The Mini-One-Stop-Shop system was limited to Telecommunications, Broadcasting, and Electronic services. The One-Stop-Shop being proposed will now cover all goods and services sold digitally.
The current EU VAT rules were agreed between all Member States before the rise of the internet and the boom in online sales, and especially cross-border sales. Therefore, one would deduce that an update to the system is due.
Companies that sell e-services such as mobile phone apps can already sell to customers in other Member States while only registering for VAT in their home Member State. They account for all their VAT in a single quarterly return, through an online portal hosted by their home tax administration. VAT revenues are then transferred from the home tax administration to the relevant Member States to which the company has sold e-services to consumers.
The Commission is now proposing that this simplification for e-services be made available for online sellers of goods as well. At the moment, companies that sell goods online in other Member States are obliged to register for VAT in all the other EU countries in which they sell goods to consumers. This adds significant costs and burdens to their operating costs. The European Union is stating that the move to the single EU VAT portal will be 95% less costly for these businesses.
Online sales will be taxed in the same way and at the same rates as their physical equivalents in shops, while the same VAT rate will be charged in the Member State where the EU consumer is based, regardless of where an online retailer is based.
This is seeking uniformity and clarity to the rules and red-tape that have burdened businesses, in particular, the small and micro businesses.
Besides addressing bureaucracy, this proposal is set to reduce VAT losses to the Member States. Authorities presently estimate a €5 billion in VAT is being lost today due to non-compliance alone.
While these proposals seek to make the system simpler for compliance purposes, the challenges in transition may vary.
One still needs to understand how existing VAT registrations will be consolidated, any audit impact, and transitional phases.
Furthermore, the Commission proposes other major changes, these being:
- The introduction of a digital online portal for sellers of goods online in their own language hosted through their tax administration;
- The ability for Member States to apply the same VAT rate for e-books as to printed versions;
- The removal of the current exemption from VAT for imports of small consignments from outside the EU;
- The introduction of a yearly VAT threshold of €10 000 under which cross-border sales for online companies are treated as domestic sales, with VAT paid to their own tax administration.
One might deduce that these changes are in some ways a massive departure from the current VAT system and might result in an increase in competitiveness and broadening of a cross-border digital economy.
