The European Commission has announced new measures, due to come into force in January 2021, which will allow for a smooth transition to an updated VAT structure for dealing with online selling and will make online marketplaces liable for VAT not recovered by tax authorities
The measures lay out the new rules that are needed to ensure that online marketplaces can take the initiative in combatting tax fraud and reduce the administrative burden for businesses selling goods online. They are part of the EU’s broader plans to recover the €5bn (£4.53bn) in tax revenues lost in the sector each year, a figure projected to rise to €7bn by 2020.
Once the agreed measures are implemented, businesses will have access to a ‘one-stop shop’ electronic business portal that will allow them to deal with their EU VAT obligations. Without the portal, businesses would be required to register for VAT in each EU member state in which they want to sell. This has been cited by businesses as a one of the most significant barriers for small businesses trading across borders. The proposed system has been in place for e-service providers since 2015 and is reported to be effective.
From 2021 large online marketplaces will be responsible for making sure that VAT is collected on sales of goods by non-EU companies fulfilling transactions with EU consumers. The proposal clarify exactly when online platforms will be considered to have facilitated a sale between users and explains the records they will be required to keep on sales made through their service. These marketplaces will be considered to be liable for missing VAT, greatly increasing the certainty of tax authorities that they can claim the tax due when sellers from outside the EU have not complied with the rules.
The proposal will now be sent to member states for agreement and to the European parliament for consultation and eventual ratification. Pierre Moscovici, EU Commissioner for economic and financial affairs, taxation and customs, said: 'The EU is gearing up for a brand new VAT system in 2021 to make it easier for companies to sell goods online and for Member States to recoup lost VAT revenues.
'Today's proposals will allow online businesses to flourish while ensuring non-compliant businesses or fraudsters cannot undercut them. For this to happen, it is crucial that online marketplaces play their part.'
Richard Asquith, VP of global indirect tax at Avalara, said: 'The EU’s move to shift unpaid VAT liabilities onto the marketplaces is looking to tackle an estimated €5bn in e-commerce EU VAT fraud. It is far more draconian than the successful UK liability laws introduced in March this year. But since the marketplaces and member states have already signed up to it, all parties appear to accept it as a solution'.
Report by James Bunney