European Commission adopts extended VAT e-commerce rules

The European Commission has formally adopted VAT e-commerce rules which extend the existing ‘one stop shop’ for distance sales and reduce the cost for online businesses of complying with VAT obligations, with the aim of tackling the €5bn (£4.4bn) lost to fraud each year

The new rules extend an existing EU-wide portal (mini 'one-stop shop') for the VAT registration of distance sales, and establish a new portal for distance sales from third countries with a value below €150.

VAT will be paid in the member state of the consumer. Additionally, online platforms will become liable for collecting VAT on the distance sales that they facilitate.

The one-stop shop will generate an overall saving of €2.3bn for businesses, the Commission estimates, and a €7bn increase in VAT revenues for member states.

Under the new rules, start-ups and SMEs with annual cross-border online sales below €10 000 will be able to continue applying VAT rules used in their home country.

Additionally, the exemption for consignments from outside the EU worth less than €22 is abolished. The Commission says around 150m small consignments are imported free of VAT, and the current system is open to abuse. It is estimated that fraud from labelling a high value goods in small packages as inexpensive goods has caused a loss of €1bn in revenues for the EU member states.

Toomas Tõniste, minister for finance of Estonia, which currently holds the presidency of the EU’s economic and financial affairs council (ECOFIN), said: ‘This revamp of the rules will make our VAT system fit for the digital economy.

‘By reducing red tape, we will achieve both cost savings for businesses and increased tax revenues for the member states. This was a major priority for our presidency.’

The simplification measures for intra-EU sales of electronic services are to be introduced by 2019, and the extension of the one-stop shop to distance sales of goods, both intra-EU and from third countries, as well as the elimination of the VAT exemption for small consignments, will come in by 2021.

EU member states will have until 31 December 2018 and 31 December 2020 to transpose the corresponding provisions of the directive into national laws and regulations. Additional regulation on administrative cooperation will apply from 1 January 2021.

Directive on VAT obligations for services and distance selling is here.

Report by Pat Sweet

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