EU – Baltic States, Financial Services, Legislation, Markets and Companies, Taxation, Technology

The new system will simplify things for consumers, who will not have to work out where the supplier is established, and it will create fairer competition between domestic suppliers and those established in other EU countries. The level playing field aspect is particularly important for small businesses, which usually do not have resources to spend in VAT planning schemes.

EU member states agreed on the new VAT rules in 2008. However, entry into force was set for 2015, to give enough time to all stakeholders to prepare for such a fundamental transition. Since then, implementing rules, technical I.T. specifications, guidelines and explanatory notes for tax administrations and businesses have been set out, while the Commission has actively engaged with all interested parties (conferences, trainings, etc.) to ensure a smooth application of the new rules from 1 January 2015. In a report adopted on 26 June 2014, the Commission concluded that everything was in place to ensure the efficient application of the new rule through telecommunications, broadcasting and electronic services to non-taxable persons.

Commission’s actions

VAT changes will regulate mainly telecommunications, radio and television broadcasting and electronic services supplied to private consumers. These can be, for example, phone or satellite TV subscriptions, downloadable software, songs or e-books.

In order to secure coherent and uniform application of the rules, and a smooth transition to the new system, the Commission has been working intensively with the EU-28 member states and businesses to exchange information and points of view.

The Commission took action to ensure efficient implementation in five main areas:

= Preparing and adopting the relevant legal framework, in particular implementing regulations to ensure coherent and consistent application of the new legislation;

= Providing for common understanding on the application of the new place-of-supply rules and on related obligations (MOSS);

= Ensuring the IT implementation of the MOSS;

= Clarifying the audit approach in the framework of the MOSS;

= Informing and raising awareness among stakeholders: for this the commission organised seminars and conferences for taxpayers inside and outside of the EU.

The Commission will continue to monitor states' progress in implementing the mini-One Stop Shop, which should constitute a major step towards the simpler and more effective functioning of the Single Market. From October 2014, a web-portal will be available to allow taxpayers to check VAT rules in all EU member states e.g. to know the various rates etc.

Obligations for the member states and business

Member states have to transpose the new VAT Directive into national law. They have also set up the technical infrastructure and web portals that will enable their operators to comply and facilitate exchange of information with other EU states. They have also informed taxpayers of the changes to come.

Businesses should get acquainted with the new rules and update their accounting system to ensure that all transactions are reported in the country where they should be. This is why the Commission published very detailed guidelines on the mini-One Stop Shop in 2013, and detailed explanatory notes in 2014. It is also taking part in communication events to explain the changes coming up and ensure businesses are aware and prepared.

Ensuring compliance

To reach their customers, businesses need to be visible online. If they are visible to customers in a country, they will also be visible to the tax administration of this country. On this basis, amongst other available tools, tax administrations will already have a good idea of which businesses to audit.

The Commission has worked with the states to develop audit guidelines in order to ensure each plays their role in identifying where VAT is due. In addition EU legislation already provides for an extensive cooperation between tax administrations to assess and collect VAT.

Rise in prices for the mentioned services

Commission declared that the change for consumers, if any, will be marginal. The basic price of the product remains the same, and then the VAT (calculated as a percentage of the basic price) may go up or down depending on where the consumer has been previously buying these services. For example, if up to now, a consumer has bought his/her software from a provider located in a EU state with a lower VAT rate than his/her own, then the will experience a small price difference (a few cents/percentage points).

Conversely, if the VAT rate is lower where the consumer lives than where the supplier is based, there will be a small drop in the overall price. However, these are considered to be short-term effects. It is expected, in the longer term, that the new rules will increase the efficiency of the market and increase the number of suppliers and competition in general. This, in turn, should drive prices down.

This means that taxation at the place of consumption is only logical for a consumption tax such as VAT. Certain EU states with a low VAT rate may see their market share reduced as the advantage for companies to relocate to their territories for tax reasons is removed. However, a very long preparation period between the adoption of the Directive and its implementation has allowed any Member State in this position to prepare and adapt to the change. Moreover, there is a transitional period until end of 2019 during which the countries of establishment (i.e. where the supplier is based) will keep part of the revenue.

