EU plans simpler system for VAT payment across union

The European Union has proposed new measures to simplify the way VAT is paid on goods sold online across the EU.

Under new proposals unveiled by EU economics commissioner Pierre Moscovici on Thursday, VAT on cross-border sales of up to €10,000 will be handled domestically, while eventually businesses will be able to file their cross-border VAT returns through one single portal. This will stop the current practice whereby businesses must register for VAT in each EU country where they do business.

The aim is to modernise VAT rules, which were devised in the pre-internet age, for the digital world and make it easier for companies to do business across borders. The new proposal will also bring VAT rates on ebooks into line with the rate charged for their print counterparts, abolishing an anomaly in the system which has seen a higher rate of VAT applied to epublications and epapers.

While the new proposal aims to cut red-tape for businesses, it also wants to tighten up the rules on online sales. According to the European Commission, €5 billion of VAT is lost each year in the EU due to non-compliance on cross-border online sales – revenue that should be going to member states.

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National exchequers

Announcing the proposals in Brussels, Mr Moscovici said the new system would cut costs for small businesses, and increase revenue for national exchequers.

Companies big and small that sell abroad online will now deal with VAT in the same way as they would for sales in their own countries, he said. “That means less time wasted, less red tape and fewer costs.”

The proposal must now pass to member states and the European Parliament for approval, a process that could take years, but it could result in companies filing one single set of VAT returns through a single online portal, rather than declare VAT on a quarterly basis in each member state.

VAT is one of the few areas of tax policy where the EU has competence, and the union has long tried to tackle the issue of cross-border VAT fraud.

Thursday’s proposals are part of a broader drive at EU level to create a digital single market across the European Union. The commission has already published proposals to stop the practice of “geo-blocking” , whereby consumers’ access to content is prohibited due to their location. Instead it wants to allow consumers the right to buy goods from wherever they live in the bloc.