Understanding Updated EU VAT Rules for Cross-Border E-Commerce

Gain insights into the VAT reforms, digital reporting, and economic impact on businesses, consumers, and governments.

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Introduction Of The EU VAT E-Commerce Package Assignment

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EU's VAT system was introduced for B-2-C e-commerce activities; the updated VAT was reformed on July 1, 2021. the entire supply chain is affected by the VAT rules, that includes the platforms and the marketplaces both inside and outside the EU, the major reason for the implemented changes in VAT is to overcome the challenges of cross-border sales in the online platform along with identifying the raising obstacles from the VAT regimes for the importation and distance sales of goods. Several major changes that took place in the change process along with factors related to transactions are also covered. The report is going to shed light on the underlying benefits of the VAT system in Europe along with a wide valuation and analysis of the VAT in digital age initiation along with the present situation of Import One Stop Shop (IOSS) that had been identified as a part of wide EU VAT e-commerce changes. 

Benefits of the VAT system in Europe

The introduction of the VAT system to the EU member forms comprises a set of several rates that helps to differentiate the services and the goods subject to this tax. However, from the point of view of management and technology, it is preferable to adopt a particular tax as it would be beneficial to reduce facilitated and distorted tax management and compliance (Catarino and Moraes Soares, 2019). This multi-stage tax of the productive process provides great benefits to the single market in Europe, which assures tax neutrality along with allowance to the exact amount of tax to be rebated during the exporting time. during the procedure of importing and exporting VAT plays a crucial role in allowing the certainty that the exports are transparently and completely tax-free (Customs.ec.Europa.eu, 2022). Additionally, the other added benefit is while online purchasing goods that are from outside or inside the EU, customers are known to the fact that the applied VAT rate for the same good acquired in their home country is accordingly to the applied VAT of where the good consumption takes place. Another advantage of the VAT system in Europe includes, with the increment of EU business, a fairer environment along with overcoming the challenges of the online-sales cross-border implies that the digital single market of Europe aims to implement and make technology work for the people in a competitive and fair digital economy (Europa.eu, 2022). however, another effective advantage includes the citizens of the EU can see the increment of public revenue, it is beneficial for less VAT fraud, payments of VAT increased and the member staff have obtained additional advantages.

The implementation of VAT is designed to ensure consistency along with simpler and fair tax rules applied to every related and affected people. the rule includes goods that exceed EUR 150 that are purchased from outside of Europe, there will be no extra charges required to pay by the consumer as per the VAT changes. in case, whether if the seller registers the consumer with a new VAT system and utilises the "Import One Stop Shop (IOSS)". The consumer will be confirmed of the final price that is required to pay online with no sudden tax application while the delivery procedure, whether the delivery is done from inside or outside of the EU. However, if the supplier has not registered the customer in IOSS then it is required for the consumer to pay the applied VAT along with some clearance charges for the imported goods transportation in the EU (Eccnet.eu, 2022). The implementation of VAT has been beneficial for the government also in order to raise sufficient revenue that provided great support to the economy of the country along with a successful pathway towards a well-established tax system. as per the current situation of the reformed EU VAT on e-commerce is a beneficial example of the success of the consumers, companies along with the government. in order to eliminate VAT exemption for imported goods that are under €22 into the EU and also that are by non-EU companies (Taxfoundation.org, 2022). This will add benefit to reduce the broadened and crave out tax base along with advantages to the consumers that will have to pay a regardless tax of the value of the purchased good or otherwise the seller is from the EU. 

Evaluation of VAT in digital age initiation 

The initiative of the policy's action plan includes a simple and fair taxation system that underlies the requirements for the reflection of how the VAT authorities can utilise simple technology in order to fight the frauds that are tax related along with the business added benefits and it also includes whether the present VAT rules and regulation are been adapted in the business procedure in the current digital era. the legislative proposal, VAT in the digital age, 2022announces the action plan that will include the areas such as the registration of particular or single VAT in the EU, the economy platform treatments by the VAT system and the reported e-invoicing and obligations by VAT (Ec.europa.eu, 2022). Digital reporting requires options to harmonise the VAT reporting transaction across the EU. 

