Changes in e-commerce VAT rules

It will not have escaped your notice that Europe, like most developed countries, has experienced explosive growth in e-commerce due to the increased use of the internet and mobile devices (smartphones and tablets).

As a result, the European Commission has re-examined the rules on the VAT charged on goods and services sold to individuals over the internet.

And the state of play is alarming to say the least. Due to the complexity of the regulations, the European Council estimates that revenue losses amount to €5–7 billion per year and that, at the same time, European SMEs represent an administrative burden of about €8000 per year and per EU country to which they export.

To get out of this situation the Economic and Financial Affairs Council has adopted a directive and a regulation focussing on two main areas:

  • An extended single window system so that all online retailers can be identified in each member state in which they sell goods, enabling them to fulfil their declaration obligations more easily,
  • The removal of VAT exemption for shipments from outside the EU with a value of less than €22, a rule that is thought to have resulted in significant abuse, particularly in terms of distance selling and thus created unfair competition with EU companies.

With the transposition of the directive planned for 2018 in each member state, the EU hopes to modernise the rules in this area and substantially reduce tax evasion.

In any case, the new rules require chartered accountants to provide a monitoring, information and consultancy service in this area for their SME clients, particularly with regards what new steps need to be taken in relation to the single European window. Otherwise, they may be held liable in the event of an amended tax bill. Stay tuned…