is paid when goods are sold through online marketplaces by independent sellers

From 2021, large online marketplaces (presumably, like eBay) 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.

  • These proposals clarify the situations, in which online platforms, are considered to have facilitated a sale between users, and they detail the records they must keep, on sales, made via their interface.
  • Since online marketplaces will be liable for the missing VAT, authorities will be sure that they can claim the tax due, when sellers from outside the EU have not complied with the rules.
  • In particular, the new rules will ensure that goods sold from storage facilities, within the EU, have the correct amount of VAT charged, even when the goods are technically being sold to consumers, by non-EU businesses.
  • Currently, it can be difficult for Member States to obtain the VAT due on goods sold from so-called ‘fulfilment centres’.

The new technical measures were developed in consultation with online platforms, themselves, and Member States authorities.

They are complemented by VAT simplifications, to ensure that marketplaces are not unduly burdened, and can continue to concentrate on core-business activities.

Next steps

These 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.

Background

The proposed implementing regulations are the detailed rules needed to ensure the smooth running, of the new VAT, for e-commerce by Member States, agreed in December 2017, which the EU proposes, will  come into force in January 2021.

The measures follow up on the Commission’s proposals for a deep reform of the EU VAT system presented in October 2017, and the VAT Action Plan towards a single EU VAT area presented in April 2016.

The common Value Added Tax (VAT) system plays an important role in Europe’s Single Market. VAT is a major and growing source of revenue in the EU, raising over €1 trillion in 2015, which corresponds to 7% of EU GDP. One of the EU’s own resources is also based on VAT.

[European Commission website: media release; LTN 245, 19/12/18; Tax Month – December 2018]

FJM 29.1.19

CPD (comprehension) questions

  1. Are ‘large online market places’ going to be liable for European VAT, for sales into the EU (under these proposals)?
  2. Without reading into the detail, what is an example of what one of these ‘large online market places’?
  3. What is going to make this easier for these ‘large online market places’ to be compliant with their EU VAT obligations?
  4. What will make things easier for the individual businesses that sell into the EU, through the likes of eBay?
  5. If EU member states, agree promptly, in 2019 as they are encouraged to do, when would this new system start?

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