Since 1 January 2015, EU and non-EU businesses have been able to report their pan-EU sales of digital services to consumers via a single Mini One-Stop-Shop return. This may be filed in the country of establishment, or country of identification for third-country resident businesses.
The 2015 change in rules on which country’s VAT rate to charge on the sale across the EU of streaming music, videos, films games, apps, e-books has drawn thousands of UK ‘micro’ digital services business into the EU VAT net for the first time.
2015 EU e-services threshold
Earlier this month, the European Commission agreed to revisit the impact and potential simplifications of the new measures. However, it is already becoming apparent that several EU member states may block any simplifications, including a digital VAT registration threshold.
This will add further disappointment to the new regime, which has seen less than 10,000 e-services VAT MOSS registrations across the EU since its inception. This compares to expectations of many hundreds of thousands.
The changes (see below) have imposed the obligation for ‘micro’ businesses to VAT register for the first time to report sales and VAT charged to consumers in other EU member states. This has hit countries with the highest domestic VAT thresholds, in particular the UK VAT registration threshold of £82,000 has seen the main problems with small businesses failing to comply, or stopping sales to customers in other EU member states.
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Campaigners in the UK and other countries succeeded in forcing the EC to undertake the review of the new burdens, on the basis that it has the potential to undermine the EU’s wider growth ambitions for the digital economy.
Any likely compromise will be based around a VAT registration threshold for cross-border EU sales for small businesses. This could follow the successful distance selling VAT thresholds on e-commerce goods.
However, a number of member states have already raised objections to this proposal, including:
- A threshold would take out of the VAT net already taxed sales domestically in countries that have a low registration threshold – including Germany, Italy and France
- Such a threshold would have to be extended to non-EU providers to ensure it was not anti-competitive. This threshold would be very challenging and expensive to police outside of the EU.
- A threshold may encourage the practice of splitting revenue between shell or closely related providers to remain under the threshold.
From 1 January 2015, the rules on which VAT rate to apply on sales of e-services to consumers changed. Providers of these services are now required to charge and collect VAT at the rate of their consumers. This requires them to track where the consumption of the service took place, which is typically where the consumer is based. Previously, providers could simply charge their own domestic VAT rate.
So that this change in the ‘place of supply’ rules did not require provider to register for VAT in every country, and new digital reporting portal, Mini One Stop Shop (MOSS), was introduced. The allows providers to file just one return each quarter in their home country with a report of VAT collected in any of the other 28 countries.
Tax Engine and VAT reporting for e-commerce
VAT Calc’s tax engine, ‘VAT Calculator’, has been developed with the EU’s VAT e-commerce package and VAT in the Digital Age reforms in full focus, including Continuous Transactions Controls Continuous Transaction Controls (CTC) agility to live calculate and report invoice data.