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European Commission Proposes Modernization of Tax Rules

European Commission proposes modernization of tax rules to support e-commerce and online businesses in the EU

The European commission has recognized the need to update the current EU VAT rules following the rise in the use of the internet and a rapid increase in online sales especially cross-border sales. Online businesses and the digital economy will be encouraged to expand cross-border and eventually prosper as a result of this update.

One of the measures announced in order to improve the VAT environment for e-commerce businesses in the EU is the introduction of an EU wide portal for online VAT Payments known as the One Stop Shop. Once introduced this measure will save businesses across the EU EUR2.3 billion a year through a significant reduction in VAT compliance expenses. By means of these new rules the commission will also make sure that VAT is paid in the Member state of the end consumer thus resulting in a fairer dissemination of tax revenues amongst EU countries. The commissions’ plan is intended to aid Member States in recuperating the current estimate of EUR5 billion lost VAT on online sales yearly.

The key proposals include:

  • New rules allowing companies that sell goods online to deal easily with all their EU VAT obligations in one place

At present online traders are required to register for VAT in every Member State they trade in, in many instances this is regarded as the main limitation to cross-border e-commerce and result in business expenditures of around EUR8,000 in every EU country in which they trade. The Commission is now proposing a single quarterly return made through the online VAT One Stop Shop for the VAT payable across all the Member States. This system is already in place for the sales of e-services such as mobile phone applications, and with an excess of EUR3 billion in VAT collections in 2015, making this system a proven success. This proposal will see a 95% cut on administrative costs for businesses, resulting in a global saving to EU business of EUR2.3 billion and a rise in VAT revenues for Member States by an estimated EUR7 billion.

  • Simplifying VAT rules for micro-businesses and startups selling online

A yearly VAT threshold of EUR10,000 is being introduced to aid startups and micro-businesses. Under this threshold, cross-border sales by online businesses will be regarded as domestic sales and therefore VAT is paid to the home country tax authority. This is closely related to initiatives like the same invoicing and record keeping rules.

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