VAT MOSS campaigners keep calm and carry on
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I focus on UK and EU policy and legislation, and the ways they impact the digital economy. Outside AccountingWeb I am a digital law specialist for the web design and development professions.
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Genuine question. After the UK leaves the EU, what can the EU actually do to a UK business that fails to comply with VAT MOSS?
At this point we simply do not know yet.
Anecdotally, I have spoken with non-EU businesses which began to look into their compliance obligations, and some even began the process, but then gave up when they realised that a) the compliance requirements were technically impossible and/or b) their compliance costs would be ridiculously disproportionate to the tax revenues raised based on their previous sales trends within the EU.
The issue of future non-EU enforcement is another reason why a threshold makes sense. Without it, tax authorities will feel obliged to spend their time chasing up pocket change payments from microbusinesses - anecdotally often less than €2o per quarter - rather than going after the tax evading multinationals this regulation was designed to address.
Unless there is some sort of miracle it looks as though the UK MOSS will have to end when we cease to be members of the EU as that is express a Union Scheme and does not extend, for example to Norway, even though they are within the EEA. UK traders affected by this (and in the long run the EU wants to extend the principle to ALL supplies of ALL goods as well as services, whether e-services or other) would then have to either register in each of the 27 member states in which they have customers or join a Non-Union MOSS as traders outside the EU have to at present. The most suitable would probably be the Irish Non-Union MOSS as you could continue to liaise in English. However as HMRC have been the most pro-active so far, and have stepped in to help e-service traders with threatening letters, interestingly from Ireland and Germany, the thought of then having to return through another country's Non-union MOSS is daunting to say the least. If anyone providing e-services voted 'leave' they have only themselves to blame...
Thanks Paul. There did seem to be a campaign of misinformation, particularly on Twitter, around EU VAT. Rants about 'leaving the EU and their barmy VAT MOSS scheme' were fairly common. I did my best to point people in the direction of our coverage and the excellent blog from Claire Josa on the subject (http://www.dancinginyoursoulshoes.com/will-happen-eu-digital-vat-leave-e...) but it was drop in the ocean stuff to be honest.
But as per my point earlier, if a small supplier of e-services in a post-Brexit UK, or indeed in the United States, Australia or Russia fails to apply MOSS on sales to EU customers, what realistically can the EU and its member countries do other than send "threatening letters"?
And threatening what exactly?
At this point we should consider non-EU British compliance, and non-EU rest-of-world compliance, the same issue. They will not be addressed separately. The issue of non-EU compliance on a whole is one which is yet to be dealt with, and is being looked at as part of the Digital Single Market strategy.
Last month the EU quietly released the results of its consultation into MOSS, which closed in December. (My last AccountingWeb piece examined the findings.) One interesting submission came from the Belgium-based International Vat Association, which was very vocal about noncompliance. They said "We clearly need a greater degree of harmonization of a number of compliance rules before expanding the MOSS, otherwise many companies may not (be able to) comply." In other words, they want noncompliance enforcement before thresholds. They also said that "Member states must intensify the fight against non-compliance, through mutual cooperation and with the direct involvement of business." For what it's worth, they began their response with "We would like very much to congratulate the Commission on the success of this project, lessons were learnt from the implementation of the VAT Refund Directive (Directive 2008/9/EC) and the MOSS worked from Day 1," which is a bit like saying the carpets on the Titanic looked great.
In another consultation response, an affected trader suggested "Thresholds assist small and medium enterprises by minimising compliance obligations." In other words, thresholds should come before noncompliance enforcement.
I put more weight on the practical experience of that trader.
Thanks Heather. Very interesting.
Astonishing that some in the EU think that the current system of VAT on e-services works or indeed is even workable. I assume the original intention was to tax the likes of Amazon, rather than inconvencing tens of thousands of small traders across the EU. I don't know what is so hard for the EU in putting up the turnover threshold to, say, €10,000,000 i.e. the size of business that can deal with the compliance nightmare.
Meanwhile in a post-Brexit UK there will increasingly be boxes to tick on websites that say "I confirm I am not an EU citizen". Angry letters will arrive at UK e-stores in German and other languages saying something unknown and will be filed in an appropriate location.
The current state of play is that the proposed threshold is going to be discussed later in the year (I heard December). The issue is cultural differences. Some countries (Denmark, Belgium, etc) feel very strongly that anyone in business, even the smallest microtrader, has a moral obligation to contribute into the system from day one. Other countries take a more pragmatic approach, using a common-sense threshold for the benefit of both small traders and tax authorities themselves. The result is that Italy wants the proposed MOSS threshold as low as €5,000, while the UK wants it as high as €100,000. There is horse trading ahead.
You are correct in your assumption - the legislation was meant to go after wealthy multinationals engaging in complex tax structures. The presumption was that everyday traders would not be affected as we all obviously sell through third-party platforms like Amazon and the Apple store. (I type this while wearing a conference t-shirt from a major open source shopping cart provider!) The EU VAT Action campaign's work in getting the powers that be to understand what a microbusiness is, much less how they work digitally and financially, on an international level, has been amazing.
One more belated thought is that approximately 20% of all European MOSS revenues come from the UK, as Tom noted earlier this year at https://www.accountingweb.co.uk/tax/business-tax/vat-moss-traders-questi...
Updated figures...
... from HMRC:
"The UK currently has over 2,760 registrations and the total number of registrations across the EU (including the UK) is nearly 13,500."
So just over 20% from the UK.
That may have a bearing on post-Brexit enforcement.