Taxation: Countdown to simpler and fairer VAT system

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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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