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International Internet Magazine. Baltic States news & analytics Thursday, 18.10.2018, 22:09

EU Council adopts new rules on VAT in e-commerce

BC, Tallinn, 06.12.2017.Print version
The Council of the European Union on Tuesday adopted new rules making it easier for online businesses to comply with VAT obligations, informs LETA/BNS.

Part of the EU's "digital single market" strategy, the proposals are aimed at facilitating the collection of VAT when consumers buy goods and services online, spokespeople for the Estonian presidency of the EU council said.


"This revamp of the rules will make our VAT system fit for the digital economy," said Toomas Toniste, minister of finance of Estonia. "By reducing red tape, we will achieve both cost savings for businesses and increased tax revenues for the member states. This was a major priority for our presidency."


The new rules extend an existing EU-wide portal, or mini "one-stop shop," for the VAT registration of distance sales. And they establish a new portal for distance sales from third countries with a value below 150 euros. This will reduce the costs of complying with VAT requirements for business-to-consumer transactions.


VAT will be paid in the member state of the consumer, ensuring a fairer distribution of tax revenues amongst member states.

Additionally, the texts make online platforms liable for collecting VAT on the distance sales that they facilitate. This was not foreseen in the Commission's proposals, but has become an essential provision of the package. Most goods that are imported for distance sales currently enter the EU VAT-free, resulting in unfair competition for EU businesses.


VAT fraud for distance sales in the EU is estimated at 5 billion euros per year, and some measures will help reduce this.

The one-stop shop will relieve online traders of having to register for VAT in each of the member states in which they sell goods. According to the Commission, such obligations cost businesses around 8,000 euros for every EU country into which they sell; the proposals would enable administrative burdens for companies to be reduced by 95 percent. The one-stop shop will generate an overall saving of 2.3 billion euros for businesses, the Commission estimates, and a seven billion euro increase in VAT revenues for member states.


For start-ups and SMEs, the new rules introduce an important simplification. Below 10,000 euros in yearly cross-border online sales, a business will be able to continue applying VAT rules used in its home country.


Furthermore, the new rules remove an exemption for consignments from outside the EU worth less than 22 euros. Around 150 million small consignments are imported free of VAT, and the current system is open to abuse. Whilst EU businesses have to apply VAT regardless of the value of the goods sold, imported goods benefit from the exemption and are often undervalued in order to do so.

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