Countdown to simpler and fairer VAT system
2 Jul 2014 03:36 PM
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 Member 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 Member
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 Member 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 next
year 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 our
Union."
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 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 Member State
and who, up to now, may have lost out to more mobile competitors. Finally, it
will ensure fairer distribution of tax revenues between Member 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.
Background
Member States agreed on these 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.
In a report adopted on 26 June 2014, the Commission concludes that everything
is in place to ensure the efficient application of the new rule on the place of
telecommunications, broadcasting and electronic services to non-taxable persons
from 1 January 2015.
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 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: http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm
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Follow Commissioner Šemeta on Twitter: @ASemetaEU