As businesses prepare to make their third VAT MOSS return on 20 October EU VAT Action has warned that the time it will take to implement any new regulations will effectively kill the European digital single market, and has proposed an ‘interim’ threshold to help smaller organisations through the transition.
Following a series of meetings with senior officials in Brussels the campaign group said the European Commission (EC) is supportive of a VAT threshold for its controversial cross-border digital sales tax.
The EC launched its new system to tax online business in January 2015 with the aim of combatting tax avoidance , but the scheme has come in for criticism for its complexity and cost of implementation, and also because the new rules did not include exemptions or thresholds for small business.
The regulations drew many small businesses into VAT payments for the first time, and some claim that the rules are so cumbersome that they have ceased selling digital services in other EU countries.
Speaking to AccountingWEB, EU VAT Action co-founder Clare Josa said that it was “brilliant news” that the commission is supportive of the threshold.
According to Josa the EC is also positive regarding the idea of a ‘soft landing’ – a threshold above the threshold where a simplified version of the rules applies, for example for the payment process a country code is proof of place of supply.
But despite this Josa warned that any potential changes will take time – time which many small businesses don’t have.
“The commission cannot work faster than the current legislative timetable permits”, said Josa, “they can’t propose the legislation till the end of next year. It could still take between two and five years to pass.”
The main reason behind this lengthy potential delay is that the rules are part of the EC’s overarching Digital Single Market legislation, which is itself tied in with many other bits of legislation, including whole removal of distance selling thresholds and small value consignment relief.
The fear of groups like EU VAT Action is that by the time any new legislation is passed many small or micro-businesses will have ceased trading.
“If we want to keep the digital sector trading between now and potentially five years’ time, we need the treasury secretaries, the finance ministers, in each member state at council to pass a temporary ‘interim threshold”, said Josa. “It really is the only option left.”
The group have proposed a threshold where for the first €20,000 of cross-border digital sales, countries avert their domestic VAT rules.
“There is a monthly meeting of all finance ministers [the next one is scheduled for November 13]”, said Josa, “and we need them to agree an interim threshold while legislation is passed to keep people trading.
EU VAT Action has also had reports of accountants advising their clients not to get involved with VAT MOSS and just stop selling internationally via ‘geoblocking’.
The EC recently launched a public consultation to examine ways of simplifying its controversial VAT payments rules on cross-border e-commerce transactions in the EU.
Josa welcomed this, and urged interested parties to complete the questionnaire: “We’re telling people ‘please fill this in, your voice will be heard’. This isn’t some paper exercise; this is being done by a team of people who are desperate to hear from ‘real world’ businesses.
There has been some negative feedback over the over-elaborate nature of the EC’s questions, but Josa advises “if the actual questions don’t make sense to you don’t answer them, just put everything in the comments box.”
The group are also encouraging people to write to their relevant authorities to ask for a threshold: “The more people we get writing to their treasury secretaries and chancellors saying ‘please ask for a threshold at one of the future meetings so my business or my clients can keep trading’ the better”, said Josa.