What next for VAT MOSS?
Representatives from all EU finance ministries were at the Fiscalis conference in Dublin last week to discuss the implementation of the new EU VAT rules, and how they have been working since their introduction in January 2015.
As demonstrated by a recent AccountingWEB article, the new rules have proved controversial in some quarters, particularly for those running small businesses in the UK.
So as the dust settles on the Irish conference floor, do finance ministries still rate the new tax rules, or is it likely to be vamos for VAT MOSS?
One of the key takeaways from the consultation was a general agreement that there should be a threshold to exempt smaller businesses from the rules. The commission stated that it intends to propose legislation for a threshold beneath which companies will be VAT exempt, but did not confirm a figure.
There was also a general agreement that above this threshold there should be what many are calling a ‘soft landing’: A simplified version of the rule for businesses that does not create a financial cliff for those who hit the threshold.
While the Financial Times declared the exemption threshold statement as a partial victory for small businesses Clare Josa, co-founder of EU VAT Action, a campaign group who presented a number of arguments and amendments to the conference, remains cautious.
“We made great progress with the member state tax authorities, helping them understand the true nature of the issues. There were some ministries who still didn’t believe there was a problem, but pennies are slowly starting to drop, particularly as they are realising that businesses closing rather than continuing to trade under the new rules will hit their own tax revenue.
“However, all the agreements were general and not unanimous, which laws on this issue have to be. Also, the proposed legislation could take two to five years to come in. We need to do something now, because if we wait two to five years then the digital single market will be dead.”
VAT specialist and AccountingWEB contributor Les Howard stated that: “a modest threshold is to be welcomed just on a practical basis. The situation is already complicated by the fact that different EU member states have different registration thresholds, so you still have the problem of someone who’s not liable to be registered for VAT but is liable to be registered for VAT MOSS. It also protects microbusiness where the impact of VAT MOSS is prohibitively expensive.”
However, Howard also defended the new rules, reiterating his comments from earlier this year: “You have to ask – ‘what am I comparing that to?’ A lot are comparing it to not being registered for VAT. I was comparing it to a liability to register for VAT in half a dozen member states because that was the alternative to MOSS before 1 January. MOSS is a simplification not a complication”
Speaking after the Fiscalis conference John McCarthy, chief executive of Irish tax solutions firm Taxamo said: “The current issues around VAT MOSS centre on a lack of awareness of the new rules and for some, the perceived difficulty in complying with these rules. With regard to awareness, governments need to do more to ensure that their digital merchants know about these rules and are not caught out by an unexpected tax liability down the line.
To make life easier for merchants who wish to comply, the EU needs to address issues that make things hard for merchants, like having an official EU wide VAT rate API and the reliability of services such as VIES.”
Another takeaway from the conference as reported in BusinessZone was that 95% of complaints about VAT MOSS have come from the UK. Responding to these findings EU VAT Action’s Clare Josa said: “The UK also has an extremely healthy, thriving micro-business sector because the barriers to entry for are very low compared to other member states, so it is hitting the UK harder because of the nature of our business sector.
We also had HMRC putting a huge amount of effort on publicity, plus we have a well-organised volunteer campaign group and we’ve been getting people to write to people, so all of the above is a factor.”
Les Howard added: “HMRC had to correct some of their initial publicity – more than once – as well as introducing one or two concessionary aspects to the scheme, so clearly the process they followed was not really very professional and it meant that small businesses were left scratching their heads. It’s complicated stuff anyway and if the material is wrong what are they supposed to do?
“Right up to the deadline stuff wasn’t there and you couldn’t register online, so there was a whole set of practical issues that went wrong and frankly it’s an HMRC competence question. For these smaller organisations it creates a headache, and it’s a bigger headache the smaller the organisation.”