On 11 December 2018, the Commission released new details on the rules for e-commerce that are set to come into force in January 2021, in just three years’ time. These rules include a new role for online marketplaces in the fight against tax fraud with the intention of paving the way for a smooth transition to the new Value-Added Tax (VAT) rules.
According to the EU Commission study on e-commerce, “one out of five enterprises in the EU-28 made electronic sales in 2016 and the percentage of turnover on e-sales amounted to 18 % of the total turnover of enterprises with 10 or more persons employed. In the EU-28, during the period 2008 to 2016, the percentage of enterprises that had e-sales increased by 7 percentage points and the enterprises’ turnover realized from e-sales increased by 6 percentage points.”
Starting in 2021, large online marketplaces will be held responsible for ensuring VAT collection on sales of goods by non-EU companies to EU consumers transactions that occur on the marketplace platforms. This is to ensure that authorities will be able to claim the tax due when sellers outside the EU have not complied with the rules, specifically targeting the goods sold from “fulfillment centres” even though the goods are technically being sold to by non-EU businesses to consumers.
An electronic business portal, a “One-Stop Shop”, for the VAT will be put into place, allowing for companies to sell goods online while handling their VAT obligations through one online portal in their own language. This one portal is being established to avoid a Member State dependent VAT registration, a requirement that would create large barriers or small businesses when trading cross-border.
According to the proposal, online marketplaces now have the steps needed to enable them to prevent tax fraud as well as ease administrative burdens for businesses selling goods online by establishing better cooperation between tax authorities and Payment Service Providers. Over 90% of EU online purchases involve a Payment Service Provider, such as credit cards or direct debit providers. The data collected by these providers can be used by EU tax administrations to control the VAT obligations on cross-border sales. A quarterly information-sharing obligation will also be established according to the new rules, allowing the Eurofisc network (Member State anti-fraud specialists) to exchange and analyze specific payment data on cross-border sales. This also means that all EU and non-EU online sellers will be identifiable when non-compliance with VAT obligations is detected.
These proposed measures are estimated to help Member States recover between €5 billion to €7 billion lost each year in tax revenues. The measures will now be submitted to Member States in the Council for agreement and the EU Parliament for consultation (the Parliament’s OK is not decisive because of tax harmonization matters). The Commission has called for a quick agreement in 2019, so as to create as smooth of a transition as possible for businesses to the new VAT system for e-commerce in 2021.
For further information on the new VAT proposals, click here.
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