The digitalisation of the economy poses new obstacles in the pathway of the VAT system and tax administration that may include new business model emergence or may be limited-capacity tax administration in order to influence the larger amount of data that is able to be collected sometimes. Digitalisation also creates advantages that will be beneficial in providing solutions, instruments and tools to provide help to the dealings of tax authorities with the task while the reduction of cost regulatory and tax compliance simplifying along with business reporting. VAT in the digital age event was organised on 6th December 2019. This event was based on bringing together the stakeholders that are working on the "Value Added Tax (VAT)" to obtain the advantages and to reduce the raising challenges that may take place while the implementation of new technologies in the ground of VAT. The utilization of new technologies in the VAT system that may include block chain wills enhances the effectiveness of the implementation. There are three major reforms are included in the improvement of the reform such as a particular VAT for the registration of VAT in the EU and it also includes OSS extension of B2B and B2C, it is implemented from 2021, July 1 based on the introduction of OSS (Scarcella, 2020). This can be extended to further cross-border all B2B and B2C transactions such as own stock movement across the border. This would be beneficial for the reduction of the registration of non-registered VAT along with the burden of returning. 

The above image demonstrates the graph of the importers that consigned for not more that EUR 150 for six months. The requirement of digital reporting includes e-invoicing, which refers to harmonising the transaction report of digitalisation amongst the state members. the focus of the EU government is on live reporting, EU or hybrid-level Periodic Transaction Controls and Continuous Transaction Control. the last one is economy platform VAT treatment, which refers to the procedure of how the EU state members adapt the tax system for reminiscing the new endured function by Electric Interfaces, this includes marketplaces and platforms that have access to enable numerous private individuals to offer goods and services for the first time, it also includes the procedures on how the VAT director can be modified for capturing the newly created dynamically in the sharing and gig of economics that includes imposing that is fully supposed supplier, the obligation of VAT on several platforms (Zhelyazkova, 2020). These three reforms in the digital age of the VAT leap from the tax Action plan, 2020 proposal and it also follows the e-commerce policy of EU VAT on January 2021. the EU is seeking to redesign the VAT interests along with arising digital economy along with the afforded opportunities by innovative technologies that can be beneficial in improving collection and compliance cost reduction along with decreasing fraud in the VAT gap. 

Current situation of IOSS 

The introduction of the Import One-Stop Shop was done was simplified and facilitated the payment and declaration of VAT for the sold goods from the inside or outside of EU sellers that may also by non-EU territory or country. Additionally, the payment applicable for VAT enables to purchase the buyer only if that particular is belonging to the EU or else the good must be under EUR 150. The VAT exemption on July 1, 2021, for good importation in the EU has been removed which has not exceeded EUR 22 (Lamensch, 2018). However, all imported goods are VAT subjected in the EU. the sales of goods are facilitated with the help of an interface caused by electronic to the underlying buyers of EU, interfacing can be considered as to make the sales along with its regulations liability for the VAT payment (Customs.ec.europa.eu, 2022). the creation of IOSS was done to several factors regarding the goods sold from a distance that includes: excise duties that are not subjected to, transported or dispatched goods that are sold at that particular time in the EU from the outside and the last aspect IOSS covers, transported or dispatched is consigned with a not exceeding a value of EUR 150 (it can also be said low-value goods), even though the order contains more than one product. 

The above image demonstrates the economic condition that is put forward for new demands of taxation (Abramova et al. 2021). IOSS was introduced as an e-commerce package part that helps to change VAT in order to import accounted goods. the Import One-Stop Shop enables a taxable person the registration of Single state member for paying and declaring the EU VAT. the application of IOSS is limited to certain suppliers. the IOSS is availed for the applied due VAT for the importation of goods that are not collected by the consumer. the application of IOSS is to a certain condition that includes:

  • The good is located in an outer territory or country rather than the EU while the time it is sold.
  • The is not subjected to excise duties 
  • The dispatched goods must be consigned to a value that is not exceeding EUR 150. 

Import One-stop Shop can be utilised in two consisting ways such as the establishment of suppliers in the EU and no establishment or fixation of suppliers in the EU (Revenue.ie, 2022). The suppliers that are belonging to the EU can be directly registered to the State member. The suppliers that are non-EU are required to appoint an established EU negotiator to avail of the IOSS. The suppliers can also register online for the IOSS. 

