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EU looks to reduce VAT burden for online trade

Posted by Nick Prag at 01 October 2015, 16:55 CET |
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A new system for VAT for digital products - the EU's response to distortions of the market and loss of revenue through the online economy - has attracted much criticism about the extra burdens it imposes on small businesses.

The new rules, which came into force on 1 January, meant that businesses selling digital goods to customers in the EU had to charge VAT based on its customers' locations rather than the previous place of supply.

This mean that, however small the business, it would have to change the way it registered for VAT, the way it charged VAT, and, most burdensome of all, collect evidence of a buyer's location.

The new rules do involve a 'Mini-One Stop Shop' (MOSS), a tool that allows businesses that sell digital services to customers in more than one EU country to declare and pay all their VAT in their own Member State.

Nevertheless, many small businesses have found the new rules extremely complicated and onerous, particularly in the UK where they had previously been exempt from VAT up to a threshold.

In addition, different Member States have been interpreting and applying the rules differently.

Acknowledging the problems, the European Commission this week launched a public consultation to look at ideas for simplifying the VAT system for cross-border e-commerce transactions in the EU.

The Commission says it is looking for a wide range of views from business owners and other interested parties, including on the MOSS tool, before it drafts legislative proposals in 2016 to reduce the administrative burden on businesses arising from different VAT regimes.

The consultation runs till 18 December.

Thereafter we can expect the Commission to again put forward the option originally proposed – rejected by Member States – for a VAT threshold that would exempt smaller businesses from the changes.

As Economic Affairs Commissioner Pierre Moscovici said, "We also have an interest in ensuring that future legislation reflects the reality for businesses across the EU."


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Nick Prag

Nick Prag

Nick Prag is founder and managing editor of Prior to EUbusiness, he was senior editor at Europe Online SA in Luxembourg, where he played a major part in the launch of Europe Online International.