One Stop Shop extended to all e-commerce supplies (incl. distance sales)

It was the initial proposal of the Commission in 2004; the Commission is strongly in favour of a One Stop Shop, in particular for the distance sales of goods. The high level expert group on taxation of the digital economy made the same recommendation in its report of May 2013 (see IP/14/604). However not all EU states accepted such a wide scope from the start. The application of a mini One Stop Shop may be an opportunity for states to experience the benefits of such a system, and may open the way for the wider application in the future. See also IP/14/758.   

The six month countdown has begun to a major change in the EU VAT system, which will ease life for many businesses and ensure fairer revenue distribution between the states. From 1 January 2015, VAT on all telecommunications, broadcasting and electronic services will be due where the customer is based, rather than where the supplier is located. This changeover will ensure a more level playing field for businesses, and fairer taxation rights amongst Member States. In parallel, a mini One Stop Shop will be launched, greatly reducing costs and administrative burdens for businesses concerned. With the mini One Stop Shop, businesses supplying e-services to customers in more than one EU country will be able to declare and pay all their VAT in their own state.

This is consistent with the Commission's goal of reducing tax obstacles and burdens for cross-border companies in the Single Market. The Commission has invested greatly over the past few years to ensure that national tax authorities and businesses are well-prepared and equipped to ensure a smooth transition to the new system next year. This work continues, along with an intensive information campaign, to ensure that both the states and companies can reap the full benefits of these important changes.

Algirdas Šemeta, EU Tax Commissioner, said: "We want fair taxation that facilitates business and delivers healthy revenues to national budgets: the change in the VAT rules from 2015 delivers on all fronts. Businesses will enjoy a simplified system and more level-playing field, which should encourage cross border expansion, particularly for start ups and SMEs. Member States will have more equitable taxing rights, creating fairer tax competition within the EU."

Source: European Commission - MEMO/14/448 “Questions & Answers: VAT changes from 2015”, 1 July 2014. In: http://europa.eu/rapid/press-release_MEMO-14-448_en.htm?locale=en.  

Place of taxation

Under current rules for e-services within the EU, VAT is due where the supplier is based, and at the rate set by that member state. With the standard rate of VAT varying from 15% to 27% across the EU, businesses frequently establish in a member state with a low standard rate, which then applies for the e-services they supply to all private customers throughout Europe.

The change in VAT rules from January 2015 will mean an end to this, as VAT will be charged at the rate of the customers' country. This will apply whether it is an EU or non-EU business doing the sale. So a customer living in Copenhagen will be charged the Danish VAT rate, regardless of whether the supplier is from Denmark, Luxembourg or the USA.

This change will bring important benefits. First, it will ensure fairer competition between domestic and non-domestic businesses selling the same services. Second, it will create a more level playing field for SMEs and other companies that cannot relocate to a lower-tax EU state and who, up to now, may have lost out to more mobile competitors. Finally, it will ensure fairer distribution of tax revenues between EU states, as they will receive the tax on the services consumed by their own residents.

Mini One Stop Shop

The mini One Stop Shop will greatly simplify the VAT obligations for companies as they comply with the new rules. Instead of having to declare and pay VAT to each individual Member State where their customers are based, businesses will be able to make a single declaration and payment in their own Member State. Suppliers will use a web portal in their Member State of establishment to account for the VAT due on sales in other Member States (see IP/13/1004). The tax authority in the business' Member State will be responsible for forwarding this information and revenue accordingly. Thus, businesses will have to deal with just one administration (with which they are familiar) rather than up to 28 different ones. Such a system has been in place since 2003 for non-EU e-service suppliers selling to EU consumers, and has been very effective in simplifying their VAT obligations.

Useful links:

= See MEMO/14/448;  

= More details on the 2015 VAT change and the mini-One Stop Shop can be found on DG TAXUD website:

Telecommunications, broadcasting & electronic services - European commission; this website with be completed by October 2014 with all relevant detailed information on EU and national rules;

= Homepage of Commissioner Algirdas Šemeta, EU Taxation and Customs Union, Audit and Anti-fraud Commissioner at http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm;

= Main reference: Taxation: Countdown to simpler and fairer VAT system; European Commission - IP/14/758; 1 July 2014 at :

http://europa.eu/rapid/press-release_IP-14-758_en.htm?locale=en