Conclusion 

It can be concluded that the report has provided a wide demonstration of the redesigned VAT system in the EU. The VAT system has provided a wide range of advantages to the entire supply chain of e-commerce businesses along with the consumers, several major changes have added potential value to the implementation. The new policy includes several effective principles that are also beneficial for the government along with the economic state. The economy and tax system of the government is been developed after the implementation of the system. the non-EU companies are gaining multiple unfair competitive market advantages, due to the rule they are accessible to avoid the tax over the benefits from the exemption by those EU companies. these reform has also identified the companies major compliance concerns. The rules for the importers include a similar kind of mechanism that states the implementation of "Import One Stop Shop (IOSS)", for the registration of the VAT system in the EU along with ensuring the accurate amount of VAT that is required to pay the correct state member. the implementation of the resigned VAT system resulted to be beneficial for both the government and the citizens.

References

  • Catarino, J.R. and Moraes e Soares, R., 2019. Restructuring the European VAT tax system: advantages and disadvantages of the adoption of a single-rate model-a study based on the Portuguese case. European Journal of Government and Economics (EJGE), 8(2), pp.145-160. DOI: https://www.econstor.eu/bitstream/10419/217781/1/5478-article-text-19267-20191223.pdf
  • Abramova, A., Shaposhnykov, K., Zhavoronok, A., Liutikov, P., Skvirskyi, I. and Lukashev, O., 2021. The Ecosystem of VAT Administration in E-Commerce: Case of the Eastern Europe Countries. Studies of Applied Economics, 39(5). DOI: https://ojs.ual.es/ojs/index.php/eea/article/view/4909
  • Lamensch, M., 2018. Adoption of the e-commerce VAT package: the road ahead is still a rocky one. EC Tax Review, 27(4). DOI: https://kluwerlawonline.com/journalarticle/EC+Tax+Review/27.4/ECTA2018020
  • Zhelyazkova, V., 2020, June. E-Commerce and Distance Selling in the European Union. In International conference KNOWLEDGE-BASED ORGANIZATION (Vol. 26, No. 2, pp. 262-267). DOI: https://sciendo.com/downloadpdf/journals/kbo/26/2/article-p262.xml
  • Scarcella, L., 2020. E-commerce and effective VAT/GST enforcement: Can online platforms play a valuable role?. Computer law & security review, 36, p.105371. DOI: https://kluwerlawonline.com/journalarticle/EC+Tax+Review/27.4/ECTA2018020
  • Customs.ec.europa.eu, 2022. What is VAT? Available at: https://taxation-customs.ec.europa.eu/what-vat_en [Accessed on: 17/10/2022]
  • Europa.eu, 2022. VAT - One Stop Shop Available at: https://vat-one-stop-shop.ec.europa.eu/index_en [Accessed on: 17/10/2022]
  • Eccnet.eu, 2022. ALL YOU NEED TO KNOW ABOUT THE NEW VAT E-COMMERCE RULES Available at: https://www.eccnet.eu/sites/default/files/2021-11/ECC%20Network%20-%20consumer%20information%20-%20VAT%20rules.pdf [Accessed on: 17/10/2022]
  • Taxfoundation.org, 2022. Benefits of Principled Tax Policy: EU VAT Reform Results Available at: https://taxfoundation.org/eu-vat-reform-eu-own-resources/ [Accessed on: 17/10/2022]
  • Ec.europa.eu, 2022. VAT in the digital age Available at: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13186-VAT-in-the-digital-age_en [Accessed on: 17/10/2022]
  • Customs.ec.europa.eu, 2022. Taxation and Customs Union Available at: https://taxation-customs.ec.europa.eu/ioss_en [Accessed on: 17/10/2022]
  • Revenue.ie, 2022. Import One Stop Shop (IOSS) Available at: https://www.revenue.ie/en/vat/vat-ecommerce/import-oss/index.aspx [Accessed on: 17/10/2022]
  • Wcoomd.org, 2022. Importers consignment that is not more than EUR 150 Available at: https://www.google.com/url?sa=i&url=http%3A%2F%2Fwww.wcoomd.org%2Fen%2Fmedia%2Fnewsroom%2F2021%2Fjune%2Fthe-european-union-introduces-new-value-added-tax-rules-for-e-commerce-from-1-july-202.aspx&psig=AOvVaw1wNV-opURi0m2P8_RJAzRk&ust=1666176076079000&source=images&cd=vfe&ved=0CA0QjRxqFwoTCND4q-LL6foCFQAAAAAdAAAAABAY [Accessed on: 17/10/2022]

 

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