Forthcoming EU VAT changes
Although the UK has left the EU, we are currently in a transition period in relation to EU VAT, and Customs, regulations. At the time of writing this transitional period is expected to end on 31 December 2020. Thereafter the UK will not be bound by EU VAT law. However, we live in a global society and many UK businesses have activities in and around the EU and so will need to keep abreast of some very important changes to the EU VAT changes; a move from a taxation system based on where the supplier is to a destination-based system.
This article sets out the current EU plans:
July 2021 – EU VAT e-commerce package
Originally intended to start from 1 January 2021 but delayed to 1 July 2021 in response to the COVID-19 pandemic, this package introduces a new One-Stop-Shop (OSS) for the supply of goods into and around the EU. This change removes the low-value consignment relief for imports into the EU and the varying distance selling thresholds for intra-EU movements:
- For non-EU suppliers – which will, of course, include UK suppliers – there will be a requirement for sellers to charge VAT at the point of sale for consignments of €150 or below. This will be based on the VAT position in the customers’ member state with the VAT reported on a single OSS declaration. There will be a requirement to register in one EU member state in which to file the OSS declarations and there may be a need to appoint a tax representative. Any consignments of goods in excess of €150 will be subject to the normal rules, where it will be important to establish the incoterms and who is responsible for the import into the EU. UK businesses importing into the EU will need to pay any import VAT (and any duties depending on how we leave the EU when the transition period ends). This may well result in the need for local VAT registrations, as currently.
- For EU suppliers – not UK businesses – there will no longer be a need to register for VAT in the customer’s member state, provided stock is not held there.
This is an extension to the original Mini-One-Stop-Shop (MOSS) for supplies of electronic services. These services will be reported on the new OSS declarations.
As part of this package, to counter an existing VAT evasion problem with certain suppliers, online Marketplaces may be treated for VAT purposes as buying and selling goods to the end customer, where the sale involves an import with a consignment value of up to €150, or a transaction of any value where the supplier is based outside the EU. This effectively means that EU marketplaces will have to collect and account for the VAT on sales by UK businesses to customers in the EU.
Where this applies, the supplier will sell the goods to the Marketplace on a B2B basis and the Marketplace will sell the goods on and charge VAT to the end consumer with the VAT processed through the OSS declaration.
EU Tax Package
Prompted by the COVID-19 pandemic, on 15 July 2020 the EU announced a new Tax Package which includes significant VAT measures. This package builds on the e-commerce package discussed above but also on previous packages including the VAT Administrative Cooperation package introduced on 1 January 2020.
This new Tax Package seeks to address the following issues:
- Complexity and administrative burden
- Tax abuse and harmful tax competition
- Gaps in tax transparency rules
- Unexploited potential of technology
The action plan covers a number of years and includes items previously announced.
The VAT and other indirect tax actions include:
|Recommendations for improving tax recovery in the EU||2020|
|Reform of the VAT Committee||2020|
|Evaluation of the VAT special scheme for travel agents (TOMS)||2020|
|Conference on data analytics and digital solutions||2021|
|Extension of automatic exchange of information to include cryptoassets / e-money||2021|
|Update and simplify VAT rules for financial services||2021|
|Implementation of Standing Committee for dispute resolution||2021|
|Package VAT for the digital age:
|Update the VAT special scheme for travel agents||2022|
|Review VAT rules on passenger transport||2022|
|VAT dispute prevention and resolution to provide mechanisms to prevent/solve disputes concerning the implementation of the VAT directive||2022|
|E-Commerce package for excise goods: facilitating distance selling of excise goods while minimising fraud and distortions of competition||2022|
|Reinforcement of verifications of cross-border transactions by switching from exchanging to sharing of tax-related data||2023|
|VAT administrative cooperation between the EU and relevant third countries||2023|
Further information will be available on the actions as and when carried out.
If you would like to discuss the topics explored in this article, please contact your usual Kreston Reeves contact or Colin Laidlaw.
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