The European Union’s approach to VAT and e-commerce

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No potential conflict of interest was reported by the authors.

Notes

1 OECD (2015), Addressing the Tax Challenges of the Digital Economy, Action 1 – 2015 Final Report, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264241046-en.

2 In 2014, the European Commission estimated that only 7% of SMEs within the EU engaged in cross-border trade. Jean-Claude Juncker, the EU Commission President, had calculated that by the creation of a Single Digital Market in the EU this could create up to €250 billion of additional growth in the EU: See European Commission, A Digital Single Market Strategy for Europe – Analysis and Evidence, SWD (2015) 100 Final.

3 The Commission states that: ‘There are in essence three reasons to act:

• First, the complexity of VAT obligations has consistently been identified as one of the key reasons why a business will not engage in cross-border e-commerce, and therefore it means that the single market cannot be accessed by many businesses.

• Second, the current system is not neutral as EU businesses are at a clear disadvantage to non-EU businesses which can legitimately and through high levels of non-compliance make VAT-free supplies into the EU. Given that VAT rates can be as high as 27%, there is a substantial distortion in favour of non-EU business if VAT is not applied.

• Third, the complexity of the existing system as well as the current exemption for the importation of small consignments means that Member States lose valuable tax revenues. It is estimated that between VAT foregone and non-compliance from cross-border e-commerce such losses are currently as high as EUR 5 billion annually.’

See European Commission, Modernising VAT for cross-border B2C e-commerce COM(2016) 757 final, p 2. See also https://ec.europa.eu/taxation_customs/business/vat/digital-single-market-modernising-vat-cross-border-ecommerce_en

4 Council Directive 2002/38/EC of 7 May 2002 amending and amending temporarily Directive 77/388/EEC as regards the value added tax arrangements applicable to radio and television broadcasting services and certain electronically supplied services.

5 Non-EU suppliers must choose one Member State which acts as the portal collecting VAT due in the other Member States depending on the location of the customers.

6 COM(2016) 755 final, COM(2016) 756 final, COM(2016) 757 final, COM(2016) 758 final – 1 December 2016.

7 https://ec.europa.eu/commission/priorities/digital-single-market_en.

8 European Council, Press Statement, Informal meeting of the 27 heads of state or government, 29 June 2016, http://www.consilium.europa.eu/en/meetings/european-council/2016/06/28-29/ (emphasis omitted).

9 As this threshold of €22 is an option, EU Member States can choose to apply this threshold to mail-order goods or not. With this new regime, amendments will be made to Directive 2009/132/EC to remove this exemption for low value goods. France does not currently apply this threshold of €22.

10 If the supplier is under the current distance selling thresholds, the goods will be taxed in the Member State of departure; if the supplier is above the threshold in the Member State of arrival, they will be taxed in that Member State – subject to Member States registration thresholds, which range from €0 to around €95,000.

11  Preamble to the revised Directive 2006/112/EC – COM(2016) 757 final (13): ‘Following the explosive growth of electronic commerce and the resulting increase in the number of small consignments of an intrinsic value not exceeding €150 imported in the Community, Member States should systematically permit the use of special arrangements for declaration and payment of import VAT. This arrangement can be applied where the special scheme for distance sales of goods imported from third territories or third countries is not used and where the final customer did not opt for the standard import procedure in order to avail himself of a potential reduced VAT rate.’

12 CJEU 5 March 2015, Case C-479/13 European Commission v French Republic and Case C-502/13 European Commission v. Grand Duchy of Luxembourg.

13 The CJEU has recently confirmed its previous jurisprudence in Case C-390/15.