The European Commission presents the first section of its action plan to modernise VAT.
The European Commission published on 1 December 2016 two drafts of directives aiming to adapt VAT rules to developments in e-commerce. You can also find two drafts of the implementing regulations among the published documents.
► The two proposals for directives:
- The first draft, which is expected to come into force as soon as Member States adopt it, enables them to apply a reduced (or even a super-reduced) rate to electronically supplied publications (books and press) as a response to abundant appeals voiced by several Member States;
- The aim of the second proposal is to adapt VAT rules to the development of online commerce, with particular attention paid to start-ups and to consolidating fair competition between goods and services originating both in and outside the European Union (EU).
If Member States accept the calendar proposed by the European Commission, the reform would come into effect in two stages: the first part on 1 January 2018, aiming to improve and adjust the current system; the second part on 1 January 2021, consisting of a group of more structural measures needing significant adaptation work.
This is a first presentation of the main changes planned, which are worth studying in-depth over the coming months.
► 1 January 2018: adjustments to the VAT system of the Member State receiving electronic services provided to consumers ("B2C")
On the basis of the feedback from the first two years of the electronic services VAT system and the Mini One Stop Shop (MOSS), the main proposed developments are as follows:
- With regard to suppliers with annual online cross-border services turnovers below EUR 10,000, electronic services would be liable to VAT in the Member State of the service provider (as it happened before 1 January 2015) - this measure is intended to simplify obligations for start-ups;
- The invoicing rules applicable would be those of the country in which the service provider is based;
- Access to MOSS for declaring and paying VAT would be available to service providers based outside the EU but who hold an identification number here, which are currently excluded from this regime;
- Simplified filing and amendment procedures for the MOSS VAT returns;
- Record-keeping applicable rules would be those applied in the Member State where the supplier is registered for its MOSS-declared operations (instead of the ten-year period currently in force).
► 1 January 2021: an in-depth reform of the rules applicable to online commerce
MOSS to be extended to all B2C services (electronic or not) rendered by suppliers based either in or outside the EU provided such services are taxed in the country of consumption.
- MOSS shall also be extended to intra-community (B2C) distance sales of goods, which regime will be substantially amended, as follows:
- Removal of current domestic distance sales thresholds below which such sales are taxable in the Member State of dispatch of the goods;
- Setup of an uniformed EU threshold of EUR 10,000 (same threshold as foreseen on 1 above for electronic services) below which taxation remains in the Member States where the supplier is established – note that the said threshold refers to sales to all Member States combined (differently from the current rules, where sales to each Member States are treated separately);
- Once the combined EUR 10,000 threshold is exceeded, consumption country's taxation rules apply – as an alternative to VAT registering in all consumption countries, suppliers can opt for registering under the One Stop Shop regime.
- MOSS shall also be extended to sales of goods coming from non-EU countries as follows:
- Removal of the current exemption on imports of small consignments (goods under EUR 22);
- Setup of a special scheme (for reporting and VAT payment) for distance sales of goods imported from third countries covering sales of goods in consignments of an intrinsic value not exceeding EUR 150 (imports into the EU territory would similarly be exempt in order to avoid double taxation) - this scheme is available to both EU and non-EU operators on condition the latter present sufficient trustworthiness (are properly represented by an intermediary, are certified by a Member State of their identification or are based in a country with which the EU has concluded a mutual assistance agreement) and VAT is chargeable upon acceptance of payment.When distance sales of goods imported from a non-EU country are not taxed under the simplified system, declaration and payment of VAT on behalf of the recipient may, under conditions yet to be specified, be carried out electronically on a monthly basis by postal operators or express mail services. In this case, VAT would be levied at the normal rate, even if the goods were to benefit from a reduced rate under the ordinary system. The recipient would have the possibility of opting to import under ordinary rules (via a standard customs declaration) if they wish to benefit from the application of a reduced rate to the product in question.
As a final note, please be aware that similar to the current MOSS rules, operators may only use this regime to declare and pay VAT to each Member State for the services and distance sales of goods they provide without being able to deduct herein any VAT incurred on its inputs. As such, the significant extension of the One Stop Shop, although a major step in the right direction for overcoming barriers for businesses, does not go hand-in-hand with a strengthening of the additional opportunities (in particular in relation to offsetting output and input VAT) such a regime could offer.
Our CMS tax teams will continue to follow-up on the future progress of these drafts and are fully available to discuss them with you.
Links to related documents:
- European Commission's Press Release
- COM/2016/757 | Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods.
- SWD/2016/379 | Impact assessment for the proposal to modernise VAT for cross-border E-Commerce
- SWD/2016/382 | Executive Summary of the Impact assessment on the proposal to modernise VAT for cross-border e-commerce
- COM/2016/756 | Proposal for a COUNCIL IMPLEMENTING REGULATION amending Implementing Regulation (EU) No 282/2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax.
- COM/2016/755 | Proposal for a COUNCIL REGULATION amending Regulation (EU) No 904/2010 on administrative cooperation and combating fraud in the field of value added tax
- COM/2016/758 | Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC, as regards rates of value added tax applied to books, newspapers and periodicals
- SWD/2016/392 | Impact Assessment
- SWD/2016/393 | Executive Summary Impact assessment
- Opinion on the Impact assessment | Part 1 | Part 2