In the face of complaints about the MOSS digital VAT system, particularly from small and micro businesses, the European Commission has launched a public consultation to identify ways to simplify the VAT payments on cross-border e-commerce transactions in the EU, less than a year after introducing a new regime governing digital transactions which it acknowledges has caused difficulties
The Commission says the consultation will look at ways to reduce the administrative burden on businesses arising from different VAT regimes, and feedback will be used to develop legislative proposals to be introduced in 2016, as part of the Digital Single Market strategy, including a possible lower threshold exemption.
The consultation is also looking at the impact of the new ‘place of supply’ rules for businesses dealing in cross-border telecommunications, broadcasting and e-services which came into effect on 1 January 2015. As part of this it is seeking feedback on the Mini-One Stop Shop (MOSS), the tool which was set up to simplify cross-border VAT payment procedures for e-commerce by allowing 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.
The Commission notes that: ‘Despite the broad support for the new rules, some very small businesses have faced some difficulties, particularly in the UK where they were previously exempt from VAT up to a threshold. In its original proposal, the Commission had included a VAT threshold to exempt smaller businesses from the changes, but member states rejected that option. The Commission would like to put that option forward again in order to support the EU's start up and smallest companies.’
The proposals under discussion include extending the current single electronic registration and payment mechanism to cover the sale of tangible goods; introducing a VAT threshold to help online start-ups and small businesses; allowing cross-border businesses to be audited only by their home country for VAT purposes; and removing the VAT exemption for the import of small consignments from suppliers in third countries.
Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs said: "This consultation presents a real opportunity to ensure that future VAT revenues from the digital economy are distributed fairly and effectively. At the same time, we want to make it as easy as possible to comply with the rules. We also have an interest in ensuring that future legislation reflects the reality for businesses across the EU.’
Japan to introduce digital VAT
Later this week on 1 October sees Japan enact new ‘place of supply’ tax rules on digital service sales and digital downloads. In contrast to the EU's current VAT rules, Japan has opted to introduce a minimum threshold so that only businesses with a taxable turnover over ¥10,000,000 (£80,000) in Japan will be subject to the legislation.
Similar legislation is now in place in 36 jurisdictions, with New Zealand and Australia announcing plans to introduce similar rules in 2016 and 2017 respectively.
In addition China, Singapore, Turkey, Israel, Brazil and India have all discussed plans to impose tax on digital service sales.
The consultation will run for 12 weeks and end on 18 December 2015. Details are here
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