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Lesser known requirements of VAT MOSS returns

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2nd Apr 2015
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The first VAT MOSS returns are due by 20 April. As such, chief executive of EU VAT rule compliance software Taxamo, John McCarthy, writes about five requirements of a VAT MOSS return you may not know about.

For many e-service businesses, the VAT Mini One-Stop Shop (MOSS) system is the first time that they will have to file a VAT return.

This need to register for VAT has many small businesses worried. They feel it adds unnecessary administration to their business models. For many this is true, but the reality is these rules are not going change in the next 20 days.

This timescale is crucial. Those who have registered with the MOSS system have 20 days from the end of each quarter to submit their VAT MOSS return to their Member State of Identification (MSI).

The MSI is the EU tax authority with which a merchant registers with for the purposes of declaring all of the VAT collected on their pan-EU supplies.

For those UK-based this will typically be HMRC. Non-EU merchants have the option to register with any EU tax authority.

The MSI receives the VATMOSS reports from all of its registered merchants and then distributes the relevant tax due to other EU tax authorities.

For example, if a UK-based merchant registered with HMRC also supplies consumers in France and Germany then HMRC will distribute the tax due to the French and German tax authorities from the information contained in the VAT MOSS report.

This is the straightforward part. There’s a report to be submitted and we know the deadline date - but what about the nitty-gritty?

Taxamo has been in constant communication with tax authorities across the EU ahead of the first VAT MOSS report deadline. Information businesses need to file as part of the VATMOSS return will be slightly different depending on what country you are filing in.

Here are five less well-known requirements of the VAT MOSS return:

1.  Rounding up, down, or somewhere in between

The VAT MOSS report needs to show how much VAT a business needs to remit to a particular EU tax authority. But how is this VAT calculated prior to the submission of the report? 

This varies depending on which EU tax jurisdiction the merchant has chosen as their MSI.

Different countries have different approaches to how a return should be calculated. This mainly relates to countries having different rounding policies and taking alternative approaches to what base transaction value one should take when calculating the amount of VAT owed.

From feedback we’ve gathered, EU tax authorities differ on the basis on which VAT returns are calculated and the rounding requirement of the VATMOSS return. For example, the UK requires rounding to the nearest even pence while Ireland requires rounding down from the half cent.

Let’s take a VAT amount of £/€0.975.

In the UK this is rounded to £0.98 while in Ireland it is rounded to €0.97.

This is a small but not insignificant difference and it is replicated throughout the EU. There are three options for rounding: Round up, round down, or round to the nearest even pence/cent.

2. True to form - differing file formats required

We have identified six acceptable file formats that vary from Member State to Member State:

  •  XML
  •  CSV
  • Excel
  • Libre Office
  • PDF
  • XBRL, a variant of .xml

There is no ‘standard’ VATMOSS return. Each EU tax authority requires specific information relevant to its own domestic VAT regulations.

HMRC, for example, requires their returns in Excel or Libre Office and does not yet support automatic upload; Ireland requires XML file returns, and Germany requires CSV file returns. In some EU Member States there is also the option to manually input the data via the tax authority’s website.

For more generic information check out the European Commission’s own guide here.

3. Nothing standard about VAT rates

The reasoning behind the new EU VAT rules on the supply of digital services is that the correct VAT rate be applied. This VAT rate must be the one where the service is deemed to be consumed.

Previously, the VAT on e-services was collected based on the supplier’s location. But certain EU Member States also apply ‘reduced’ rates on certain supplies.

This is an area of taxation that is changing rapidly, especially given a recent European Court of Justice ruling on the use of reduced rates by Luxembourg and France on e-books.

The ECJ ruled that the reduced rates on e-books were illegal. Luxembourg and France have since started the process of altering how they tax the supply of e-books.

4. A sea of currencies

The 2015 EU VAT Directive requires that the VAT MOSS return be in Euro (€), unless a merchant’s chosen VAT MOSS tax authority uses a different currency.

For example, if a business uses the UK VAT MOSS system then the return should be in Sterling (£).

For non-Euro returns, the exchange rate that must be used is the European Central Bank (ECB) rate applicable on the last day of the calendar quarter to which the return relates. For example, for Q1 returns it is the ECB exchange rate on Tuesday, 31 March.

In addition, it is this ECB exchange rate that must be applied where any future changes (refunds, correction of errors) are made to the original MOSS return. Changes can be made to a VAT MOSS return up to three years and 20 days after the end of the relevant quarter.

5. No sales this quarter - what then?

There is a requirement to complete a 'nil' return even if the merchant has no sales for a given quarter. The ‘nil’ return is required if the merchant has registered and wishes to remain part of the MOSS system.

No supplies in a given quarter will equal this ‘nil’ return. The merchant has to make this return so that their chosen MSI tax authority knows they are still intending to supply B2C digital services cross-border in the future.

If a merchant decides they want to leave the MOSS system then they must inform their MSI at least 15 days before the end of the calendar quarter before that in which it intends to cease using MOSS.

For example, if a merchant wants to leave the MOSS system from July 1 (end of Q2), it must inform its MSI before 15 June.

About the author

Taxamo's SaaS-based solution enables digital sellers to comply with global taxation laws. Taxamo’s real-time EU VAT product enables full compliance with VAT calculation, evidence collection, invoicing, EU MOSS returns and audit services.

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Replies (6)

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By Paul Soper
02nd Apr 2015 11:32

Item 4 is worrying

Thanks to Taxamo for sharing this information, they certainly have been doing a lot to draw the eservice community's attention to the problems of VATMOSS (VATMESS) whilst selling, naturally, their own solution.

