On the 1st December 2016, the European Commission (EC) published its legislative proposal to change the VAT rules for online sales of goods and services in Europe, over the 2018-2021 period. The main aims of the proposal are to facilitate cross-border trade, combat VAT fraud, reduce the administrative and compliance costs, ensure fair competition for EU businesses and to provide equal treatment for online publications.
Current EU VAT rules were agreed between all Member States before the rise of the internet and the boom in online sales, and especially cross-border sales. The EC wants to update the VAT rules with a view of encouraging online businesses and to have the digital economy expand cross-border and to thrive. Businesses are currently facing problems such as the complexity and cost of VAT obligations which are prohibiting the growth for online traders, in particular SMEs. Likewise, national tax administrations in the EU are experiencing revenue losses.
On the other hand, there is no level playing field: under current rules, imported goods bought online from non-EU countries are exempt from VAT if they cost below €22. This puts EU businesses at a clear disadvantage when compared to non-EU businesses.