The new VAT rules on e-commerce: where do we stand, almost a year later?
The new rules for e-commerce came into effect in the EU on 1 July 2021. At the time, we wrote extensively on the topic of the changes and their effects. Almost a year later, we now reflect on the impact of the changes that have been implemented, and we look ahead at future changes.
Objectives of the new rules
The rules for e-commerce are part of the European Commission’s ‘VAT Action Plan’. This is a broader set of measures aimed at creating a level playing field between suppliers operating from within the European Union (EU) and suppliers from outside of the EU. Additionally, the EU faces a considerable ‘VAT gap’ (VAT ‘leaking away’ as a result of for example fraud). The new rules should make VAT reporting and payment simpler and more centralised, in order to promote the levy and collection of VAT.
Upon their introduction, the VAT rules for e-commerce were initially met with significant criticism, as all distance sales in principle became subject to taxation in the EU country of arrival of the goods. In addition to this, the rules have a very limited retroactive effect, leading suppliers to fear that the administrative burden would in fact increase, rather than decrease. Furthermore, the implementation of the rules was postponed from 1 January 2021 to 1 July 2021, and much was unclear up to (and even after) the moment the rules were implemented. The Dutch Tax Authorities were not prepared and implemented emergency measures, as the digital infrastructure was not ready yet.
Now that the dust has settled, businesses primarily see the benefits of the changed rules. Where, in the past, a business would have had to register for VAT purposes and file returns in multiple EU countries, one single return now often suffices: the One Stop Shop return. This means that the business doesn’t have to deal with separate VAT registrations, thresholds, and reporting and payment deadlines in each of the relevant EU countries. As a result, the administrative burden and the expenses have in many cases been reduced tremendously for businesses that operate within the EU.
The impact of the changes
The European Commission has also indicated that it is happy with the first effects of the new rules. The European Commission reports that, just in the first six months, a total of € 1.9 billion was received by EU countries under the specific rules for goods from outside of the EU. Of this amount, € 690 million concerned imported goods with a value no greater than € 22. This is the primary area from which an increase in tax revenue can be expected, as such goods were previously untaxed as a result of a scheme for small consignments.
Furthermore, the European Commission expects that suppliers operating outside of the EU will rarely remain out of scope of VAT as a result of the new rules, which should create a (more) level playing field for suppliers operating within the EU.
Despite the positive effects of the changes, the implementation of the new rules was certainly faced with some issues. For example, EU countries were not always aware of suppliers’ registrations in other EU countries, which led to double taxation. Also, we notice that in practice, several tax authorities (including the Dutch Tax Authorities) have still not succeeded in properly setting up the software systems. The previously mentioned emergency measures are still in place.
Despite these issues, we see many opportunities for internationally operating e-commerce businesses. The lower administrative burden offers an opportunity to increase your market. After all, these simplifications mean that you can in principle serve all the countries, and process the VAT in one single OSS return!
Although the new e-commerce rules were only recently implemented, new changes already await us. From 1 January 2023 onwards, European digital platforms will be required to report, to the local tax authorities, the income earned through the sale of goods and services, by businesses or individuals inside and outside of the EU, on their digital marketplace. This information will subsequently be shared by the national tax authorities with the authorities in other EU countries. Non-compliance with this obligation may lead to significant penalties for the platform. The European Commission hopes that this measure will help gain more control over the financial flows, and aid in closing the ‘VAT gap’.
If you would like to know more about the possibilities and opportunities that these regulations offer for e-commerce, or if you would like to discuss the VAT position of your business, please feel free to contact Marisa Hut or Marc van Weert.