Commission proposals: a new VAT threshold and extension of the VAT MOSS
In one of our previous newsflashes, we noted that the European Commission is currently drafting proposals for new legislation in the field of e-commerce and VAT. One of the envisaged legislative changes is the extension of the so-called ‘VAT mini-one-stop-shop’ (hereafter: VAT MOSS) to supplies of goods under the so-called ‘distance selling rules’. In addition, the Commission is considering proposing a common EU VAT exemption threshold for e-commerce activities. If adopted, the Commission’s proposals on these two aspects will affect many e-commerce companies currently operating within the EU.
Extension of the VAT MOSS to distance selling
Under the current EU VAT distance selling rules, e-commerce companies shipping products from one Member State to private consumers in other Member States are required to charge VAT in the Member State where the transport of the goods ends – assuming they exceed a certain turnover threshold. Following this, an e-commerce company may be held to file VAT returns and pay VAT on its supplies in twenty-eight Member States.
To take away this considerable administrative burden, the European Commission is considering extending the VAT MOSS system to supplies made under the distance selling rules. The current VAT MOSS system already allows companies which provide telecommunications, broadcasting and electronic services in multiple Member States to report and pay VAT in only one Member State (i.e. the Member State of registration). If the plans of the Commission are realized, also e-commerce companies selling goods under the distance selling rules throughout the EU would be allowed to make use of the VAT MOSS system. Consequently, they would need to file only one VAT return for all their EU distance sales. The extension of the VAT MOSS system would thus constitute a considerable administrative simplification for e-commerce companies engaged in EU distance selling.
Common e-commerce VAT exemption threshold
Currently, e-commerce companies are only required to apply the distance selling rules if they exceed the turnover threshold set by the Member State where the products are shipped to. We have received various signals that the Commission is considering abolishing this distance selling threshold, and instead adopting a common e-commerce VAT exemption threshold. This common e-commerce VAT exemption threshold would potentially allow e-commerce companies not to register and pay VAT on their (cross-border) e-commerce activities if they remain below a certain turnover threshold.
It is likely that the envisaged threshold will not only apply to e-commerce companies engaged in distance selling of goods, but also to those rendering electronic (and possibly other) services. At this point too, the Commission’s proposals (if realized) would imply a simplification – especially for (start-up) e-commerce companies with relatively small turnovers.
With a view to their broad scope, the above envisaged changes (if realized) are likely to impact most of the e-commerce companies operating in the EU. Even though the aim of the proposals is to achieve administrative simplification, e-commerce companies may for example have to revise their VAT registrations, VAT return filing procedures, invoicing, and ERP configurations. In this context, we emphasize that it is still uncertain what the precise content of the Commission’s proposals will be.
We note that the Commission is currently drafting the proposals for its new e-commerce VAT legislation. They are likely to be published on short notice; only at that moment can their impact be properly assessed. Notwithstanding this, it is important to be prepared for the changes that the proposals may bring about. If you expect your business to be affected by the above, we advise you to contact your Baker Tilly VAT Compliance advisor in order to discuss the proper way forward.