Guest blog: Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs

Source: A. (Andrus) Ansip i, published on Wednesday, November 30 2016.

Europe's complex VAT rules are a major barrier that businesses face when trading online, and a headache for traders who want to sell goods and services across borders.

In the strategy to build a Digital Single Market, we promised to tackle the obstacles holding back the growth of e-commerce.

After dealing with problems related to parcel delivery, digital contract law and geo-blocking, today we address the last piece in the puzzle - with a series of proposals to improve the VAT environment for e-commerce businesses in the EU.

The VAT rules that apply in Europe today were created before the boom of the internet and online sales. Our proposals will make them more appropriate for the digital age. They will allow consumers and companies, in particular startups and SMEs, to buy and sell goods and services more easily online.

I would like to welcome this guest blog by my fellow Commissioner Pierre Moscovici, responsible for Economic and Financial Affairs, Taxation and Customs, to explain our VAT proposals in more detail.

Welcome now to @pierremoscovici on #Ansipblogs:

VAT on e-commerce: the Commission delivers

By Pierre Moscovici

As promised, the Commission today presented a proposal to renew the EU's legislation on value-added tax (VAT). The existing rules, drawn up between 1977 and 1993, are outdated. That was the pre-internet era, when distance selling was about leafing through mail-order catalogues. And even when the rules were reviewed in 2008, e-commerce did not yet occupy the place in our lives and our economies that it does today.

An example of what's needed to modernise our rules? Member States currently cannot apply the same reduced VAT rate to e-books and online newspapers as they do to their print equivalents. There is no justification for this difference in 2016: a book is a book, a newspaper a newspaper, irrespective of their medium. This is one of the obstacles to the development of a digital economy which the Commission committed to remove this spring, as part of its Digital Single Market strategy and VAT Action Plan.

But we are doing more than give a facelift to our existing legislation. Our proposal aims to boost e-commerce, whose potential to fuel employment and growth is still not sufficiently tapped. After all, we still sometimes learn from a message on our screens that: “This product is not available in your country”. This happens because a European company wishing to sell goods in other EU countries must register with the tax authorities in every one of them. It must carry out complex and time-consuming administrative procedures, often in a foreign language. Such procedures give rise to additional costs that often discourage businesses, especially the smallest ones, to expand their activity across borders.

To address this problem, the Commission is proposing to extend the "one-stop shop", which already exists for electronic services, to online sales of goods. Companies will only have to register on an online portal, hosted by their tax administration, and in their own language. The applicable VAT rate will be automatically calculated and the sum transferred to the country of the recipient. Businesses will have easier access to the single market and will be freed of the administrative constraints that hamper their competitiveness.

Today's proposal also includes measures to encourage the activity of small businesses and startups seeking access to the single market. Below a threshold of €10,000, sales will be considered as domestic and will be subject to the VAT rate of the country of origin, without having to deal with any other special procedure. This should make it as easy to sell on the European market as on the domestic market. This is a considerable gain for SMEs and micro-businesses which will be able to multiply their development prospects by 28!

Our proposal also puts an end to an anomaly which has created unfair competition between European and non-European companies. Non-European companies that sell their products online into the EU are currently exempt from VAT on small consignments when their value does not exceed €22. But this is not the case for European companies, which have to pay VAT from the very first cent. This exception is not justified. As a result, certain non-European companies consistently under-declare the value of the goods they sell into Europe. This is particularly true for non-EU smartphones and tablets. This situation is no longer tenable, which is why we propose that all consignments entering Europe be subject to VAT at the rate of the country of destination. It's a matter of creating a level playing field for European businesses to compete with their Asian or American rivals.

This proposal is good news for Europeans, who will be able to buy products from merchants in other EU countries more easily.

It is good news for EU governments, because by extending VAT to all parcels without exception and by limiting fraud, they will see their VAT revenues boosted by an estimated five to seven billion euros by 2020. That means additional resources for investment or improving public services.

And it is good news for EU businesses, irrespective of their size, because they will be able to sell their products online across Europe at lower costs and with less red tape.

To be clear, we are not proposing an extension of VAT to more products to increase the level of taxation. VAT rates will not change. What we are doing is removing some of the obstacles which still exist due to the absence of an EU common VAT area.

And we won't stop here. Next year, the Commission will propose a more comprehensive reform of VAT, to further simplify the lives of EU citizens and businesses.

Watch this space.