The EU's VAT e-commerce package is a series of measures being implemented in stages and intended to simplify VAT rules on the cross-border sales of goods and services to final consumers based in the EU. The measures are expected to ensure that VAT on these supplies is accurately paid to the member state of the customer, following the principle of taxation of supplies in the destination member state.
As a brief overview, the EU's VAT e-commerce package includes changes in the VAT treatment and reporting of supplies to private individuals in the EU. The package includes the following measures. (The first three bullets include links to my previous posts on these subjects for details.)
- Measures affecting intra-EU (also known as intra-Community) distance sales of goods, which aim to simplify the reporting of these transactions and introduce new thresholds and VAT-recovery options.
- Measures affecting the import VAT of goods from countries and territories outside the EU. The EU's existing low value consignment relief will be lifted, and import VAT will be due on each import, even those under 22 euros. The new measures will benefit certain imports of up to 150 euros.
- Measures affecting the cross-border trade of goods to EU customers through online platforms and portals such as Amazon and eBay. The EU VAT authorities' enforcement efforts will focus on electronic interface (EI) platforms, though businesses that sell through EIs must also comply with the new rules.
- Measures affecting the supply of services by both EU and non-EU businesses to EU customers. These are the VAT e-commerce package's final reforms, and are addressed in detail below in this post.
Implementation of new VAT measures delayed six months
The VAT e-commerce measures were initially planned to come into force on 1 January 2021. Given the coronavirus pandemic and associated lockdowns, however, the European Commission has proposed postponing the implementation date by six months, to 1 July 2021. This will give member states and businesses more time to prepare for the new rules.
The European Commission's proposal to delay the implementation date was made on 8 May. After further discussion, the proposal has been agreed to and is currently subject to the formal approval of the EU Council. Meanwhile, all other documentation on the VAT e-commerce package is in place. The initial steps were taken in 2015, provisions for the package approved in 2017, and detailed measures adopted at the end of 2019. The latest implementation rules were approved in February 2020.
VAT changes related to the provision of services
Businesses that supply business-to-consumer (B2C) services to customers in the EU must comply with the new VAT measures. The new rules apply to businesses established inside or outside the EU.
The changes will allow businesses to centralize and simplify the VAT accounting and reporting of their supplies. This will be possible by the introduction of the so-called One-Stop-Shop system (OSS). The OSS is an extended version of the existing Mini-OSS (MOSS). The OSS will include three main schemes: the Union scheme, non-Union scheme and Import scheme. They are referred to as "special schemes" and cover the transactions within the scope of the VAT e-commerce package.
The existing MOSS platform has been in place since 2015. It allows businesses supplying certain limited types of cross-border services to clients in the EU to use a simplified regime to register for VAT, fulfil certain compliance obligations and perform general VAT reporting.
The current scope of the MOSS covers only telecommunication, broadcasting and electronically supplied services to private individuals. These transactions have their place of supply where the customer is established. In brief, the MOSS allows the suppliers of these types of B2C services to opt out of the obligatory VAT registrations in all EU member states where their customers are established. Under the MOSS scheme, businesses can account for and remit VAT due in any EU country through a single VAT registration, using an online portal that is managed and run by their respective local tax authorities.
In 2019, the EU introduced improvements to the MOSS, including a new threshold of 10,000 euros in order to apply the simplified MOSS rules. The threshold was put in place to decrease burdens on micro and small businesses, which had been required to register for the MOSS even though they may not have been required to register for VAT in their own country due to the volume of their supplies. Another improvement involved the use of "home country" rules with respect to invoicing requirements.
The 2021 e-commerce package changes will extend the type of supplies subject to the OSS scheme to all types of cross-border supplies of services where the final consumer is an EU-based private individual. The changes ensure that these supplies are taxed at the country of destination — that is, where the consumer is based. In this respect, the changes recognize the nature of VAT as a tax on consumption.
All suppliers of cross-border services to private individuals in the EU, then, will be able to take advantage of the coming OSS scheme. They will be able to register in only one EU member state and operate and control all VAT-related reporting and compliance from that state.
If you provide services to private customers based in the EU, you should examine your supply chain and your tax and accounting systems in light of the new rules. You may need to update your policies and practices to ensure compliance and ensure that your supply chain is tax-optimized.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.