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

The European Commission is committed to ensuring the free movement of goods and services and to ensuring that “individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition”. In terms of the current VAT rules, the May 2015 Communication A Digital Single Market Strategy for Europe and the April 2016 Communication on an action plan on VAT: Towards a single EU VAT area - Time to decide have placed a high priority to overcoming barriers to cross-border e-commerce arising from onerous VAT obligations as well as an inherent lack of neutrality which harms EU business. The proposals will modernise the current VAT rules that apply to e-commerce activities and help making VAT future-proof.

There are in essence three reasons to act:
- First, the complexity of VAT obligations has consistently been identified as one of the key reasons why a business will not engage in cross-border e-commerce, and therefore it means that the single market cannot be accessed by many businesses. It has been estimated that the costs of complying with VAT obligations are on average €8,000 annually for each Member State which a business supplies to. This is a significant cost for business, in particular SMEs.
- Second, the current system is not neutral as EU businesses are at a clear disadvantage to non-EU businesses which can legitimately and through high levels of non-compliance make VAT-free supplies into the EU. Given that VAT rates can be as high as 27%, there is a substantial distortion in favour of non-EU business if VAT is not applied.
- Third, the complexity of the existing system as well as the current exemption for the importation of small consignments means that Member States lose valuable tax revenues. It is estimated that between VAT foregone and non-compliance from cross-border e-commerce such losses are currently as high as €5 billion annually.

In preparing this proposal the Commission, as part of the Better Regulation agenda, carried out a regulatory fitness check of the existing Mini One Stop Shop (MOSS) which applies to B2C supplies of electronic services as well as the 2015 changes to the place of supply rules for such services. The proposal takes due account of this assessment. In particular, the proposal will address shortcomings and barriers faced by SMEs and micro-businesses. In quantitative terms, the introduction of an intra-EU cross-border threshold in 2018 will take 6,500 businesses out of the current MOSS system leading to a potential cost saving for these businesses of €13 million. The introduction in 2018 of simplified evidence requirements will benefit an additional 1,000 businesses. The threshold which will also apply to goods when the MOSS is extended in 2021 will benefit 430,000 businesses with potential savings to these businesses of up to €860 million.

The REFIT aspect of the initiative also relates to the main objectives of the new initiative, which is "minimising burdens attached to cross-border e-commerce arising from different VAT regimes". In terms of deliverables, the proposal is expected to reduce VAT compliance costs for businesses by €2.3 billion a year from 2021 while at the same time increasing VAT revenues for Member States by €7 billion. Further, the extension of the MOSS in 2021 also takes on board certain shortcomings identified under the REFIT assessment of the 2015 initiative such as the need for home country rules in terms of invoicing requirements, coordination of audits, communications with taxpayers and indeed including a threshold for suppliers of goods as well as services.

EUR-Lex: COM(2016)757: Follow the progress of this proposal through the decision-making procedure http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2016:757:FIN

ESO: Background information: Commission proposes new tax rules to support e-commerce and online businesses in the EU http://www.europeansources.info/record/commission-proposes-new-tax-rules-to-support-e-commerce-and-online-businesses-in-the-eu/

EUR-Lex: SWD(2016)379: Impact assessment http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2016:379:FIN

EUR-Lex: SWD(2016)382: Executive summary of the impact assessment http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2016:382:FIN

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