The MOSS is designed to help businesses easily register for VAT in all 28 member states, as necessitated by January 1’s changes to place of supply rules for digital services, and low registration figures have been blamed on a lack of awareness of the changes.
“Whilst clearly we’re only just coming into month three of the whole regime, you would expect a big burst of registrations to have happened in January because that’s when all the publicity and the coverage in the newspapers was,” said Richard Asquith, VP global tax at Avalara.
The figures include the majority of large multinationals, including Amazon and iTunes, pointing to a lower uptake of the system by small and medium enterprises (SMEs).
Despite conceding that the figures were lower than expected, Donato Raponi, head of the VAT unit at the European Commission, emphasised that registrations are still coming in. Since the figures were first published on February 16, around 400 more businesses have registered for MOSS, he confirmed.
“We don’t have any comparison, so I don’t know if it’s disappointing. We don’t know exactly how many registrations there should be.” he told ITR. “We have to wait for the exchange of the VAT collected. In May we will have figures concerning the VAT collected by the member states.”
May’s figures will show the amount of VAT collected in each member state. Under the pre-2015 system, VAT was collected from the country of the supplier, meaning that many large companies operated out of low-tax jurisdictions such as Luxembourg to reduce their bills.
“Without a doubt because of reputational risk and just because they’re on everyone’s radar, none of them [larger companies] will have missed out,” said Asquith. “So the return on revenues will have been taken care of.”
“After that, it’s just a matter of trying to track down or raise awareness of the SME market, which is obviously a lot harder,” he added.
Now that VAT is due to the country of the supplier, VAT revenues from the largest companies can be expected to be higher. A lack of awareness among medium, small and micro businesses means many sellers will continue to operate under the old system.
“We know that the main companies will collect 80% of the VAT, and we always said we will not collect 100%, clearly,” said Raponi. “I am quite sure that very small businesses will not be registered, will be non-compliant. This is a risk.”
He was did not think non-compliance by very small businesses was a huge problem, however, explaining that the intention of the plans had been to have a threshold for small businesses, under which they would use their domestic VAT system.
Microbusinesses and sole traders have been affected by the changes due to increased compliance costs, a higher administrative burden and, in countries where there is a domestic VAT threshold which they fall under, having to pay tax on their sales for the first time.
“We proposed - if you saw the original proposal of the commission - we proposed the threshold. But the threshold has not been accepted by the member states,” he said.
“In the past we proposed a very high threshold. Now I think in the future we will propose a low threshold – €5,000 to €10,000 – just to exclude microbusinesses.”
A registration threshold would benefit businesses in countries which have domestic thresholds, but not those in countries which do not.
VAT thresholds are generally decreasing, or being scrapped altogether, across Europe. Malta is the most recent country to get rid of its threshold, while Switzerland has become tougher on foreign businesses, effectively ending its threshold for non-residents.
“VAT registration thresholds… are going up a little bit in some countries but there are quite a few countries that are bringing them down because they’re afraid of VAT fraud,” said Asquith.
“[Having an EU threshold] would open up questions domestically for them [other member states] as to why they don’t have a threshold as high as the UK. I just don’t see the other 27, maybe 26 if you exclude Ireland, being very sympathetic.”
Romania is the only EU country with derogation from the VAT directive, and applies an exemption threshold of at €65,000 ($72,400).
Why are the figures so low?
The country with the most MOSS registrations is the UK, followed by Germany, the Netherlands and Sweden. These countries are key suppliers of digital services, along with Ireland, where many US businesses base their European operations.
Asquith said there did not seem to be as much detail and information publicised in certain jurisdictions.
"I know people in Spain, for example, saying they couldn’t find anything, any details,” he said.
This goes some way to explaining the low usage of MOSS in Ireland, Raponi did not mention as one of the top countries for MOSS registrations.
Another reason for the low number of registrations is that many telecommunications, broadcasting and e-services carried out by SMEs will only be done in one language. Therefore, there will be few transactions made to customers outside of the countries which are the only place languages are spoken. For example, there would be very few sales of Bulgarian language e-books or apps outside of Bulgaria.
“A lot of the services [affected] are English-language based, so there’s not that much cross-border anyway,” said Asquith. “I think when you see figures - not in relation necessarily to MOSS or digital services - of app developers, I think it’s the UK, and then it’s Ireland, then Germany, then the Scandinavian countries and then it drops off.”
Off-the-record conversations with tax authorities in Europe have revealed that they are looking to target businesses which are not aware of the changes within the EU first, before going after non-compliant businesses outside of the EU.
Asquith, however, finds this mooted approach curious. “I would target outside the EU just because of the profile of the type of companies from outside of the EU,” he said. “Particularly in the US it is quite easy, and [companies] are very, very visible and often these organisations position themselves in the Caymans for obvious tax reasons.”
“Dating websites, they’re very common, and a lot of them seem to be skirting compliance with the view that the tax authorities aren’t looking, so won’t ask.”
ECJ ruling on e-books
An important European Court of Justice (ECJ) ruling due tomorrow [March 5] will impact the revenues of the new VAT system.
“I’m expecting that the court will say Luxembourg and France are not respecting EU rules, meaning that Luxembourg and France will have to apply the standard rate,” said Raponi.
“The distortion is mainly because of two or three member states applying the reduced rate, which is not allowed by the EU legislation.”