The point above I find interesting is point 4 - John says "

For non-Euro returns, the exchange rate that must be used is the European Central Bank (ECB) rate applicable on the last day of the calendar quarter to which the return relates. For example, for Q1 returns it is the ECB exchange rate on Tuesday, 31 March.

In addition, it is this ECB exchange rate that must be applied where any future changes (refunds, correction of errors) are made to the original MOSS return. Changes can be made to a VAT MOSS return up to three years and 20 days after the end of the relevant quarter."

Is this suggesting that in a sterling MOSS return a sale in, say, January 2015 in Swedish Krona, logged by the traders accounting system using the rate of exchange into sterling at the date of the transaction, let's assume the date of payment is the same as the date of the supply, should be translated for the MOSS return using the exchange rates on March 31st?  The article specifically states for "A non-Euro return", what exchange rate should be used by a trader in France, a return in Euro of course, who has a transaction with a customer in Sweden who pays from a UK sterling bank account?

Nowhere in the UK material on VAT MOSS is there guidance on which exchange rate to use other than the revenue's Business Income Manual which points towards the exchange rate used for accounting purposes.  Of course HMRC does also approve an average monthly exchange rate for VAT purposes but this would again be different from an exchange rate fixed at 31 March etc.

A VAT MESS indeed!

Thanks (0)
By Taxamo
02nd Apr 2015 12:29

Thanks for the comment Paul, Sarah here from Taxamo.

As I have it to hand, here is the reference material for point 4 if it helps...we do this all day every day so its our job to know. But agree, its very difficult to be aware of every intricacy with the new legislation. 

-------------------------

Part two, section 13: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/one-stop-shop-guidelines_en.pdf  

In addition, section 26 here is the reply from HMRC to the IAECW (Institute of Chartered Accountants in England and Wales) Here it is:

 

 26. The Guide also indicates that the amount will be converted to Euro using the European Central Bank rate on the last day of the reporting period. Am I correct in assuming that this is only really relevant to HMRC (and only then if the VAT MOSS Return is denominated in Sterling)?
 This rule will apply to the UK (HMRC), but also to those other Member States who do not belong to the Euro zone for example Sweden, Denmark, Poland and the Czech Republic.  If you charge or invoice consumers in other member states in a currency other than pound sterling, and you record that price in your business accounts in that currency, you must convert the amount into sterling at the end of each calendar quarter using the conversion rate published by the European Central Bank on the last working day of that quarter.  However, if you automatically convert the foreign currency into sterling using an agreed daily or other periodic rate and you record these sterling amounts in your business accounts, you may use these figures to complete your quarterly VAT MOSS Return.

 

 

 

 

Thanks (2)
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By Paul Soper
02nd Apr 2015 12:33

Many thanks for the speedy reply!

Many thanks Sarah a very useful response which, if I may, I shall publicise more widely.

You may be aware that there are some groups organised through Facebook who have been doing some sterling work on this VAT MESS and this issue - appropriate exchange rates - has been raised already as people grapple with the task of the first MOSS returns.  They are -

https://www.facebook.com/groups/DigitalVAT2015/ - a discussion group from which was formed

https://www.facebook.com/groups/euvataction/ - a capaign group.

It is reassuring to see the last sentence allowing the accounting entries already made at actual rates to be used to file the return as well.

Thanks (1)
Head of woman
By Rebecca Cave
02nd Apr 2015 14:33

But what VAT should the trade show oin his invoice?

How does the VAT-MOSS guidance on using an exchange rate applicaable at the end of the quarter tally with this guidance in VAT notice 700 para 16.3:
When a UK VAT-registered business makes a sale the VAT invoice it issues must show the VAT due in sterling, irrespective of the currency used to express the value of the net amount of the sale.  Or does the guidance in VAT notice 700 only apply to VAT invoices issued to UK customers?

 

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Teignmouth
By Paul Scholes
03rd Apr 2015 12:20

Invoice details in Europe

It's come to my notice (see item 11 in this link) that, when rendering an invoice in say France, the total VAT charged must be split into the different rates applied (this being in addition to showing the VAT rate per item).

As far as I can see, apart from having to split out the invoice total per VAT rate on simplified invoices, the same VAT breakdown is not required in the UK, ie you just show VAT rate per item.

Seeing as most accounting systems I've seen only do the per item rate, is there going to be a problem here in getting all of them to start producing this extra breakdown?

Plus, per 1.4.4 on the above link, it also seems to be the case that, if you are invoicing in sterling, you must provide the VAT breakdown in Euros at an appropriate rate.

Please will someone tell me I have picked up the wrong end of a stick here!

Thanks (0)
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By Paul Soper
03rd Apr 2015 19:07

It's a question of where...

Under the new rules for e-services (and telecommunications and broadcasting) the supply takes place where the customer is normally resident - that in turn governs the rules that apply to the issuing of invoices.  So the normal rules that would apply to a UK invoice at para 16.3 only apply to suppliers in the 27 other member states when they make a supply to us, our traders have to be aware of the different rules governing the issue of invoices.  It is worth remembering that at present the rules only apply to B2C transactions, not all countries in the EU require a VAT invoice to be issued, but for those who do there are differences, and as Paul points out sometimes very great differences indeed.

This, to my mind, is yet another reason why very small online businesses should be exempted by the EU and given a reasonable de minimis limit - I am hearing reports of liabilities for the first quarter for some traders being as low as 20p!  The costs of accounting for that is just excessive for both the trader and the tax authorities.  I know of a non-EU trader with a liability of £3 where it will cost him £30 in exchange fees to remit that sum to the UK!

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