VAT News

Major proposals for e-commerce businesses

In a memo released on 1 December 2016, the EC has outlined its proposal regarding the VAT treatment of sales of goods and services by e-commerce businesses.

It is widely acknowledged that the pace at which e-commerce, and digital services have developed has been such that the existing VAT rules are no longer sufficient for the types of supplies being made, and require alteration. The EC has sought to address this with the introduction of the MOSS scheme for B2C sales of broadcasting, telecoms, or e-services, and is now expanding this with a number of other measures announced in the proposal.

The key features and proposals are outlined below:

MOSS thresholds

Under the existing rules, businesses making B2C supplies of broadcasting, telecoms or e-services must account for VAT in the location of the recipient as soon as sales commence. This has caused significant issues for smaller businesses, even forcing some to not sell internationally in order to avoid the requirement to account for overseas VAT. The EC has recognised this and from 2018, proposes to introduce a €10,000 threshold. Until this level of sales is reached, local VAT can be charged in the country of the supplier.

In addition, businesses are currently required to obtain two pieces of evidence which demonstrate the customer's location sufficiently. From 2018 it is proposed that business whose sales do not exceed €100,000 per year will only need to provide one piece.

The rules around record keeping and submission deadlines may also be changed in 2018.

MOSS systems for goods

In addition to the MOSS system for services, the EC have proposed a similar system for businesses distance-selling goods on a B2C basis to customers in other EU member states. Currently such sales are subject to local VAT in the country of the supplier until a threshold of €35,000 or €100,000 is breached, following which registration is required in the customers member state, with a local VAT charge.

The scheme would work in the same way as the MOSS scheme for services with registration in one member state, and VAT charged at the rate applicable depending on the customer location. The threshold for registration would be €10,000 and the existing distance selling rules would be removed. Such a scheme would potentially be introduced in 2021.

Removal of low value consignment relief

Currently imports of goods into the EU with a value of less than €22 are not subject to EU VAT, and this has led to non-EU business often gaining an advantage, particularly by under-valuing goods to avoid VAT so that lower prices can be charged to the customer. To combat this, the EU has proposed to remove the relief all together so that all imports will be subject to EU VAT at the applicable rate. Again, this is proposed to be introduced in 2021.

In due course, these proposals will be finalised and implemented, and the finer details released. Updates will be provided in due course.

Related articles

COVID-19 VAT Cashflow Tips (Part One)

COVID-19 is affecting business in ways no one thought possible. In order to free yourself from the burden of cashflow worry, we’re trying to do our bit to advice you on ways you can inject income into your bottom line.

Read more
HMRC Postpones Phase 2 Making Tax Digital Till April 2021

April 1 2020, was meant to be the date that HMRC launched phase II of making Tax Digital across the UK. However, due to COVID-19, they have made the decision to postpone the rollout by one year to April 1 2021. 

Read more
Coronavirus: Tax provisions and Easements by Country 

A country-by-country breakdown of the tax provisions and easements being implemented by individual country tax authorities.

Read more