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VAT MOSS: EU to review B2C digital services rules

15 April 2015

Joe Stanley-Smith

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The European Commission (EC) will review its 2015 changes to VAT paid on business-to-consumer (B2C) supplies of digital services, which were implemented on January 1 2015. MOSS critics say delaying the review process could leave the digital single market “dead in the water”.

The changes have caused a backlash from small and microbusinesses across the EU, which face disproportionately high costs to comply with the legislation.

"The difficulties of compliance in terms of actually locating your customers in the online environment vary from the massively complicated and expensive to the frankly impossible," said Juliet McKenna of the EU VAT Action campaign.

"When we were in Brussels we were making the case for the impact on small digital businesses, and when you actually lay out the facts and figures for people they get it immediately."

An evaluation of the system is scheduled for mid-May, just after the data for the first quarter usage of the mini one-stop shop (MOSS), the system used to collect VAT from traders selling to several European countries, are received.

In the meantime, meetings are taking place to prepare a review of the system, particularly its effect on microbusinesses.

"In terms of a review, and revision of these legislations, the big concern is the timescale being quoted," said McKenna. "The timescale being quoted is anything up to 18 months."

"At various meetings, at various roundtable discussions, heads were nodding around tables," she continued. "Turning that understanding into concrete proposals and concrete action is absolutely going to be a challenge for legislators here and in Brussels, but if they don’t want to see the digital economy dead in the water then they absolutely have to take some initiative."

Donato Raponi, head of the VAT unit at the European Commission has previously expressed his regret that a threshold was not agreed upon when the regulations were agreed upon, in 2008.

However, for a threshold to be implemented, all 28 member states would have to agree on it.

"The majority of complaints we receive are about individuals supplying very few services," said Raponi. "It should be a very low threshold. If not, we have no chance [for it] to be agreed by the member states."

Deloitte has been commissioned by the EU to carry out a review on some aspects of the legislation, with data gathering at the end of the second and sixth quarter being mooted as a possibility.

While McKenna and the EU VAT Action team are keen to see quick, decisive action to stop halt the damage being done to microbusinesses supplying e-services, she recognises that a thorough and meaningful review cannot be done overnight.

"A rough solution could end up being no solution," she said. "However, the more delay, the more damage is done, so what we need now and need quickly is to mitigate the damage being done in the immediate term – ideally a suspension of these regulations until they can be thoroughly reviewed and revised."

"If no concrete proposals on revision can happen until 2016/2017, the digital single market’s going to be dead in the water," she continued. "Between now and then, businesses will be shutting up shop on a month-by-month basis, as we’re already seeing."

While the UK revenue authority, HMRC, has been advising microbusinesses to register for the MOSS, it has recognised that it is often very difficult to determine the customer’s country and is unlikely to prosecute sole traders who are making an effort to comply.

Other countries have taken a different view, leaving microbusinesses out of the equation due to the disproportionate cost of compliance enforcement activity.

Dermot Donegan, head of VAT policy at the Irish Revenue, said: "One issue then is your microbusinesses, doing incredibly small business. What we’ve done is we’ve said to these people no, you don’t have to register for MOSS."

"We’re talking about €100, €200 – there are four or five cases where people have come to us and we’ve told them no, you don’t have to register for MOSS, because the cost of administration is totally disproportionate."

"The compliance activities that member states would have to engage in would be ridiculous.

We would be very much in favour of having some kind of minimum pan-European limit – but not as high as some of the interest groups in the UK are looking for, of £50,000 and £100,000.

"In Ireland we’d be very happy with a much, much lower figure. The businesses coming to us, we’re talking about €100, €200 turnover from European sales," said Donegan, who was part of the Irish delegation which held the EU presidency when the implementing regulation for the VAT changes was passed.

McKenna, aside from her work for the EU VAT Action campaign, works as a fantasy author, and has seen an impact on her business as part of the changes.

"My choice is to spend money on developing a compliant website, which the returns from the direct European-only sales simply would not justify. If I spent that money I simply could not spend that money on things like copy editing and cover art – things that I actually need to expand my business."

The campaign has already achieved some success – initially, registering for the MOSS meant that UK businesses would be liable for UK VAT, even if their turnover was under the VAT threshold – a position which has now been reversed.

International Correspondents